Datasets:

kmfoda

/

gov_report

like 3

Background Traditionally, when a bank customer writes a check on an account that does not have sufficient funds on deposit to cover the amount of the check, he or she is charged a nonsufficient-funds (NSF) fee as a penalty. The check would be returned unpaid to the merchant or other third party. The customer could be charged another fee by that third party. The management of a financial institution does have the discretion to cover the overdraft (not return the check) and charge an overdraft fee. Consumers can often make an arrangement with their bank for an overdraft to be covered by funds held in another account the consumer holds with the institution (e.g., a savings account). Financial institutions have offered overdraft lines of credit for protection against account overdrafts. A customer must apply for this credit product and meet creditworthiness criteria set by the institution. The lines of credit are subject to the disclosure requirements of the Truth in Lending Act (TILA) implemented by Federal Reserve Regulation Z. Lines of credit usually charge an annual interest rate (generally around 18% to 20%) and allow repayment as the customer chooses within the terms of their agreement with the institution. A more recent option for consumers is the bounced-check protection or courtesy overdraft protection service. These services vary among institutions but most share basic terms and conditions. Participating institutions offer this type of overdraft protection as a feature of their accounts, and customers do not have to apply and qualify for the service. An account normally qualifies if it has been open for a specified period and if there are regular deposits to the account. Commonly, consumers who meet the criteria are automatically enrolled in the overdraft protection program. A flat fee (generally the bank's standard NSF fee) is charged each time an overdraft item is covered, and a daily fee may be charged for each day the account remains overdrawn. Usually a ceiling is set for overdraft coverage. The service may extend beyond check transactions to other transactions, including withdrawals at automated teller machines (ATMs), online banking, pre-authorized automatic debits from a consumer's account, telephone-initiated funds transfers, and debit card point of sale transactions. A specified time period may be set for overdraft repayment. Some institutions offer closed-end loans to customers who cannot meet the repayment deadline. Most programs are offered with the caveat that payment of an overdraft is discretionary on the part of the institution and, therefore, the institution may not pay all the overdrafts that customers incur. Legislation and Ongoing Concerns Bounced-Check/Overdraft Protection Legislation Currently, three bills address overdraft protection programs in the 111 th Congress: H.R. 3904 , the Overdraft Protection Act of 2009; H.R. 1487 , the Overdraft Fee Notification Act; and S. 1799 , the FAIR Overdraft Coverage Act. The bills would enhance consumer protection by increasing consumer knowledge and awareness of overdraft programs and facilitating the ability of consumers to accept or decline overdraft services. Representative Carolyn B. Maloney has introduced several overdraft protection bills. The most recent version ( H.R. 3904 ) is nearly identical to the current Senate legislation ( S. 1799 ). S. 1799 was introduced on October 19, 2009, by Senator Dodd and others, and referred to the Senate Committee on Banking, Housing, and Urban Affairs. H.R. 3904 was introduced on October 22, 2009, by Representative Maloney and others, and referred to the House Committee on Financial Services. Hearings were held on both bills. The House Committee on Financial Services held a hearing on October 30, 2009. The Senate Committee on Banking, Housing, and Urban Affairs held a hearing on November 17, 2009. The legislation would amend TILA to extend its coverage to overdraft protection programs. Fees associated with these programs would be considered finance charges. The legislation would prohibit unfair and deceptive marketing practices. Institutions would be required to inform customers of the different overdraft services and products offered by the institution. Account holders would have to opt in, provide their consent in writing, electronic form, or such other form as permitted by regulation, to an agreement detailing terms and conditions before being enrolled in overdraft coverage programs. Customers would be warned of a potential overdraft before completing a transaction at the branch teller or the ATM. Customers would be notified about an overdraft charge on the same day the charge was incurred. Periodic statements would contain information on overdraft fees charged both for the statement period and year-to-date. Both bills would place limits on overdraft coverage fees. Overdraft fees would be limited to one a month and no more than six a year. Fees would be required to be proportional to the cost of processing the overdraft. The bills would prohibit institutions from manipulating the process of posting transactions against an account to increase the account holder's overdraft fees. Provisions would prohibit financial institutions from charging an overdraft fee if the overdraft results solely from a "debit hold" amount placed on an account that exceeds the actual cost of the purchase. Finally, the Government Accountability Office (GAO) would be required to study the feasibility of providing "real time" warnings of potential overdrafts at point-of-sale terminals. H.R. 1487 was introduced on March 12, 2009, by Representative Kendrick B. Meek, and referred to the House Committee on Financial Services. No further action has been taken on this legislation. This legislation would require financial institutions offering overdraft protection services for ATM, point-of-sale, online, telephone initiated, and in person transactions to provide a warning notification when an overdraft fee will be imposed and to include the amount of the fee. This bill would require "real time" account balance notification that a transaction the consumer was in the process of initiating would trigger an overdraft fee and provide the consumer with the choice of terminating the transaction. Industry Issues Industry representatives have expressed general opposition to overdraft protection legislation. Their position presented, at the hearings, was that the actions taken by federal banking regulators concerning bounced-check/overdraft programs would continue to provide consumers with adequate disclosure and protection. Also communicated in industry testimony was the position that the additional TILA disclosure requirements and program restrictions proposed by the legislation would impose considerable costs and would likely result in the discontinuance of this beneficial service for many consumers. In addition, transmitting the notifications required by the legislation at electronic terminals would necessitate potentially prohibitive technical changes to the terminals and software. Financial institutions have worked to make it easier for a consumer to check an account balance online or by telephone, but providing "real time" account balance information presents difficult challenges. Industry representatives argue that the consumer is in the best position to know if authorized but possibly not yet processed (cleared) transactions would change the balance provided by the bank. If an account holder carefully keeps track of all his or her transactions (including checks, debit card purchases, and preauthorized automated payments), then the account holder has the best information to avoid overdrafts. Consumer Advocate Issues Consumer advocates have been supportive of overdraft protection legislation. The current bills address many of their concerns and contain protections they have sought. A general concern is that the current automated overdraft protection systems commonly employed by financial institutions can trigger multiple high-cost bank overdraft loans. Fee-based overdraft loans should not be confused with traditional, occasionally employed, and less costly back-up programs for checking accounts that are temporarily overdrawn. Direct deposit, electronic payments, and advances in technology have made it more difficult for consumers to track their account balance to avoid overdrafts. Consumer advocates have urged the Federal Reserve to revise its Regulation Z, which implements the Truth in Lending Act, to require institutions to treat courtesy overdrafts as loans. The TILA disclosures could enable consumers to make more informed decisions and allow comparison shopping. Requiring consumers to actively choose to participate in bounced-check/overdraft protection programs by signing up (opting in) would provide additional protection. Warning notifications at electronic terminals could prevent unintentional overdrafts. Federal Regulatory Response Federal regulators of depository financial institutions seek to promote safety and soundness, ensure compliance with laws and regulations, and foster the fair and efficient delivery of services to customers of financial institutions. Federal regulators have issued guidance and revised existing regulations in response to the development of overdraft protection programs. Guidance Issued by Federal Regulators In February 2005, federal regulators issued guidance addressing the risks presented by bounced-check or courtesy overdraft protection services. The guidance was issued to assist depository institutions in the disclosure and administration of overdraft programs. The guidance included a best practices list to assist financial institutions in developing responsible disclosure and program administration policies. In general, failure to comply with regulatory guidance may cause regulatory concern that a financial institution is not adequately protecting itself against risk. Two guidance documents were issued; the documents are similar but not identical. On February 14, 2005, the Office of Thrift Supervision issued guidance separately. On February 18, 2005, joint guidance was issued by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the National Credit Union Administration. The guidance documents reviewed the safety and soundness concerns raised by bounced-check or courtesy overdraft protection services, and stated that institutions should adopt written policies and procedures to address operational and other risks associated with overdraft programs. The joint agency guidance included an overview of legal risks. Both guidance documents informed institutions purchasing automated bounced-check protection programs from third-party vendors that a due diligence review should be conducted prior to entering into a contract. Both documents stated that clear disclosures and explanations to consumers of the operation, costs, and limitations of an institution's overdraft program are essential. The guidance highlighted examples of disclosure and marketing practices that raised concern. For instance, some institutions did not clearly illustrate all the types of transactions (ATM withdrawals, debit card purchases, and telephone transfers) besides checks that may be covered by overdraft protections. Some marketing practices appeared to encourage consumers to overdraw their accounts by using the service to meet short-term credit needs. Some institutions did not clearly distinguish how the bounced-check or courtesy overdraft service differed from a traditional line of credit. Other institutions included overdraft protection amounts in the sum they disclosed as the consumer's account "balance" without clearly distinguishing the funds that are available for withdrawal without overdrawing the account. The guidance provided a best practices list to be taken into consideration by institutions with (or those establishing) bounced-check/overdraft protection programs. The list was divided into two categories: (1) marketing and communications with consumers and (2) program features and operation. Included were clear disclosure of program fees and an opt-out feature. The Office of Thrift Supervision added a best practice: to not manipulate transaction clearing rules to inflate fees. 2005 Amendments to Regulation DD The Board of Governors of the Federal Reserve System began to study bounced-check and courtesy overdraft services in 2002 to determine the need for regulatory guidance or revisions to Board Regulations. The board solicited public comment and information on the issues. On May 19, 2005, the Federal Reserve issued a final rule amending its Regulation DD to provide consumers with uniform and adequate disclosure information concerning bounced-check or courtesy overdraft protection services. Regulation DD implements the Truth in Savings Act (TISA), which requires depository institutions to provide disclosures to enable consumers to make meaningful comparisons of deposit accounts. Regulation DD also contains rules for advertising deposit accounts. The board stated that the revisions to Regulation DD are consistent with the joint guidance issued previously by board and other regulators. Compliance with the amendments to Regulation DD became mandatory on July 1, 2006. Compliance is enforced by the appropriate federal banking agency; failure to comply can result in administrative sanctions. The board chose to amend Regulation DD because "an overdraft service is provided as a feature and term of a deposit account, and that the fees associated with the service are assessed against the deposit account." The board stated that the adoption of these amendments did not rule out a possible future determination that Regulation Z (Truth in Lending) disclosures would be appropriate. The amendments to Regulation DD addressed account-opening disclosures, periodic statement disclosures, and advertising rules. Institutions must now include in the account opening disclosures required by the TISA the categories of transactions for which an overdraft fee may be imposed. Examples of categories include checks, in person withdrawals, and electronic withdrawals. New periodic account statement disclosures are required for institutions that advertise their overdraft protection plans. The added information fields are the total amount of fees or charges imposed on the account for paying overdrafts and the total amount of fees charged for returning items unpaid. The added disclosures must be provided for both the statement period and for the calendar year to date. Communications that are defined as advertisements, as well as those that are excluded from the definition, are described in detail. The advertising requirement is also triggered if the periodic statement includes a message stating the overdraft limit for an account; or by disclosing an overdraft limit or including the amount of that limit in an account balance presented on an ATM receipt, an ATM screen, an institution's website, or telephone response system. The Regulation DD revisions include changes to advertising rules. Bounced-check/overdraft protection advertisements must include the applicable fees or charges, the categories of transactions covered, the time period consumers have to repay or cover any overdraft, and the circumstances under which the institution would not pay an overdraft. Specific situations are covered where some or all of the added disclosures are not required. In addition, Regulation DD prohibits advertisements that are misleading or that misrepresent the overdraft service. Specific examples are provided in the regulation of what is prohibited. 2008 Amendments to Regulation DD On December 18, 2008, the Board of Governors of the Federal Reserve System adopted additional amendments to Regulation DD due to continued concerns with overdraft services despite the issuance of the 2005 guidance and Regulation DD amendments. In particular, concern was focused on whether consumers adequately understood the mechanics of how overdraft services operate and the costs of overdraft services. The intent of the recent revisions was to facilitate the ability of consumers to make informed judgments about the use of their transaction accounts. Subsequent to the issuance of the 2008 final rule, the Federal Reserve sought public comment on proposed revisions and gathered research on effective consumer disclosures. The 2008 final rule requires all institutions to provide aggregate fee information for overdraft services on periodic statements to facilitate the consumer's ability to make informed judgments about using these services. The information is to include the dollar amounts charged for overdraft fees and for returned item fees for the statement period and the year-to-date. The rule contains proximity and format requirements for the statement fee disclosures. In addition, the 2008 final rule addresses account balance information provided through any automated system (including, but not limited to, ATMs, online services, and telephone response systems). Financial institutions are prohibited from including in the disclosed balance any additional amounts of funds that the institution may provide or that may be transferred from another account of the consumer to cover a transaction. The intent of these provisions is to ensure that consumers are provided with an accurate idea of their account balance. The institution would not be required to provide "real-time" balance disclosures. The rule does permit an institution to disclose a separate balance (prominently and accurately identified) that includes the additional funds. 2009 Amendments to Regulation E On December 18, 2008, the Board of Governors of the Federal Reserve System also proposed revisions to Regulation E. Regulation E implements the Electronic Fund Transfer Act (EFTA), which provides for the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. Transactions covered by Regulation E include those made through ATMs, point-of-sale terminals, and remote banking services. The intent of the proposed amendments was to promote consumer knowledge of overdraft protection services and to ensure consumers have the opportunity to limit overdraft costs. The proposal requested public comment on different approaches to providing consumers a choice regarding overdraft protection coverage for ATM withdrawals and one-time debit card transactions (differentiated from pre-authorized automatic debits) by the account holding institution. The Board's consumer testing and review of consumer comments indicated a preference for having an ATM withdrawal or debit card transaction declined if the consumer's account had insufficient funds to cover the withdrawal as opposed to the institution covering the overdraft and charging an overdraft fee. On the other hand, consumers did want overdraft protection for checks or pre-authorized debits written to cover important bills such as mortgage or rent payments. On November 12, 2009, the Board of Governors issued final rules under Regulation E. These rules require financial institutions to provide consumers the choice of opting in or affirmatively consenting to the institution's overdraft program for ATM and one-time debit card transactions. Notice of the opt-in right, an explanation of the institution's overdraft services, and the costs associated with these services must be provided to both existing and new account holders. Affirmative consent from the consumer must be obtained before fees or charges are assessed. In addition, institutions are prohibited from conditioning the payment of overdrafts for checks or other types of transactions on the consumer affirmatively consenting to the overdraft program for ATM and one-time debit card transactions. Finally, institutions are required to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in.

Overdraft protection programs are an optional service offered by financial institutions to consumers. These programs are often referred to as "bounced-check protection" or "courtesy overdraft protection" to distinguish them from the more traditional overdraft lines of credit. Participating institutions cover checks drawn on accounts with insufficient funds and charge a fee. Financial institution representatives state that these programs offer a beneficial service to their customers by covering checks that would otherwise be returned unpaid. Consumer advocates argue that these programs are high-cost credit products that are marketed to vulnerable consumers, and that their main purpose is to increase fee income for banks. Federal regulators have monitored the development of overdraft protection programs to ensure that adequate consumer disclosure is being provided and to measure the risk exposure for financial institutions. Several actions have been taken. In February 2005, federal regulators of the banking industry issued guidance concerning bounced-check/overdraft protection services offered by insured depository institutions. The Federal Reserve amended its Regulation DD (Truth in Savings) in May 2005 to address concerns about the adequacy and uniformity of consumer disclosures relating to overdraft services offered by depository institutions, including the advertising of these services. On December 18, 2008, the Federal Reserve announced additional amendments to Regulation DD. The changes aim to facilitate consumer understanding of how overdraft services operate and the costs associated with these programs. On November 12, 2009, the Federal Reserve announced amendments to Regulation E (Electronic Fund Transfers) that provide consumers a choice regarding their institution's payment of overdrafts for automated teller machines (ATMs) and one-time debit transactions. Such payments would be prohibited unless the consumer affirmatively "opts in" or agrees to this type of overdraft protection. Legislation in the 111th Congress (H.R. 1487, H.R. 3904, and S. 1799) would provide enhanced consumer protections for overdraft protection programs. This report will be updated as events and legislation warrant.

Most Recent Developments President Clinton signed the FY2001 Department of Transportation (DOT) Appropriations Act( P.L. 106-346 ) into law on October 23, 2000. The House and Senate had approved the conferenceagreement ( H.Rept. 106-940 ) on October 6, 2000. The FY2001 Act provides $57.978 billion forDOT. This is an increase of more than 14% over enacted FY2000 funding. The FY2001 Act appearsto be in conformance with the requirements of both the Transportation Equity Act for the 21stCentury (TEA-21) and the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century(FAIR21). It also includes, in modified form, a Senate provision to strengthen state drunk driverblood alcohol standards to 0.08%. In addition, the enacted bill permits the Federal Motor CarrierSafety Administration (FMCSA) to collect and analyze public comments and data on its proposedhours of service rules, but prohibits FMCSA from taking final action during FY2001. The FY2001 Act includes conference agreement provisions not found in either the Senate or House bills, such as, additional appropriations of $1.37 billion for miscellaneous highway projects,$600 million for the Woodrow Wilson Memorial Bridge, and $55 million for the Appalachiandevelopment highway system. Also provided is $720 million for the Emergency Relief Federal AidHighway Program. On December 21, 2000, President Clinton signed the FY2001 Consolidated Appropriations Act ( P.L. 106-554 ) which provided for a 0.22% government-wide rescission. The Act rescinded roughly$125 million from the DOT budget. The Act also included just over $20 million in additionaltransportation spending. The Transportation Appropriations Framework Transportation is function 400 in the annual unified congressional budget. It is also consideredpart of the discretionary budget. Funding for the DOT budget is derived from a number of sources.The majority of funding comes from dedicated transportation trust funds. The remainder of DOTfunding is from federal Treasury general funds. The transportation trust funds include: the highwaytrust fund, the transit account of the highway trust fund, the airport and airway trust fund, and theinland waterways trust fund. All of these accounts derive their respective funding from specificexcise and other taxes. Together, highway and transit funding constitute the largest component of DOT appropriations, and can account for 60% to 70% of total federal transportation spending in any given year. Mosthighway and the majority of transit programs are funded with contract authority derived by the linkto the highway trust fund. This is very significant from a budgeting standpoint. Contract authorityis tantamount to, but does not actually involve, entering into a contract to pay for a project at somefuture date. Under this arrangement, specified in Title 23 U.S.C., authorized funds are automaticallymade available at the beginning of each fiscal year and may be obligated without appropriationslegislation. Appropriations are required to make outlays at some future date to cover theseobligations. Where most federal programs require new budget authority as part of the annual appropriations process, transportation appropriators are faced with the opposite situation. That is, the authority tospend for the largest programs under their control already exists and the mechanism to obligate fundsfor these programs is also in place. Prior to the FY1999 DOT Appropriations Act, changes in spending in the annual transportation budget component had been achieved in the appropriations process by combining changes inbudget/contract authority and by placing limitations on obligations. The principal function of thelimitation on obligations is to control outlays in a manner that corresponds to congressional budgetagreements. The authority to set a limitation on obligations for contract authority programs gave appropriators considerable leeway in allocating funds among the various federal transportationactivities in function 400, which includes agencies such as the Coast Guard and the Federal AviationAdministration. In addition, the inclusion of the highway and transit programs and their trust-fundgenerated revenue streams in the discretionary budget provided appropriators with additionalflexibility as part of the annual process by which available funds were allocated amongst the 13standing appropriations subcommittees in the House and the Senate. Changes in Transportation Appropriations as a Result of TEA-21 TEA-21 changed this budgetary procedure in two ways. First, it created new budget categories and second, it set statutory limitations on obligations. TEA-21 amends the Balanced Budget andEmergency Deficit Control Act of 1985 to create two new budget categories: highway and masstransit. TEA-21 further amends the budget process by creating a statutory level for the limitation onobligations in each fiscal year from FY1999 to FY2003. In addition, TEA-21 provides a mechanism to adjust the amounts in the highway account (but not the transit account), to correspond with increased or decreased receipts in the highway-generatedrevenues. This Revenue Aligned Budget Authority (RABA) redistributes to the various states, forobligational TEA-21 highway programs, the trust fund revenues that are in excess of projectedreceipts. These additional revenues are allocated to the states using the formulas spelled out in thelaw. However, the FY2000 and FY2001 DOT requests proposed redirection of RABA funds fromhighway programs to other DOT initiatives. In the end, the FY2000 and FY2001 DOT appropriationsacts did not adopt the Administration's proposed redirection of RABA funds. The net effect of the creation of these new budget categories is a predetermined minimum level of funding for core highway and transit programs, referred to in TEA-21 as a discretionary spendingguarantee. The highway and mass transit categories are separated from the rest of the discretionarybudget in a way that prevents the funds assigned to these categories to be used for any other purpose.These so called "firewalls" are viewed, in the TEA-21 context, as guaranteed and/or minimum levelsof funding for highway and transit programs. Additional funds above the firewall level can be madeavailable for highway and transit programs through the annual appropriations process. TEA-21 changes the role of the House and Senate appropriations and budget committees in determining annual spending levels for highway and transit programs. The appropriationscommittees are precluded from their former role of setting an annual level of obligations. In addition,it appears that the Act precludes, at least in part, the House and Senate appropriations committeesfrom exercising what some Members view as their traditional option of changing spending levelsfor specific programs or projects. In the FY2000 Appropriations Act the appropriators took sometentative steps to regain some of their discretion over highway spending. The FY2000 Act called forthe redistribution of some funds among programs and added two significant spending projects. Inthe FY2001 Appropriations Act the appropriators have continued in this vain by adding $1.37 billionin "miscellaneous highway project funds" for a large number of earmarked projects. Further theFY2001 Act calls for a redirection of a limited amount of funding between programs and includessignificant additional funding for some TEA-21 programs. As suggested earlier, the TEA-21 firewalls appear to diminish the flexibility of the committees on appropriations to meet the goals of the annual budget process, because the committees can onlyadjust the DOT agency or program budgets outside the firewalls. Hence, any reduction in spendingfor function 400 must be allocated to agencies or programs other than highways or transit. In the erabefore the budget surplus, i.e. last year, this raised special concern for supporters of the Coast Guardand Amtrak, which are the largest DOT functions without firewall protection. The existence of asignificant government budget surplus has diminished this concern, at least for the moment. Changes in Transportation Appropriations as a Result of the Wendell H. Ford AviationInvestment and Reform Act for the 21st Century (FAIR21 or AIR21) FAIR21 ( P.L. 106-181 , signed April 5, 2000) provides a so-called "guarantee" for FAA program spending. The guarantee for aviation spending, however, is significantly different from thatprovided by TEA-21. Instead of creating new budget categories, the FAIR21 guarantee rests onadoption of two point-of-order rules for the House and the Senate. The first point-of-order preventsCongress from considering any legislation that does not spend all of the "total budget resources" asdefined by FAIR21 for aviation purposes. Total budget resources for purposes of the Act areessentially the revenues and interest accruing to the aviation trust fund. The second point-of-orderprevents any spending for FAA operations and maintenance (O&M) or Research, Engineering andDevelopment (RE&D), unless the Airport Improvement Program (AIP) and the Facilities andEquipment (F&E) portions of the FAA account are funded at their fully authorized levels. Almost all observers view the FAIR21 guarantees as being somewhat weaker than those provided by TEA-21 for highway and transit programs. Congress can, and sometimes does, waivepoints-of-order during consideration of legislation. In addition, there is a sense that appropriatorsmight still have some latitude to make significant changes to FAA O&M funding, which isdependant on both trust fund and general fund contributions. For FY2001, however, nopoint-of-order waivers were considered. Supporters of FAIR21 believe the Act requires significant new spending on aviation programs. And for at least the FY2001 appropriations cycle, this has been the case. Enactment of FAIR21means that transportation appropriators have total control over spending for only the Coast Guard,the Federal Railroad Administration (including Amtrak), and a number of smaller DOT agencies.All of these agencies were concerned about their funding prospects. However, the FY2001 Actprovides increases for all major DOT agencies except for the FRA budget which is funded at roughly1% below its FY2000 enacted level. Supporters of the Coast Guard are especially concerned about this new transportation appropriations environment. The Coast Guard is not funded by a trust fund and, hence, cannot claima user-fee base to support an argument for its own budget firewalls. The Coast Guard has a uniquestatus within the transportation budget category because of its wartime role in national defense. Itis not unusual for the Coast Guard to receive some funds from military appropriations during theannual appropriations process. It is possible that the Coast Guard will seek additional funding fromthe military side of the budget in the years ahead if additional funds from transportationappropriations do not become available. For FY2001, however, the existence of a significant budgetsurplus has abated these concerns. Table 1. Status of Department of Transportation Appropriations for FY2001 Key Policy Issues With release of the Clinton Administration's FY2001 budget proposal onFebruary 7, 2000, the budget debate began in earnest. In proposing an overalltransportation spending level of nearly $55 billion, the Administration continued toemphasize its safety, research, environmental, infrastructure, and mobility prioritieswhich complement Vice President Gore's proposals concerning the Administration's"livability agenda." Additional issues arose during congressional consideration of theappropriations legislation. The FY2001 DOT appropriations debate was lesscontentious than last year's debate. It can be argued this is a direct result of a lessconstrained budgetary environment. The FY2001 DOT appropriations bill that President Clinton sighed into law ( P.L. 106-346 ) on October 23, 2000, provided for total funding substantially aboveboth the President's request and FY2000 funding. The $57.978 billion provided forDOT for FY2001 is 14% above the FY2000 level and significantly higher than theAdministration's request for a 7.8% increase. (1) Nearlyall agencies got increases butthe big gainers were the Federal Highway Administration (FHWA) and the FederalAviation Administration (FAA) which got 16% and 25% increases over FY2000levels, respectively. The FY2001 Consolidated Appropriations Act ( P.L. 106-554 ), which was signed by President Clinton on December 21, 2000, included both agovernment-wide rescission and some additional DOT spending. The rescission cutsthe FY2001 DOT budget by roughly $125 million. The Act also earmarked over $20million in additional spending. The FY2001 enacted totals in Table 3 at the end ofthis report and the FY2001 enacted columns in the charts are rescission adjustedfigures. Because President Bush's FY2002 budget submission, when released, willinclude the official rescission adjustments for FY2001, the adjusted figures in thisreport should be considered estimates. The early course of the House and Senate appropriations bills was strongly influenced by the constraints of the budget caps that appropriators were workingunder. This environment continued through passage of the House and Senate versionsof H.R. 4475 . Once it was clear that legislation would be introduced toraise the spending caps enough to fund agencies not protected by funding guaranteesthe issues were few and were worked out in conference. Conference Issues The House and Senate-passed conference agreement on the FY2001 DOT appropriations resolved a number of policy issues that were reflected in differencesin House and Senate versions of H.R. 4475 . The Senate version of H.R. 4475 included language that would penalize states that do not adopt and enforce a 0.08% blood alcohol concentration(BAC) law by reducing their funding under certain federal highway programs by 5%in FY2004 and then 10% in FY2005. The conference agreement includes penaltieson states for failure to adopt a 0.08 BAC law but phases them in at a rate of 2%annually over a four year period beginning in FY2004, to a maximum of 8%. The Senate bill also included a provision that prohibits DOT from spending funds to consider, adopt, or enforce any proposed rule or proposed amendment to theexisting hours of service regulations that govern the driving and work hours ofcommercial drivers. Concomitantly, the conference agreement permits the FederalMotor Carrier Safety Administration (FMCSA) to collect and analyze publiccomments and data on its proposed hours of service rules, but prohibits FMCSAfrom taking final action during FY2001. In addition, the Senate bill included a provision that may not have been in conformance with FAIR21. It would have allowed FAA to transfer $120 million ofAirport Improvement Program (AIP) funds to the Operations and Maintenance(O&M) budget. This could have been interpreted as lowering AIP funding below the$3.2 billion level that, under FAIR21, had to be achieved to trigger a doubling of theprimary airport AIP formula entitlements. This could have caused a significant shiftof funds from the formula program and a relative increase in the monies available fordiscretionary grants. The conference agreement, however, did not include the transferprovision. The House version of H.R. 4475 included language that would restrict DOT spending related to changing the corporate average fuel economy(CAFÉ) standards. The conference report also restricted any DOT move towardchanging the present standard, but allows for a new study of the standards by theNational Academy of Sciences. Conference agreement general provisions (Title III) added significant additional appropriations not included in either the House or Senate-passed bills. Section 378of the conference report, described in the summary table as for "miscellaneoushighways," provides $1.37 billion for a listing of road projects earmarked withdesignated dollar amounts to be made available from the highway trust fund. Section326 makes available an additional $54.936 million from the highway trust fund forthe Appalachian development highway system. Section 379 provides an additional$600 million from general fund revenues for replacement of the Woodrow WilsonMemorial Bridge. Finally, the agreement provides $720 million from the trust fundfor the Emergency Relief Federal Aid Highway program. In addition to earmarking additional funding in the text of H.R. 4475 , the conference agreement report language directs that specific dollar amountsbe made available for many projects in programs that are under the control of theFederal Highway Administration (FHWA). The Federal Lands Program, the BridgeDiscretionary Program, the Transportation and Community and System PreservationProgram, ferry boats and ferry terminals, intelligent transportation systems, and theNational Corridor Planning and Development Program were all earmarked to asignificant extent in the report language of the conference report. The conference report directs that specific dollar amounts be provided for discretionary airport grants to airports named in the text of the report as high priorityprojects. Although, in the past, naming certain airports' projects as priorities was notunusual, specifying the dollar amounts is new. Transit capital investment grants were, as usual, earmarked to a significant degree. The agreement also provides increased budget authority to fund a number ofprojects specified in the language of the bill. Revenue Aligned Budget Authority (RABA) distribution was altered as well. H.R. 4475 redirects the RABA distribution of funds that would havegone to the allocated programs, to the core programs that distribute monies to thestates. For FY2001, although most of the RABA funds distribution was directed tothe states, some was set aside as follows: $156 million for specific projects, $18.5million for the Woodrow Wilson Memorial Bridge, $25 million for Indian Roads,and $10 million for the commercial driver's license program. Major Funding Trends Table 2 shows Department of Transportation actual or enacted funding levels for FY1988 through FY2001. (2) Total DOT fundingmore than doubled from FY1988through FY2001. Table 2. Department of Transportation Appropriations: FY1988 to FY2001 (in millions of dollars) a "Actual" amounts from FY1988 to FY1998 include funding levels initially enacted by Congress in the Department of Transportation and Related AgenciesAppropriations bill as well as any supplemental appropriations and rescissionsenacted at a later date for that fiscal year. "Enacted" figures for FY1999 and FY2000are taken from the conference report tables ( H.Rept. 106-355 ). b Amounts include limitations on obligations, DOD transfers, and exemptobligations. c The across-the-board rescission mandated for FY2000 required a reduction ofroughly $179 million from the DOT appropriations provided in P.L. 106-69 . d FY2001 funding figure is taken from the budget tables in H.Rept. 106-940 andadjusted for the 0.22% rescission. Additional appropriations, transfers, andcarry-overs are, in part, based on information provided by DOT. Coast Guard http://www.uscg.mil/ The Coast Guard's increased responsibilities for drug and illegal immigrantinterdiction on the high seas and its aging fleet of water craft and aircraft are twoconcerns associated with its funding. The Administration requested $4.609 billionfor Coast Guard discretionary funds in FY2001. (3) Compared to the total $4.022 billionappropriated in FY2000, the FY2001 request represents a $586 million, or 15%increase. In approving FY2001 funds on May 16, 2000, the House AppropriationsCommittee ( H.Rept. 106-622 ) recommended a total of $4.617 billion, an amountapproved by the House on May 19, 2000. This amount was $7.9 million above thePresident's request. On June 14, 2000, the Senate Appropriations Committeerecommended $4.359 ( S.Rept. 106-309 ), an amount approved by Senate on June 15.The conference recommended $4.519 billion, which is also the enacted funding. (4) InDecember 2000, the FY2001 Consolidated Appropriations Act ( P.L. 106-455 ) 0.22%government-wide rescission reduced Coast Guard funding to $4.511 billion. CoastGuard programs are authorized every 2 years; see CRS Report RS20117, CoastGuard FY2000 and FY2001 Authorization Issues , for discussion of currentcongressional consideration of authorization bills. For a more in depth discussion ofthe Coast Guard's budget, see CRS Report RS20600, Coast Guard: FY2001 BudgetIssues . The Coast Guard budget request of $4.609 billion was proposed to enable the Coast Guard to continue its activities against drug smuggling and recapitalize aircraftand vessel fleets. Of this amount, $3.199 billion (a 15% increase compared toFY2000) would be allocated to operation and maintenance of a wide range of ships,boats, aircraft, shore units, and aids to navigation. The House approved $3.192billion, $7 million less than requested; the Senate, $3.040 billion, $159 million lessthan requested. The conferees recommended $3.192 billion, which was reduced bythe government-wide rescission to $3.185 billion. Another major component of therequest would assign funds for acquisition, construction, and improvement purposes.For this component, the Administration sought $520 million, a 34% increasecompared to FY2000 funds. The House passed $515 million, $5.2 million less thanrequested; the Senate $407.8 million, $107 million less than the request. Theconference committee recommended $415.0 million. The government-widerescission reduced this to $414 million. The proposal sought, the House and Senateapproved, and the conferees recommended $17 million, roughly the current level, forCoast Guard activities for environmental compliance and restoration. For research,test, and evaluation, the plan requested, the Senate and the conferees approved $21.3million, $3 million more than FY2000 funds; the House had approved $19.7 million.For Coast Guard retirement, the budget sought, the House and Senate approved, andthe conferees recommended $778 million, $48 million more than the current level. (5) The Administration requested $73 million to train, support, and sustain a readymilitary Selected Reserve Force of 7,600 members for direct support to theDepartment of Defense and to provide surge capacity for responses to emergenciessuch as cleanup operations following oil spills. The House and Senate approved$80.4 million, the amount recommended by the conference committees. Therescission reduced this amount to $80.2 million. A prominent issue has been the Coast Guard's management of a major planned replacement of aging and outmoded high seas' vessels and aircraft. Only planningand analysis funds of about $45 million were requested for this in the FY2001request; actual purchases of nearly $10 billion are anticipated over a 20-year periodbeginning in FY2002. During hearings before the Coast Guard's authorizing andappropriating subcommittees in 1999, the General Accounting Office (GAO)criticized the Coast Guard's handling of this vital replacement program. CRS Report 98-830F, Coast Guard Integrated Deepwater System: Background and Issues forCongress , discusses the issues associated with the program. In approving FY2000funds in P.L. 106-69 , Congress specified that the Coast Guard submit acomprehensive capital investment plan with its FY2001 budget justification, a datenot met by the Coast Guard. The House FY2001 bill included language requiring acapital investment plan covering 2002-2006 to be submitted with the FY2002 budgetand specifies a rescission of $100,000 per day if the due date is not met. Theconferees included this bill language except for the rescission provision. TheSenate-passed bill would have withheld FY2001 planning funds until the study wascompleted. Another issue involved the Coast Guard's planned use of user fees. The FY2001 budget anticipates using roughly $95 million from new user fees for recapitalizationof vessels, information management, and Coast Guard shore infrastructure not partof the deepwater replacement effort. The Administration has proposed legislation toauthorize user fees for commercial cargo vessels and cruise ships; it anticipatescollecting $212 million in FY2001 and $636 million annually when the fee systemis fully operational. Past proposals for user fees for traditional Coast Guard services,such as buoy placement and vessel traffic regulation, have been controversial. Somehave argued that these services should be funded from general funds because of theirwidespread benefits; others think that user fees should be assigned in instances wherethe beneficiaries can be clearly identified. In passing FY2000 appropriations in P.L.106-69 ( H.R. 2084 ), Congress included bill language prohibiting theCoast Guard from using any FY2000 funds "to plan, finalize, or implement anyregulation that would promulgate new user fees . . . ." The FY2001 House andSenate-passed FY2001 bills, and the conference recommendation continue thisprohibition. Federal Railroad Administration (FRA) http://www.fra.dot.gov For FRA the FY2001 DOT Appropriations Act ( P.L. 106-346 ) provides $725.6 million. The House bill had provided $689 million; the Senate bill $705 million. TheHouse, Senate, and enacted versions of H.R. 4475 included roughly$521 million for Amtrak. All three versions rejected the Administration's request for$468 million in RABA funding for its expanded Intercity Passenger Service fund. The FRA FY2001 budget also includes a $20 million FY2000 advance appropriation and a $10 million transfer from the Department of Defense ( P.L.106-259 ). This raised the total for FRA to $756.6 million. The government-wide0.22% rescission, in the FY2001 Consolidated Appropriations Act ( P.L. 106-554 )reduced the total to $755 million. During the debate in the House, two significant provisions allowing the use of Congestion Mitigation and Air Quality Improvement (CMAQ) or SurfaceTransportation Program (STP) funds for intercity rail passenger vehicles andfacilities; and increasing the federal share for the elimination of rail-highway crossinghazards from 90% to 100% were eliminated on points-of-order. (6) In the Senate, thefloor debate included discussion of an amendment that would have allowed states touse federal-aid highway funds for intercity passenger rail (see discussion at the endof the FRA section). For FY2001, the Administration had requested $1.179 billion for FRA; roughlya 60% increase over the FY2000 enacted level. (7) Theincrease reflected the impact ofa new DOT initiative: the Expanded Intercity Rail Passenger Service Program. The most notable reduction is a $50 million cut for Amtrak. Amtrak issues are discussed in a following section. Railroad Safety and Technology.The FRA is the primary federal agency that promotes and regulates railroad safety.In the FY2000 budget, the Administration requested $95.5 million for the railroadsafety program and other administrative and operating activities related to FRA staffand programs. Most of those funds were used to pay for salaries as well as associatedtravel and training expenses for field and headquarters staff and for informationsystems monitoring the safety performance of the industry. (8) The FY2000 DOTAppropriations Act, P. L. 106-69, provides $94.3 million for those expenses. ForFY2001, the Administration requested $103.2 million for those expenses. In H.R. 4475 , the House specified $102.5 million for FRA's safety andoperations activities. The Senate in its version of H.R. 4475 specified$99.4 million. The enacted conference agreement provides $101.7 million for safetyand operations. The government-wide rescission reduced this amount to $101.5million. The last railroad safety reauthorization statute was enacted in 1994 and fundingauthority for that program expired at the end of FY1998. FRA's safety programscontinue using the authorities specified in existing federal railroad safety law andfunds provided by annual appropriations. Although hearings have been held sincethen, those deliberations have not resulted in a consensus to enact a law to authorizecontinued funding for FRA's regulatory and safety compliance activities or changeany of the existing authorities used by that agency to promote railroad safety. Areauthorization statute changing the scope and nature of FRA's safety activitieswould most likely affect budgets after FY2001. The adequacy and effectiveness of FRA's grade-crossing activities continue to be of interest, especially after the March 1999 crash between an Amtrak train and atruck in Bourbonnais, IL., which resulted in 11 deaths and more than 110 injuries.Relevant safety issues include: How is FRA helping the states deal with the gradecrossing safety challenge? Is FRA's FY2001 budget adequate to deal with thatchallenge? Congressional reaction to those questions had a bearing on the railroadsafety budget for FY2001. In its FY2001 budget, FRA requested additional fundingto strengthen its grade crossing program and associated public education activities.The FY 2001 Act specifies $1.025 million for these activities. To support its safety program, the FRA conducts research and development (R&D) on a diverse array of topics, including: fatigue of railroad employees,technologies to control train movements, and track dynamics. In the reportsaccompanying the House and Senate transportation appropriation bills and in theannual conference report, the appropriations committees historically have allocatedthe railroad R&D funds among various research categories pertaining to safety. ForFY2000, the FRA requested $21.8 million for railroad R&D. The conferenceagreement on P.L. 106-69 specifies $22.5 million for the FY2000 R&D program. ForFY2001, FRA requested $26.8 million for railroad R&D activities. In H.R. 4475 , the House approved $26.3 million for railroad R&D. TheSenate allocated $24.7 million for railroad R&D. The enacted conference agreementspecifies $25.3 million for railroad R&D. High Speed Rail R&D and Magnetic LevitationTransportation Technology Deployment Program. In FY2000, $27.1million was made available for the Next Generation High Speed Rail Program. TheFRA requested $22 million to continue this program in FY2001. In H.R. 4475 , the House appropriated $22 million for FRA's high speed rail program. TheSenate appropriated $24.9 million for that activity. The enacted conferenceagreement specifies $25.1 million for that program. TEA-21 authorizes $20 millionof contract authority in FY2000 to support the Magnetic Levitation (maglev)Transportation Technology Deployment Program. For FY2001, TEA-21 provides$25 million of contract authority for continuation of the maglev program. Amtrak http://www.amtrak.com The FY2000 budget authority for Amtrak was $571 million compared to $609 million in FY1999. Amtrak also had about $1.1 billion available in FY1999 from theTaxpayer Relief Act of 1997 for such things as new equipment and improvedsignaling and track. Amtrak borrowed some of that $1.1 billion to cover operatingexpenses. The Administration proposal, House, Senate, and enacted versions of H.R. 4475 all provided $521 million for Amtrak for FY2001. Thegovernment-wide rescission for FY2001 reduced Amtrak's funding to just over $520million. Federal financial operating assistance to Amtrak is prohibited after FY2002 (49 U.S.C. 24101 (a) (1999)). GAO and the DOT Inspector General (IG), at the requestof Congress, have evaluated Amtrak operations and outlook, and have reported toCongress that they are not optimistic that Amtrak will be able to operate withoutfederal financial operating assistance after FY2002. In 1997, Congress created anindependent national commission, the Amtrak Reform Council, and assigned itseveral tasks regarding Amtrak and the future of intercity rail passenger service. TheCouncil submitted its first annual report to Congress in January 2000. In that report,the Council stated that "During the decade when the American economy and mostof its transportation system have expanded in an unprecedented manner, Amtrak'sridership has remained virtually unchanged . . . . The most notable accomplishmentof intercity rail passenger service since 1970 is that it has simply managed to survive,albeit as a declining percentage of the total transportation market." The reportcontains suggestions for Amtrak. The report also contains issues the Council intendsto study during 2000. In addition to federal financial operating assistance to Amtrak, the DOT IG estimates that over the next several years, Amtrak will require $2.7 billion to $4billion in federal funds for new equipment and improvements to signaling and track.Some of these funds would be used to upgrade track between Washington, DC, andNew York City, the most heavily traveled Amtrak route. Beyond this amount, theDOT IG estimates that Amtrak will have additional, continuing requirements forfederal funding for new equipment and improvements to signaling and track for theforeseeable future. Amtrak Reform Council. AmtrakReform Council (hereafter referred to as the Council) funding is presented within thebudget request, although the Council is an independent federal commission. Thebudget authority for the Council was $750,000 in FY2000 compared to $450,000 inFY1999. The Administration requested $1 million for FY2001. The House-passedbill provided $450,000; the Senate-passed bill $495,000. The conference agreementrecommended $750,000 for the Council in FY2001 and this became the enactedfigure. The Council was created in 1997 to perform an independent assessment of Amtrak's labor agreements, Amtrak's progress in increasing employee productivity,and (any time after December 2, 1999) Amtrak's ability to operate without federaloperating assistance after September 30, 2002. Congress added other duties later. Ifthe Council concludes that Amtrak will require federal operating assistance afterSeptember 30, 2002, then federal law requires the Council to submit to Congress anAmtrak reorganization plan; requires Amtrak to submit to Congress an Amtrakliquidation plan; and states that legislative action will be taken by the Senate. Expanded Intercity Rail Passenger ServiceFund. The Administration's budget proposal requested theestablishment of a new grant program to aid Amtrak and intercity rail passengerservice, to be funded at $468 million in FY2001. The money was to come fromRABA funds associated with the highway trust fund. The projects funded would haverequired a 100% state match; a positive financial contribution to Amtrak; publicbenefits in excess of public costs and would have to be located on a current orpotential intercity rail corridor. Funds were to go toward the acquisition ofequipment, construction of infrastructure improvements (including acquisition ofright-of-way), and planning and design. Funds were to be used only for capital asdefined by Generally Accepted Accounting Principles (GAAP), thus excluding themfrom use for maintenance of equipment or track. The House and Senate-passed bills,as well as the conference agreement, provided no funding for FY2001. In the Senate, an amendment was offered from the floor to allow states to use their apportionments from the highway trust fund (specifically, from the nationalhighway system program, the surface transportation program, and the congestionmitigation and air quality improvement program) to pay for capital improvements forintercity passenger rail service. The argument for this amendment was that theindividual states were the best judges of their most urgent transportation needs andshould be given the flexibility to spend their available transportation funds as theysee fit. The arguments against this amendment were that since the repair andmaintenance needs of the nation's highway system are great, none of the money forthat purpose should be used for anything else; and also that expanding the spendingcriteria to include things other than highways would constitute legislating in anappropriations bill. The amendment failed on a point-of-order objection that theamendment was legislating in an appropriations bill; the objection was upheld by a52-46 vote. Federal Highway Administration (FHWA) http://www.fhwa.dot.gov The FY2001 Appropriations Act provides FHWA with budgetary resources of$33.452 billion. The government-wide rescission mandated in the ConsolidatedAppropriations Act ( P.L. 106-554 ) along with some additional appropriations and thecarry-over of some unobligated exempt obligations created a new total of $33.425billion. Even accounting for these adjustments the final enacted funding isdramatically above the level provided in FY2000, an increase of approximately $4.6billion or roughly 16%. The FHWA component of the final act is, in fact,dramatically larger than the amounts provided in either the House or Senate versionsof the appropriations bill. Almost all of the additional funding in the Act comes fromthe addition of earmarked highway projects outside the core TEA-21 programs. Thelargest components of this increase include: $1.37 billion in earmarked"miscellaneous highway" project funds, an additional $720 million for the emergencyrelief program, an additional $55 million for the Appalachian development highwaysystem, and $600 million for the reconstruction of the Woodrow Wilson Bridge. With the exception of funding provided for the Woodrow Wilson Bridge, all additional spending for FY2001 comes from the highway trust fund. The additionalspending proposals in the bill tend to distract from the fact that core FHWA spendingalso receives a significant increase as a result of the availability of additional RABAmonies. As a result, the FY2001 limitation on obligations rises to almost $29.7billion, an increase of almost $2 billion from the FY2000 level. The Senate-passed version of the FY2001 appropriations bill provided FHWA with total budgetary resources of $30.7 billion, comparable to those found in theHouse-passed version of the bill, also $30.7 billion. Both House and Senate billsprovided funding at levels slightly above the $30.6 billion level found in theAdministration proposal. Programmatically, the House and Senate bills closelytracked the Administration proposals, which are in turn governed by the provisionsof TEA-21. The limitation on obligation funding level in both bills was an identical$29.7 billion. The House and Senate bills essentially ignored an Administrationrequest to redistribute a portion of FY2001 revenue aligned budget authority (RABA)funds. The FHWA portion of the appropriations bill drew little comment during floor consideration of this legislation in the House, the Senate, or during consideration ofthe conference report. There was little by way of controversy surrounding the FHWAbudget; the possible exception was some early concern over the level of earmarkingfor the Federal Lands Highway Program and the Transportation and Community andSystem Preservation Pilot Program. Reports accompanying both the Senate andHouse bills detailed specific, and in some cases different, project earmarks for bothof these programs. The Administration was proposing a total FHWA budget of $30.358 billion for FY2001. In terms of the total FHWA budget, this represented an increase of just over5% from the FY2000 level. The obligational limitation, which supports most of thefederal-aid highway program, was set at $29.319 billion; funding for exemptprograms (emergency relief and a portion of minimum guarantee funding) was set atjust over $1 billion. All of the core FHWA funding programs received considerableincreases in the context of the program framework established by TEA-21 (describedlater in this section). The Administration was also proposing that only $2.31 billion of the available RABA be assigned to highway programs. This meant that $741 million of RABAfunds would have been transferred within DOT agencies for mostly non-highwayactivities. In addition, the Administration was proposing that specific programswithin FHWA's jurisdiction receive -- for example, funding for Indian reservationroads and highway tax fuel evasion projects -- receive designated distributions ofRABA funds. The proposal to change the distribution of RABA would haveincreased these programs to levels beyond those provided by TEA-21. The proposalto change the distribution of RABA funds is a controversial one. The Administrationmade a similar redistribution proposal in FY2000 that was ultimately ignored byCongress. The Administration proposal for FY2001 is of a different nature than lastyear's request in that it does not provide a major shift of RABA funds to transit. A final issue likely to have arisen as a result of the Administration proposal was the use of contract authority to fund a number of the proposed increases discussedabove. The net effect of this proposal was to potentially exceed the obligationallimitation detailed in TEA-21. In other words, the Administration spending proposalappeared to exceed TEA-21 authorized levels for some programs. Hence, either newauthorizing legislation, with concomitant increases in contract authority, would havebeen needed to accommodate the new funding levels (an unlikely prospect at themoment) or some existing programs would have seen spending reductions toaccommodate the increased spending for favored initiatives. Both of these scenarioswere unpopular with highway interest groups and with those Members who do notwant to see the TEA-21 framework changed. In FY2001, as discussed earlier, the FHWA was provided with $33.425 billion (rescission adjusted) in total budgetary resources. The FY2001 Appropriations Actcontinues the dramatic growth in FHWA funding that resulted from passage ofTEA-21 in 1998 and now from the availability of a budget surplus. By way ofcomparison, FHWA funding for FY2001 is at a level of almost $15 billion more thanwas available in FY1995. The FY2001 Act largely followed the provisions of TEA-21 in terms of overall funding distribution (a discussion of the TEA-21 program structure follows thissection), with the exception of the additional funding provided outside the coreprograms. The principal change in the FY2000 Act was in the distribution of RABAfunds for programs under the direct control of the FHWA. These changes werecontinued in FY2001. These so called "allocated" funds go to programs such as theFederal Lands Highway Program and the Highway Beautification Program. Theeffect of the FY2000 Act's provisions was to transfer a significant portion of theRABA funds designated for the allocated funds to core highway programs (surfacetransportation program, national highway system program, etc.) for distribution to thestates on a formula basis. The other major change in the FY2000 Act was asignificant increase in the number of specific projects and funding levels detailed inthe legislation. This trend continued in the FY2001 Act. This earmarking is acommon feature in other parts of the transportation appropriations Act, but had beenabsent from the highway section of the Act for several years. 0.08% Blood Alcohol Concentration (BAC)Provision. The Senate-passed version of H.R. 4475 included a provision that would have reduced the amount of highway trust funds thata state received if it did not adopt and enforce a "0.08% blood alcohol concentration"( 0.08 BAC) per se law. Such a statute makes it illegal (by definition) to operate amotor vehicle at or above a 0.08% BAC. (9) No similarprovision was included in theHouse bill. Those supporting the Senate approach often assert that the incentivespecified in TEA-21 (see section 163 (a) of chapter 1 of title 23of the U.S. Code),which provides additional federal aid funds to those states that enact and enforce a0.08 BAC law, has not proven sufficient to encourage many additional states toimplement the 0.08% BAC limit and that stronger measures are needed. Thoseagainst the approach specified in the Senate bill typically maintain that each stateshould determine its own traffic safety laws without federal pressure or dictates.Some also contend that the weight of evidence documenting the effectiveness of a0.08 BAC law needs to be strengthened before the federal government imposes afinancial penalty on states for not enacting and enforcing such a measure. The FY2001 DOT Appropriations Act modifies the Senate provision and provides that states that fail to adopt and enforce the 0.08 BAC standard (as detailedin section 163(a) of title 23, United States Code) would have 2% of specifiedportions of their federal aid highway funding withheld beginning in FY2004, 4%withheld in FY2005, 6% withheld in FY2006, and 8% withheld in FY2007. The Actprovides that if within four years from the date that a state's apportionment isreduced, the Secretary determines that the state has adopted and is enforcing a 0.08BAC statute, the apportionment of such state shall be increased by an amount equalto the reduction. Otherwise the funds withheld would lapse. The TEA-21 Funding Framework.TEA-21 created the largest surface transportation program in U.S. history. For themost part, however, it did not create new programs. Rather, it continued most of thehighway and transit programs that originated in its immediate predecessor legislation,the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA, P.L.102-240 ). Programmatically, TEA-21 can be viewed as a refinement and update ofthe ISTEA process. There are a few new funding initiatives in TEA-21, such as aBorder Infrastructure Program, but the vast majority of funding is reserved forcontinuing programs. There are several groupings of highway programs within the highway firewall. Most of the funding is reserved for the major federal aid highway programs, whichcan be thought of as the core programs. These programs are: National HighwaySystem (NHS), Interstate Maintenance (IM), Surface Transportation Program (STP),Bridge Replacement and Rehabilitation, and Congestion Mitigation and Air QualityImprovement (CMAQ). All of these programs are subject to apportionment on anannual basis by formula and are not subject to program-by-program appropriation. There is a second category of highway funding within the firewalls. This so called "exempt" category consists of two elements: an additional annualauthorization of minimum guarantee funding ($639 million per fiscal year) andemergency relief ($100 million per fiscal year). These funds are not subject to theannual limitation on obligations. A further set of programs, which are also within the firewall, are known as the "allocated" programs. These programs are under the direct control of FHWA or othergovernmental entities. These programs include: the Federal Lands Highway Program,High Priority Projects (former demonstration project category), AppalachianDevelopment Highway System roads (formerly ineligible for trust fund contractauthority), the National Corridor Planning and Border Infrastructure Program, andseveral other small programs. As discussed earlier, TEA-21 provides a link between the highway generated revenues that flow into the highway account and highway spending. The Act requiresthat the Secretary of Transportation make an annual evaluation of revenues into thehighway account during the previous fiscal year vis-a-vis spending authorized withinthe highway firewall for the new fiscal year. If revenues go up, program spending isincreased. Conversely, spending can go down if revenues go down. TEA-21 specifiesa formula to determine the direction and amount of highway funding adjustment.Known as RABA, this mechanism was employed beginning in FY2000. FHWA Research, Development, and Technology(RD&T) Programs. The FHWA proposed increasing funding forvarious RD&T activities from $437.2 million in FY2000 to $658.8 million in FY2001. RD&T funds are used primarily to advance and deploy technologies intendedto improve highway pavements, structures, roadway safety, highway policies, andintelligent transportation systems (ITS). The largest requested increases, in dollaramounts, were in FHWA's Surface Transportation R&D and the IntelligentTransportation Systems (ITS) programs. More specifically, FHWA requestedincreased funding for its surface transportation R&D program from $98 million inFY2000 to $138 million in FY2001. The Administration also requested $238 millionfor ITS deployment, which is $120 million above the amount of contract authorityspecified in TEA-21. The ITS deployment program provides funds for states andlocal governments to use advanced communication and information systems toimprove the management and safety of their surface transportation systems. Thesource of the proposed additional funding was to be new contract authority thatwould be added to the contract authority already authorized under TEA-21. Becausea legislative change to Title V of TEA-21 would have been required to add thisadditional contract authority, it was uncertain whether the additional fundingrequested by FHWA for RD&T would be provided. The House and Senate passedbills and the conference agreement specified $437.2 million, including $98 millionfor surface transportation research program and $118 million for ITS deployment. (10) An issue associated with the ITS deployment program is the earmarking of funds. During the last few years, the appropriators have designated a substantialportion of the incentive funds used to accelerate ITS deployment. For example,FY2000 and FY2001 DOT Appropriations Acts, Congress earmarked the deploymentaccount by specifying which cities or states would receive those funds and theamounts to be obligated. TEA-21 also specifies several projects which are to receivesome of the ITS deployment funds. Some Members and proponents of ITS wouldprefer to have the deployment funds competitively awarded. Federal Transit Administration (FTA) http://www.fta.dot.gov/ The House and Senate-passed FY2001 appropriations bills ( H.R. 4475 ) as well as the enacted conference agreement ( H.Rept. 106-940 ; P.L. 106-346 )all included $6.3 billion in total budgetary resources for FTA. This is essentially theTEA-21 guaranteed level. The three versions of the bill agree on all major fundingcategories. This funding level compares with an FY2000 appropriation of almost$5.8 billion. The FY2001 Consolidated Appropriations Act's 0.22%government-wide rescission reduced FTA funding by just under $14 million. For FY2001, the Administration proposal would have funded FTA programs atnearly the same $6.3 billion level as the House, Senate, and conference agreement.The only difference being the Administration's proposed use of $75 million fromRABA mostly for the job access and reverse commute program. Congress hasrejected the Administration's proposed use of some RABA funding for transit. The transit appropriations shown in Figure 4 illustrate the significant increase in funding for FY1999 to FY2001 that occurred following the enactment of TEA-21in 1998. As Figure 4 shows, transit funding under TEA-21 reached its highestfunding level to date in FY2001. (11) The $ 6.3billion (an 8.4% increase over FY2000)provided for in the FY2001 Act, continues the impact of TEA-21 on transit spending. Within the general provisions of the conference report is increased authorized funding related to contingent commitments to incur obligations for transit projectsin Chicago, Minneapolis, and the Dulles corridor project, among others. FTA Program Structure andFunding. There are two major transit programs: the Major CapitalInvestment Program and the Urbanized Area Formula Program. There are alsoseveral smaller formula and planning and research programs. The Major Capital Investment Program (Section 5309 -- formerly known as Section 3) is comprised of three major components: new transit starts, fixed guideway modernization, and bus and bus facilities. For FY2001, the ClintonAdministration proposed funding of this program at $2.65 billion. This is slightlyhigher than the FY2000 level of $2.5 billion. These funds are allocated on adiscretionary basis by FTA or earmarked by Congress. The Senate-passed bill alsoprovided for $2.65. The House bill, as well as H.R. 4475 enacted,provided $2.7 billion for the program for FY2001 (these bills transferred $50 millionof formula funds monies to the Capital Investment Programs). The government-wide0.22% rescission reduced the Capital Investment Program by $5.8 million to $2.695billion. The Administration FY2001 budget proposes that 12 new rail transit starts be considered for full funding grant agreements. Rail transit project selection is alwaysa controversial exercise because there are more potential projects listed in TEA-21than can be funded within the transit guaranteed funding level. The Senate report( S.Rept. 106-309 ) language expresses the opinion that DOT should reassess itsrequest for the 12 new projects given the number of projects deemed eligible forfunding under TEA-21. The House, Senate, and enacted versions of H.R. 4475 all provided $1.058 billion for new starts. The Urbanized Area Formula Program (Section 5307 -- formerly known as Section 9) provides for the urbanized area capital and, in some cases, operatingneeds. These activities include bus and bus-related purchases and maintenancefacilities, fixed guide way modernization, new systems, planning, and operatingassistance. For FY2001, the Administration requested $3.45 billion, a slight increaseover the $3.05 provided in FY2000. These funds are apportioned on a formulaprocess based, in part, on population and transit service data. Both the House andenacted versions of H.R. 4475 all provided $3.295 billion for theSection 5307 program for FY2001. The Senate version provided for $3.345 billion. (12) The government-wide rescission reduced this formula grant program by $7.25million to $3.287 billion. Section 5307 contains several specific formula set asides: urbanized areas (areas with populations of 50,000 or more), nonurbanized areas (less than 50,000), grantsfor elderly and individuals with disabilities, clean fuels, and over-the-road busaccessibility. Slightly less than 90% of the Administration's FY2001 Section 5307proposal is for urbanized areas (areas with populations over 1,000,000 receivetwo-thirds of the funding; urbanized areas with populations under 1,000,000 receivethe remaining one-third) and just over 6% of this is designated for nonurbanizedareas. TEA-21 authorized a new discretionary Job Access and Reverse Commute grant program. This program provides transportation assistance for welfare recipients andlow income persons to find and get to work in suburban areas. The Administrationproposed that this program be funded at a level of $150 million in FY2001, with $50million coming from redistributed RABA funds. The House and Senate bills bothrejected the use of $50 million in redistributed RABA funds, and provide $100million for the program, as does the enacted conference agreement. With the enactment of TEA-21, operating assistance funding was eliminated for urbanized areas (UZAs) with 200,000 or more population. However, preventivemaintenance, previously eligible for funding from operating assistance, is noweligible under an expanded capital grants formula program. Urbanized areas under200,000 population, including rural areas (under 50,000 population), can use all ofthe formula funds for either capital or operating purposes. The conference agreement includes significant earmarking of capital investment grants in the bill language. For bus and bus facilities, specific amounts are mentionedin the report language. Federal Aviation Administration (FAA) http://www.faa.gov/ <strong> For Additional Reading CRS Issue Briefs CRS Issue Brief IB10032. Transportation Issues in the 107th Congress , coordinatedby [author name scrubbed]. CRS Issue Brief IB10030. Federal Railroad Safety Program and Reauthorization Issues , by [author name scrubbed] and Anthony J. Solury. CRS Issue Brief IB90122. Automobile and Light Truck Fuel Economy: Is CAFÉ Up to Standards? , by Rob Bamberger. CRS Reports CRS Report 98-749(pdf) E. The Transportation Equity Act for the 21st Century (TEA-21) and the Federal Budget , by [author name scrubbed]. CRS Report RL30096. Airport Improvement Program Reauthorization Legislation in the 106th Congress , by [author name scrubbed]. CRS Report RS20176. Surface Transportation Board Reauthorization and the 106th Congress , by Stephen Thompson. CRS Report RS20177. Airport and Airway Trust Fund Issues in the 106th Congress ,by [author name scrubbed]. CRS Report 98-890 STM. Federal Traffic Safety Provisions in the Transportation Equity Act for the 21st Century: Analysis and Oversight Issues , by Paul F.Rothberg and Anthony J. Solury. CRS Report 98-63E. Transportation Trust Funds: Budgetary Treatment , by John W.Fischer. CRS Report 98-646 ENR. Transportation Equity Act for the 21st Century ( P.L. 105-178 ): An Overview of Environmental Protection Provisions , by David M.Bearden. CRS Report RL30246(pdf) . Coast Guard: Analysis of the FY2000 Budget , by Martin Lee. CRS Report RS20600. Coast Guard: FY2001 Budget Issues, by Martin Lee.CRS Report RL30659. Amtrak: Overview and Options, by [author name scrubbed]. CRS Report RS20469. Bicycle and Pedestrian Transportation Policies , by WilliamLipford and [author name scrubbed]. Selected World Wide Web Sites http://ostpxweb.dot.gov/budget/ http://www.house.gov/appropriations http://www.nhtsa.dot.gov/nhtsa/whatis/planning/perf-plans/gpra-96.pln.html http://www.gpo.gov/usbudget/fy1998/fy1998_srch.html http://www.senate.gov/committees/committee_detail.cfm?COMMITTEE_ID=405

President Clinton signed the FY2001 Department of Transportation (DOT) Appropriations Act ( P.L. 106-346 ; H.Rept. 106-940 ) on October 23, 2000. The agreement provides $57.978 billion forDOT. This is an increase of more than 14% over the enacted FY2000 level. The Act providesincreases for all major DOT agencies except the Federal Railroad Administration (FRA). OnDecember 21, 2000, President Clinton signed the FY2001 Consolidated Appropriations Act ( P.L.106-554 ). The Act provided for a government-wide rescission of 0.22%. This cut $125 million fromthe DOT budget for FY2001. Both houses of Congress had passed somewhat different versions of the FY2001 appropriations bill ( H.R. 4475 ). The House of Representatives version would have provided totalbudgetary resources of $55.2 billion; the Senate version $54.7 billion. The roughly $500 milliondifference was partly an outgrowth of the lower budget cap that Senators had to work with. For theoverall DOT budget, the Senate bill would have represented a 9.5% increase over the FY2000budget; the House bill a nearly 10.5% increase. The FY2001 Act reflects the ongoing impact of the Transportation Equity Act for the 21st Century (TEA-21). It raises highway funding by 16% and mass transit funding by almost 8.5%.These spending levels meet or exceed TEA-21's requirements. The Administration had proposedincreases of 5% for highways and roughly 9% for transit. The enacted version of H.R. 4475 appropriates additional funds not included in either the House or Senate-passed versions, such as: $1.37 billion for miscellaneous highwayprojects, $600 million for the Woodrow Wilson Memorial Bridge, roughly $55 million for theAppalachian development highway system; and $720 million for the Emergency Relief Federal AidHighway Program. The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (FAIR21) ( P.L. 106-181 )has also had a major impact on the FAA's funding for FY2001. H.R. 4475 ,in conformance with FAIR21, provides for an increase in the FAA's total budget of roughly 25%. The FY2001 Act includes language to strengthen state drunk driver blood alcohol standards to 0.08% but phases in the highway funds reduction penalties more gradually than in the Senate passedbill -- at a rate of 2% annually beginning in FY2004 up to a maximum of 8%. It also permits theFederal Motor Carrier Safety Administration (FMCSA) to collect and analyze public comments anddata on its proposed hours of service rules but prohibits FMCSA from taking final action duringFY2001. Key Policy Staff Division abbreviations: RSI = Resources, Science, and Industry Division.

Public Laws and Private Laws When a piece of legislation is enacted under the procedures set forth in Article 1, Section 7 of the Constitution, it is characterized as a "public law" or a "private law." Each new statute is assigned a number according to its order of enactment within a particular Congress (e.g., the 10 th public law enacted in the 112 th Congress was numbered as P.L. 112-10; the 10 th private law was numbered Priv. L. 112-10). Private laws are enacted for the benefit of a named individual or entity (e.g., due to exceptional individual circumstances, Congress enacts a law providing a government reimbursement to a named person who would not otherwise be eligible under general law). In contrast, public laws are of general applicability and permanent and continuing in nature. Public laws form the basis of the Code . The first official publication of the law is called the slip law. The Government Printing Office's (GPO's) Federal Digital System (FDsys) provides free online access to official federal government publications. Individual slip laws in printed pamphlet form can be obtained from the GPO. Federal Depository Libraries, located throughout the United States, also provide free public access to federal publications and other information. A list of Federal Depository Libraries and their locations is accessible on the Internet at http://catalog.gpo.gov/fdlpdir/FDLPdir.jsp . Some private and public libraries compile the laws in looseleaf binders or in microfiche collections. Commercial Sources of Public Laws (Print Format) The United States Code Congressional and Administrative News ( U.S.C.C.A.N. ) compiles and publishes public laws chronologically in their slip law version. U.S.C.C.A.N. 's annual bound volumes and monthly print supplements include the texts of new enactments and selected Senate, House, and/or conference reports. The U.S.C.S. and the U.S.C.A. publish new public laws chronologically as supplements. The United States Statutes At Large Slip laws (both public laws and private laws) are accumulated, corrected, and published at the end of each session of Congress in a series of bound volumes entitled Statutes at Large . The laws are cited by volume and page number (e.g., 96 Stat. 1259 refers to page 1259 of volume 96 of the Statutes at Large ). Researchers are most likely to resort to this publication when they are interested in the original language of a statute or in statutes that are not codified in the Code , such as appropriations or private laws. Public Laws, as Amended Most statutes do not initiate new programs. Rather, most statutes revise, repeal, or add to existing statutes. Consider the following sequence of enactments. In 1952, Congress passed the Immigration and Nationality Act of 1952 (P.L. 82-414, 66 Stat. 163). This law generally consolidated and amended federal statutory law on the admission and stay of aliens in the United States and how they may become citizens. The Immigration and Nationality Act of 1952 was codified at Title 8 of the U.S.C. §§1 et seq. In 1986, Congress passed the Immigration Reform and Control Act of 1986 ( P.L. 99-603 , 100 Stat. 3359). Section 101 of this act amended Section 274 of the Immigration and Nationality Act of 1952 (codified at 8 U.S.C §1324) by adding Section 274a (codified at 8 USC §1324a). This new section (Section 274a) made it unlawful for a person to hire for employment in the United States an illegal alien. In 1996, Congress passed the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 ( P.L. 104-208 , Division C, 110 Stat. 3009). Section 412 of the 1996 act amended the employer sanctions process by requiring an employer to verify that a new employee is not an illegal alien. As with the 1986 act, the 1996 act expressly amended the Immigration and Nationality Act of 1952 (Section 274A in this case) and Section 1324a in Title 8 of the U.S.C. (8 U.S.C. §1324a). As the above sequence illustrates, the canvas upon which Congress works is often an updated, stand-alone version of an earlier public law (e.g., Immigration and Nationality Act of 1952, as amended), and not the U.S. Code . On the "Titles of United States Code " page of the Code an asterisk appears next to some of the titles. The asterisks refer to a note that states: "This title has been enacted as positive law." If the title is asterisked, the Code provides the authoritative version of the public law, as amended. For example, there is no asterisk beside Title 42 of the U.S.C . Thus, the provisions codified in Title 42 are not authoritative. Should there be a discrepancy, a court will accept the language in the Statutes at Large as the authoritative source and not the Code . It should be noted that there is no substantive difference between the language of the public law as published in the Statutes at Large and that of the Code . It is often difficult to find current, updated versions of frequently amended public laws. Many congressional committees periodically issue committee prints containing the major public laws within their respective jurisdictions. Alternatively, the various commercial publishers, discussed herein, print updated versions of major public laws. In addition, the amended versions of some major public laws can be found on the Internet. United States Code The United States Code (U.S.C.) is the official government codification of federal legislation. This resource has been printed by the GPO every six years since 1926 and supplemented by annual cumulative bound volumes. The latest edition is dated 2006. The Office of the Law Revision Counsel of the U.S. House of Representatives and FDsys provide authoritative and current online access to the U.S.C . In the U.S.C . , statutes are grouped by subject into 51 titles. Each title is further organized into chapters and sections. A listing of the titles is provided in each volume. Unlike the statutes, the Code is cited by title and section number (e.g., 28 U.S.C. §534 refers to Section 534 of Title 28). Notes at the end of each section provide additional information, including statutory origin of the Code provision (both by public law number and Statutes at Large citation), the effective date(s), a brief citation and discussion of any amendments, and cross references to related provisions. Annotated Editions of the United States Code The United States Code Annotated ( U.S.C.A .) published by Thomson/West and the United States Code Service ( U.S.C.S. ) published by LexisNexis are unofficial, privately published editions of the Code . These publications often include the text of the Code , annotations to judicial decisions interpreting the sections, cross references to the Code of Federal Regulations ( C.F.R. ) provisions, and historical notes. Both also provide references to selected secondary sources. For example, the U.S.C.S . includes selected law review articles. Bound volumes of the U.S.C.A. and the U.S.C.S. are updated by annual inserts ("pocket parts") or supplements. These updates include newly codified laws and annotations. Both U.S.C.A. and U.S.C.S. issue pamphlets containing copies of recently enacted public laws arranged in chronological order. Since there is a time lag in publishing the official U.S.C. , codified versions of new enactments usually appear first in the U.S.C.A. and U.S.C.S. supplements. General Index Each edition of the Code has a comprehensive index that is organized by subject. The index is updated in each annual supplement to the Code . Popular Name Table Each edition of the Code also has a table that can be used to find an act and where it was codified in the Code . The public laws are arranged alphabetically and can be searched under their commonly known names. This reference also provides the public law number and the citations to the Statutes at Large , U.S.C ., and their amendments. For example, searching for the "Stone Act" in the table shows that it has been codified at 30 U.S.C. §161. Statutes at Large Table The Statutes at Large table is one of the most useful research tools because it shows the relationship between public laws, the Statutes at Large , and the U.S.C . A researcher who has either a public law number or a Statutes at Large citation can use this table to ascertain where that law is codified and its present status. The table is particularly useful when searching in one section of a law that contains many subsections because it can be used to find where individual sections and subsections of a public law have been codified. For example, the table indicates that P.L. 99-661 , Section 1403 is codified in the U.S.C. at 20 U.S.C. §4702. U.S.C.A. and the U.S.C.S. also have their own versions of the research tools discussed above. Finding Federal Statutes on the Internet Legal resources, including federal statutes, are widely available to both scholars and the general public through the Internet. Several considerations should be taken into account when using Internet materials. Materials on Internet sites may not be up-to-date, and it may be difficult to discern how current the material is or whether it has been revised. It may be difficult to find current federal statutes, especially in the case of "popular name" statutes that are amended frequently. On their websites, federal agencies do not always include the current versions of the statutes they administer, however, they may provide useful summaries and discussions of the statutes. Websites are constantly changing. The inclusion and location of information may differ from time to time. The address or URL of a website may also change. In addition, each website has its own search capabilities and format. With the foregoing caveats in mind, the following are public resources for the selected statutory materials described in this report. Public Laws Library of Congress - American Memory http://memory.loc.gov/ammem/amlaw/lwsllink.html This page provides access to the Statutes a t Large from the 1 st Congress (1789 - 1790) to the 43 rd Congress (1873 - 1874). An index is also available for the first eight volumes of the Statutes a t Large . Library of Congress: THOMAS http://thomas.loc.gov/ This page provides access to the full-text of public laws from the 101 st Congress (1989 – 1990) to present. GPO's Federal Digital System http://www.gpo.gov/fdsys/search/advanced/advsearchpage.action This page provides access to the Statutes at Large and public and private laws from the 104 th Congress (1995 - 1996) to the present. The "Advanced Search" capability enables more than one collection to be searched at a time by adding "more search criteria." United States Code Office of the Law Revision Counsel U.S.C. http://uscode.house.gov/search/criteria.shtml This page provides access to the 2006 edition and its supplements. The page also links to the previous editions and supplements. GPO's Federal Digital System http://www.gpo.gov/fdsys/search/advanced/advsearchpage.action This page provides access to the 1994 through 2006 editions and their supplements. The "Advanced Search" capability enables more than one collection to be searched at a time by adding "more search criteria." Popular Name Index Office of the Law Revision Counsel http://uscode.house.gov/popularnames/popularnames.htm#letterE This page provides a list of the popular and statutory names of Acts in alphabetical order. Other Resources U.S. Code Classification Tables http://uscode.house.gov/classification/tables.shtml This page shows where recently enacted laws will appear in the United States Code and which sections of the Code have been amended by those laws. The tables only include those provisions of law that have been classified to the Code .

This report provides a brief overview of federal statutes and where to find them, both in print and on the Internet. When Congress passes a law, it may amend or repeal earlier enactments or it may create new law. Newly enacted laws are published chronologically, first as separate statutes in "slip law" form and later cumulatively in a series of volumes known as the Statutes at Large. Statutes are numbered by order of enactment either as public laws or, far less frequently, private laws, depending on their scope. Most statutes are incorporated into the United States Code. The United States Code and its commercial counterparts arrange federal statutes, that are of a general and permanent nature, by subject into titles. As the statutes that underlie the Code are revised, superseded, or repealed, the provisions of the Code are updated to reflect these changes. Statutes and the United States Code can be found on the Internet. In addition, the slip law versions of public laws are available in official print form from the Government Printing Office. Federal Depository Libraries (e.g., university and state libraries) provide slip laws in print and/or microfiche format. The Statutes at Large series often is available at large libraries. The United States Code and its commercial counterparts are usually available at local libraries. Many statutes (for example, the Social Security Act and the Clean Air Act) are published and updated both in the public law, as amended, version and in the United States Code. For some titles the public law, as amended, is the authoritative version of the statute and not the Code. If the title is asterisked, the Code provides the authoritative version of the public law, as amended. After providing an overview on the basics of federal statutes, this report gives guidance on where federal statutes, in their various forms, may be located on the Internet. This report will be updated periodically.

I. Introduction Congressional inaction on climate change has led various entities to pursue climate change measures off Capitol Hill. Either in hopes of making direct gains or to pressure Congress to act, such entities have looked to international forums, treaty negotiations, Environmental Protection Agency (EPA) action under the Clean Air Act (CAA), state and regional efforts, and—the topic here—common law suits. The principal focus of such suits has been to establish greenhouse gas (GHG) emissions and climate change impacts as a nuisance. For reasons discussed in this report, the prospects of this common law litigation are limited. Recently, the outlook for at least those cases based on the federal common law of nuisance and seeking injunctive relief has particularly dimmed. In 2007, the Supreme Court held in Massachusetts v. EPA that the CAA gives EPA authority to regulate GHG emissions from new motor vehicles (and, by implication, other GHG sources). EPA responded by beginning to erect a regulatory edifice under that act for GHG emissions. On June 20, 2011, the Supreme Court then delivered federal common law of nuisance suits a major blow. In American Electric Power Co., Inc. v. Connecticut , it held that in light of EPA's authority over GHG emissions as clarified in Massachusetts , federal common law in the climate change area is "displaced." That is, federal courts may not use federal common law to add their own judge-made GHG emission standards, whether or not EPA exercises its authority. Thus, the potential of federal common-law climate change lawsuits seeking to have courts develop emission standards now seems poor. Even before American Electric Power , many argued that courts should be unreceptive to dealing with a global problem as complex as climate change through individual common law suits, as opposed to a specifically tailored statute. Each suit, after all, brings before the court only a handful of defendants representing a tiny fraction of the problem. As well, nuisance law offers no clear standards to apply. Questions of causation are also substantial: even if the court accepts that man-made GHG emissions contribute to climate change, how can a plaintiff show that a particular adverse impact was caused by climate change, and further was caused by GHG emissions of the defendants? And should the defendants' contribution to worldwide GHG emissions be viewed as de minimis —too small for a court to bother with? Questions of remedy are likely to be particularly intractable: what amount of emission reduction, or monetary compensation, should be required of a defendant given the likely miniscule fraction of worldwide GHG emissions contributed by that defendant? Nonetheless, the use of nuisance lawsuits to attack climate change has its defenders. They argue with some merit that even though nuisance law has never been used to deal with a problem as complex as climate change, many harms attributed to climate change—ecosystem and weather modifications, increased flooding, and harm to human health—are of a type traditionally covered by nuisance doctrine. And the Supreme Court has recognized that "public nuisance law, like common law generally, adapts to changing factual and scientific circumstances." By way of background, a nuisance may be either a private nuisance or a public nuisance. An activity constitutes a private nuisance if it is a substantial and unreasonable invasion of another's interest in the private use and enjoyment of land, without involving trespass. Private nuisance actions are brought by the aggrieved landowner. An activity is a public nuisance if it creates an "unreasonable" interference with a right common to the general public. Unreasonableness may rest on the activity significantly interfering with, among other things, public health and safety. Public nuisance cases are usually brought by the government rather than private entities, but may be brought by the latter if they suffer special injury. Most of the common-law nuisance actions based on climate change have involved public nuisance. Part II of this report notes the recurring threshold issues raised in nuisance litigation involving GHG emissions and climate change: "displacement" of federal common law, standing, and political question doctrine. By upholding the displacement barrier to suit, American Electric Power seems to have reduced the importance of the other two threshold issues. Part III describes the American Electric Power decision and speculates as to its likely aftermath and impact on climate change litigation generally. Part IV summarizes the other common law nuisance cases based on climate change, of which two remain active. Part V reviews the public trust doctrine suits, a recently filed group of cases that add a new common law theory to the litigation dealing with climate change. II. Recurring Threshold Issues As the court decisions in Parts III and IV show, the use of a nuisance action to address GHG emissions presents the plaintiff with daunting threshold hurdles—that is, issues that must be resolved at the outset of the litigation. In light of American Electric Power , however, one of these threshold issues—whether the federal common law of nuisance has been displaced—will likely prove the key one in future efforts to use federal common law to address climate change. Thus, the role of the two other threshold issues, standing and political question doctrine, has been reduced. A. Displacement of Federal Common Law Because GHG emissions move across state lines, the federal rather than state common law of nuisance seems, at first blush, applicable. Though the Supreme Court barred federal courts from developing a "general" common law 73 years ago (they should instead apply the substantive law of the state in which they sit), the Court has since clarified that in areas of national concern, such as interstate pollution, the articulation of federal common law by the federal courts is appropriate. But federal common law may be displaced by acts of Congress. Such judicially created law, says the Supreme Court, is a "necessary expedient," and "when Congress addresses a question previously governed by a decision rested on federal common law the need for such an unusual exercise of lawmaking by federal courts disappears." Otherwise put, "new federal laws and new federal regulations may in time pre-empt the field of federal common law of nuisance." Thus, the question arose early on in some of the climate change cases whether the federal CAA displaces judge-made law in the climate change area. As noted at the outset, the displacement argument was strengthened by the Supreme Court's 2007 decision in Massachusetts v. EPA , holding that EPA has CAA authority to regulate GHG emissions. With the Court's 2011 decision in American Electric Power , the displacement question has been resolved: as for any GHG source over which EPA has been delegated regulatory authority under the CAA, that statute eliminates any role for federal common law in abating GHG emissions. EPA using the CAA, not district court judges, will set GHG emission limits. The test for whether displacement has occurred, said the Court, is "whether the statute speaks directly to the question at issue." Given the holding in Massachusetts and CAA coverage of existing stationary emission sources, the act definitely does "speak[] directly" to the defendants' GHG emissions. (See Section III.A. for a detailed description of what American Electric Power held.) B. Other, Now Less Important, Threshold Issues The threshold issues made less important by American Electric Power in federal-common-law climate change litigation are, again, the standing issue and political question doctrine. Their importance has not been eliminated, however, as there remains the possibility that American Electric Power will be held not to apply to all uses of federal common law in this area (see Section III.B. as to actions seeking monetary damages), not to mention state common law cases. The standing issue asks whether a party is an appropriate one to invoke the jurisdiction of a federal court created under Article III of the Constitution (this includes the district courts). Only a party with standing can bring suit in such courts. As developed by the Supreme Court, standing has constitutional and prudential (court-created) components. The constitutional side stems from the limitation of federal court jurisdiction in Article III to "Cases" and "Controversies." As explicated by the Court, this constraint demands that a plaintiff in federal court demonstrate (1) actual or imminent injury that is concrete and particularized, and not speculative; (2) that the injury is or will be caused by the defendant; and (3) that the injury likely will be redressed by a favorable court decision. A suit seeking relief from climate change impacts may run into difficulty with each of the three constitutional standing requirements. For example, climate change modeling generally predicts only large-scale effects, allowing defendants to argue in many cases that the particular injury suffered by plaintiff was not shown to have been caused by climate change. Or defendants might contend that their GHG emissions were (or will be) at best a de minimis contributor to plaintiff's injury. State plaintiffs may have a choice. They may bring suit as owners of natural resources or other property, in which case they face the same standing requirements as private entities, described above. Alternatively, states may sue in their parens patriae capacity—that is, as protector of their quasi-sovereign interests—in which case the Article III requirement is differently stated. For parens patriae standing, a state must articulate a quasi-sovereign interest—that is, one apart from the interests of particular private parties. A state's interest in the "health and well-being—both physical and economic—of its residents in general," if a substantial portion of those residents is affected, is a well-established quasi-sovereign interest. Owing to these quasi-sovereign interests, the Court said in Massachusetts in 2007 that states are "not normal litigants for purposes of invoking federal jurisdiction," but rather face a lower standing threshold. Parenthetically, this was a 5-4 decision, and in American Electric Power in 2011 the Court's split on the standing issue was still evident—the holding of the court below that plaintiffs had standing was affirmed, but by an equally divided vote. The Court's even split (4-4) could happen, however, only because Justice Sotomayor recused herself; in a future case where she did not, the Court might vote 5-4 in favor of standing, or at least state standing, if the American Electric Power displacement barrier does not apply. Unlike constitutional standing principles, the rules of prudential standing are not dictated by Article III. Rather, they are "judicially self-imposed limits on the exercise of federal jurisdiction." One such prudential principle is "the rule barring adjudication of generalized grievances more appropriately addressed in the legislative branches." Plainly this may be a concern with cases alleging climate change injuries, at least where such injuries are not concrete and personal. Political question doctrine leads a court to dismiss an action seen as presenting a "political question." The doctrine is "designed to restrain the Judiciary from inappropriate interference in the business of the other branches of Government." However, deciding whether a matter has been committed by the Constitution to a nonjudicial branch of government is a "delicate exercise," and is decided on a case-by-case basis. The six factors indicating a non-justiciable political question were famously stated by the Supreme Court in Baker v. Carr in 1962. Of these, the first three have played a role in the climate-change nuisance cases: Prominent on the surface of any case held to involve a political question is found [(1)] a textually demonstrable constitutional commitment of the issue to a coordinate political department; or [(2)] a lack of judicially discoverable and manageable standards for resolving it; or [(3)] the impossibility of deciding [the issue] without an initial policy determination of a kind clearly for nonjudicial discretion.... Yet Baker made clear it was setting a high threshold for nonjusticiability. Since Baker was decided almost a half-century ago, the Court has found few issues to present political questions, but the doctrine has been ubiquitous in the nuisance/climate change litigation. In American Electric Power , however, the Court was less than clear as to use of the political question doctrine in climate change litigation. The opinion remarks that "[f]our members of the Court would hold that at least some plaintiffs have Article III standing ... and further that no other threshold obstacle bars review ." The italicized phrase arguably includes the political question issue. The opinion makes no comparable statement, however, as to the four other members of the Court; it notes only that they would find no standing. III. American Electric Power A. The Decision American Electric Power originated when eight states, New York City, and three private land trusts brought nuisance actions, later consolidated, against five electric utility companies. The defendant utilities were chosen as allegedly the nation's largest emitters of CO 2 , the major GHG, through their fossil-fuel electric power plants. Plaintiffs sought to require the electric utilities to abate their contribution to the nuisance of climate change by reducing their CO 2 emissions. No precise amount of emissions reduction was demanded. Plaintiffs cited both the federal common law of nuisance, and, in the alternative, state common law and statutory nuisance law. In 2005, the federal district court dismissed the case on political question grounds. It held that because resolving the issues in the case required a balancing of economic, environmental, foreign policy, and national security interests, the court needed guidance from the political branches. The absence of such guidance (there being no federal regulation of CO 2 as of 2005) meant to the court that the case satisfied one of the factors identified in Baker v. Carr as indicating a political question—namely, the case was "impossib[le] [to] decid[e] without an initial policy determination of a kind clearly for nonjudicial discretion." On appeal, the Second Circuit held in 2009 that the district court erred when it dismissed the case on political question grounds, that all plaintiffs had standing, and that the federal common law of nuisance had not been displaced by the CAA regulatory scheme. While all three threshold issues were presented to the Supreme Court in the petition for certiorari, the Court's decision was devoted almost entirely to the displacement question. This tight focus on displacement had been presaged by the oral argument before the Court, when nearly all the justices' questions were aimed in that direction—probably because displacement was the easiest-to-resolve threshold issue. The opening premise of the Court's opinion, which was unanimous on the displacement issue, was that when Congress addresses a question, "the need for such an unusual exercise of law-making [as federal common law] disappears." "The test," it said, "for whether congressional legislation excludes ... federal common law is simply whether the statute speaks directly to the question at issue ." So does the CAA "speak directly" to CO 2 emissions from existing fossil-fuel-fired power plants such as those of the defendants in the case? Yes, said the Court, owing to two simple facts. First, " Massachusetts made plain that emissions of carbon dioxide qualify as air pollution subject to regulation under the act." Second, CAA section 111 instructs EPA to list categories of stationary sources that "contribute significantly to air pollution that may reasonably be anticipated to endanger public health or welfare" and then establish standards of performance for new and modified sources in each category. Section 111(d) then requires regulation of existing sources within such categories—bringing in defendants' power plants. Concededly, 111(d) regulations are adopted by the states, but they are created pursuant to federal guidelines and receive federal oversight. Moreover, the fact that EPA has not yet actually exercised this authority as to GHG emissions from existing fossil-fuel-fired power plants is not the point. It is the delegation of the authority from Congress to EPA, the Court stressed, that displaces the common law, no matter how, or even whether, EPA chooses to exercise it. With this reasoning, the Court's holding was inescapable: The Clean Air Act and the EPA actions it authorizes displace any federal common law to seek abatement of carbon dioxide emissions from fossil-fuel fired [sic] power plants. Massachusetts [ v. EPA ] made plain that emissions of carbon dioxide qualify as air pollution subject to regulation under the Act.... And we think it equally plain that the Act "speaks directly" to emissions of carbon dioxide from the defendants' plants. Buttressing its holding, the Court stressed the complex nature of climate change and the policy determinations on which government action must be based. "The Clean Air Act entrusts such complex balancing to EPA in the first instance," it said. "The expert agency is surely better equipped to do the job than individual district court judges issuing ad hoc, case-by-case injunctions." In light of its holding, the Court remanded the case to the Second Circuit for further proceedings. B. Likely Aftermath and Other Impacts On the remand of American Electric Power , the Second Circuit presumably will dismiss the federal common law claims in the case. The court now may have to determine the fate of the state common law claims, which it did not address in its prior decision. One issue will be whether the CAA preempts state common law claims regarding GHG emissions. The answer might well be no, in light of CAA non-preemption provisions and the general presumption against federal preemption of state law. Even if not preempted, however, plaintiffs asserting state common law may have an uphill climb. The Supreme Court's extended discussion in American Electric Power of why judges are ill-equipped to resolve climate change questions in the first instance (as opposed to during review of agency action) is likely to prove influential with courts adjudicating state as well as federal common law claims. If the merits of the state common law nuisance claims are reached (in American Electric Power or other litigation), which state's common law will apply? Under relevant precedent, it is probable that the applicable state law will be that of the state where the particular GHG source is located—that is, a court probably will not apply the law of an affected state against an out-of-state source. Applying the nuisance law of the source's state, a problem for plaintiffs may be establishing that a plant in compliance with state-issued permits can at the same time be a nuisance under that state's law. A provocative question now getting attention is whether American Electric Power displaces climate-change-based federal common law actions seeking monetary relief. In that case, plaintiffs sought only injunctive relief: a court order requiring the defendants to reduce their GHG emissions. The Court's reasons for finding displacement seem heavily skewed to that form of relief—for example, the lack of federal court expertise for setting GHG emission standards, and the unacceptability of having EPA standards and judicial standards as parallel tracks. These concerns are arguably not present in a monetary damages case where the court's only task is to determine, by a preponderance of the evidence, that plaintiff's injury was proximately caused by the defendant's emissions. No standard setting is involved. As the next section notes, the applicability of American Electric Power to cases seeking damages may be resolved soon in Village of Kivalina . Finally, the Supreme Court decision has no direct effect on EPA's emerging GHG regulation program. Indirectly, however, the decision gives the program added impetus. For one thing, it reaffirms the Massachusetts v. EPA holding that the CAA authorizes EPA to regulate GHG emissions. For another, it underscores the complexity of climate change and the consequent need for administrative expertise such as EPA's in grappling with it. Of course, if Congress succeeds in eliminating EPA authority over GHG emissions, or certain sources of such emissions, a very different question arises. In the (perhaps unlikely) event that such a law would be silent as to its intended impact on common law claims, it could be argued that elimination of EPA authority over GHGs also eliminates any displacement of federal common law. That resurrects the possibility of judge-made emission standards, if it is determined that climate change constitutes a nuisance. IV. Other Common Law of Nuisance Cases Based on Climate Change Three climate change cases invoking the common law of nuisance are currently active. One is American Electric Power Co ,, described above. The others are Village of Kivalina v. ExxonMobil Corp. and Comer v. Murphy Oil USA , discussed here. None of these pending cases, nor the finally resolved cases discussed afterward, have seen anything approaching a decision on the merits—all have been preoccupied exclusively with threshold issues. Thus we do not yet know whether GHG emissions can constitute a nuisance. In Village of Kivalina , an Inupiat Eskimo village on the northwest Alaska coast sued 24 oil and energy companies, claiming that the large quantities of GHGs they emit contribute to climate change. Climate change, the village contends, is destroying the village by melting Arctic sea ice that formerly protected it from winter storms, leading to massive coastal erosion that will require relocating the village's inhabitants at a cost of $95 million to $400 million. Plaintiffs invoke the federal common law of public nuisance, and state statutory or common law of private and public nuisance. They further press a civil conspiracy claim, asserting that some of the defendants have engaged in agreements to participate in the intentional creation or maintenance of a public nuisance—that is, global warming—by misleading the public as to the science of global warming. The suit seeks monetary damages. In 2009, the district court held that the federal nuisance claim was barred by political question doctrine and lack of standing. The village appealed to the Ninth Circuit, which stayed the case pending the Supreme Court decision in American Electric Power . The reactivation of this case is the first judicial development following that decision. Counsel for plaintiffs reportedly are arguing that American Electric Power applies only to injunctive-relief cases, not, as here, where a monetary remedy is sought. Note also in the preceding paragraph that there are claims in this case other than those based on federal common law. As an aside, the liability insurer of one of the Kivalina defendants has filed suit seeking a declaratory judgment that should the defendant be found liable for damages in Kivalina , the insurer's general liability policies with the defendant will not apply. Comer v. Murphy Oil USA litigation has been reactivated after a seeming demise. Owners of Gulf coast property damaged by Hurricane Katrina sued certain oil, coal, and chemical companies under state law. They alleged a multistep chain of causation—that the GHGs emitted by the defendant companies, by contributing to global warming with consequent sea level rise and warmer sea water, caused Hurricane Katrina to intensify and increased the harm to plaintiffs' property. On this basis, plaintiffs asserted state-law tort claims, including negligence, nuisance (public and private), and trespass, and sought compensatory damages. They also requested punitive damages for gross negligence. Further, they claimed conspiracy to commit fraudulent misrepresentation, alleging, as in Village of Kivalina , that the oil and coal companies disseminated misinformation about global warming. Finally, plaintiffs made claims against their home insurance companies (e.g., breach of fiduciary duty claim for misrepresenting policy coverage, and violation of a state consumer-protection act) and their mortgage companies (arguing that they may not claim sums owed by plaintiffs for the value of the mortgaged property that was uninsured). The federal district court dismissed the action for lack of plaintiff standing, and also found the claims precluded by the political question doctrine. Then, in 2009, the Fifth Circuit reversed. Relying on the Supreme Court's approval of standing in Massachusetts v. EPA , the panel ruled that the Comer plaintiffs similarly had Article III standing as to their tort claims. Plaintiffs, however, were held to lack standing as to their other claims. On the other major issue in the case, the circuit court held, contrary to the district court, that the tort claims were not barred by the political question doctrine. At this point, however, events took an odd turn. In 2010, after taking the case en banc , the Fifth Circuit announced it lacked a quorum, so the appeal had to be dismissed. Indeed, the court concluded it could not even reinstate the vacated panel decision. The effect was to deny appeal of the original district court dismissal, which the Fifth Circuit effectively reinstated. However, on May 27, 2011, the plaintiffs refiled the case (with minor modifications), creating a second opportunity for a ruling on whether American Electric Power applies to cases seeking damages. The two no-longer-active cases deserve but brief mention. In California v. General Motors Corp. , that state sued auto manufacturers based on the alleged contributions of their vehicles, through GHG emissions, to climate change impacts in the state. The suit asserted that these impacts constitute a public nuisance under federal common law, and sought damages. In 2007, the district court dismissed on a political question rationale. California appealed to the Ninth Circuit, but in 2009 motioned for voluntary dismissal, which the circuit granted. Dismissal was sought as part of an agreement between the state, the Obama Administration, and the automobile manufacturers. Finally, Korsinsky v. U.S. EPA was a pro se action apparently alleging that GHG emissions, by contributing to climate change, threatened plaintiff's health due to his enhanced vulnerability as an older person with sinus problems. He appeared to have requested an injunction ordering EPA to require less pollution and ordering polluters to use his invention for reducing CO 2 emissions. The district court dismissed for lack of standing, and the Second Circuit affirmed on the same ground in 2006. V. A New Common Law Theory Enters the Fray: Public Trust Doctrine Since May 2011, the nuisance lawsuits above have been joined by a coordinated campaign of lawsuits and rulemaking petitions seeking to attack climate change by an entirely different common law theory: public trust doctrine. The claim is that the states and the federal government have a public trust responsibility to protect the atmosphere, and have failed to exercise that responsibility to deal with the threat of climate change. Many of the plaintiffs and petitioners are children and teenagers, represented by their guardians ad litem. The lawsuits and petitions are being coordinated by Our Children's Trust, an Oregon nonprofit. As background, the public trust doctrine is an ancient common law principle with origins in Roman law and the Magna Carta. It asserts that certain natural resources are held by the sovereign in special status. Key aspects of that special status are that government may neither alienate public trust resources nor, more pertinent here, permit their injury by private parties. Rather, government has an affirmative duty to safeguard these resources for the benefit of the general public. The doctrine is generally a principle of state law, though there is limited recognition of a federal counterpart. After tidelands and the beds of navigable waterways, fish and wildlife are the natural resources most traditionally associated with the public trust doctrine; courts do not appear to have applied the doctrine to the atmosphere yet, as the suits and petitions here are seeking. As for the lawsuits, each one reportedly asks the court for declaratory relief proclaiming that the atmosphere is a public trust resource and that the government in question has a fiduciary duty as trustee to protect it. Twelve suits have been filed—against the United States, Alaska, Arizona, California, Colorado, Iowa, Minnesota, Montana, New Mexico, Oregon, Texas, and Washington. The Montana suit is unique in alleging a basis for extending the public trust to the atmosphere under the state constitution and state statute. Some of the suits ask for injunctive relief as well. For example, the suit against the United States asserts that the federal government has violated its trustee duties by allowing unsafe amounts of GHGs into the atmosphere and asks for an injunction requiring it to take action "consistent with the United States government's equitable share of the global effort." None of the suits seek monetary damages. The rulemaking petitions cover each state where no lawsuit was filed. Each one, CRS is informed, cites the public trust doctrine and asks the appropriate state agency to regulate GHG emissions based thereon. At this writing, a few of the petitions have been dismissed.

Note: Despite this report being archived, the reader may find updated treatment of the topics covered herein in CRS Report R42613, Climate Change and Existing Law: A Survey of Legal Issues Past, Present, and Future, by [author name scrubbed]. See especially sections I, II.H., and III.A. Congressional inaction on climate change has led concerned parties to explore other ways to address climate change—including lawsuits seeking to establish climate change impacts as a common law nuisance. The prospects for these common law suits are limited, however, owing in part to the unsuitability of private litigation for dealing with global problems like climate change. Recently, the outlook for federal common-law suits seeking injunctive relief vis-a-vis climate change became particularly dim. On June 20, 2011, the Supreme Court ruled in American Electric Power Co., Inc. v. Connecticut that given EPA's Clean Air Act authority over greenhouse gas (GHG) emissions—affirmed by the Court a few years ago—the federal common law of nuisance in the area of climate change is "displaced." Federal courts may not use federal common law to add their own judge-made GHG emission standards to those of EPA. The displacement of federal common law by American Electric Power is only one of three threshold issues that have bedeviled lawsuits seeking to establish climate change as a common law nuisance. The standing inquiry requires a plaintiff in federal court to show actual or imminent injury caused by the defendant, and the likelihood that the injury will be redressed by the requested relief. Each of these factors can pose difficulties for the climate-change plaintiff. Similarly, the political question doctrine has led some courts to dismiss common-law climate change suits on the ground that the issue is better left with the political branches. American Electric Power raises several questions. First, with federal common law displaced in the area of climate change, are state common law claims viable? Two threats to such claims are the possibility of preemption by the Clean Air Act (the sounder argument is against preemption), and the influence of the Supreme's Court's aversion to judge-made law in the climate change area so evident in American Electric Power. A second question is whether American Electric Power displaces climate-change-based federal common law actions when the remedy sought is monetary rather than injunctive. Finally, if Congress eliminates EPA authority over GHG emissions and is silent as to federal common law actions, does federal common law cease to be displaced so that such actions are again possible? In addition to American Electric Power, there are two other active cases raising common law nuisance claims as to climate change. In Village of Kivalina v. ExxonMobil Corp., a coastal Eskimo village is suing energy companies alleging that their GHG emissions have contributed to shoreline erosion, requiring relocation of the village. In Comer v. Murphy Oil, Gulf coast landowners are suing energy and chemical companies asserting that their GHG emissions intensified Hurricane Katrina, adding to plaintiffs' property damage. Both cases raise the above-noted issue whether American Electric Power applies to actions seeking monetary damages. A second common law theory recently has entered the fray. Since May 2011, either a suit or rulemaking petition has been filed in every state arguing that the respective state has a "public trust" duty to the atmosphere that requires it to address climate change.

Overview1 During the first session of the 115th Congress, Congress faced numerous international trade and finance policy issues. A major focus was examining and responding to the Trump Administration's evolving trade policy. U.S. trade policy under President Trump to date arguably represents a significant shift from recent past Administrations under both Republicans and Democrats. In particular, the Administration has displayed a more critical view of U.S. trade agreements, made greater use of various U.S. trade laws with the potential to restrict U.S. imports, and placed increased emphasis on bilateral trade balances as a key metric of the health of U.S. trading relationships. Another major issue before Congress involved growing interest in whether and in what ways the U.S. process for determining the national and economic security implications of foreign investment in the United States should be reformed. Continued focus on the U.S.-China economic relationship, and economic sanctions against Iran, Cuba, North Korea, Russia, and other countries also have been of interest to Congress. President Trump's withdrawal of the United States from the Trans-Pacific Partnership (TPP) free trade agreement (FTA) among 12 Asia-Pacific nations, alongside a stated preference for negotiating bilateral rather than multi-party trade agreements were notable developments in the Trump Administration's policy approach to U.S. trade agreements. Also significant are Administration initiatives to potentially revise the two largest existing U.S. FTAs, through the ongoing renegotiation of the North American Free Trade Agreement (NAFTA), and modification talks regarding the U.S.-South Korea (KORUS) FTA. These decisions, in addition to the evolving global landscape on trade agreements, including a recently-concluded, revised TPP (now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)) among the 11 parties, without the United States, raise potentially significant legislative and policy issues for Congress, including: (1) potential congressional consideration of legislation to implement a revised NAFTA, (2) the economic and strategic rationale for U.S. participation in multi-party and other FTAs, (3) the extent to which past U.S. FTAs should be modernized or revised and, if so, in what manner, (4) how much priority should be placed in U.S. trade policy on new FTA and multilateral trade agreements, and (5) the effect of FTAs not including the United States on U.S. economic and broader interests, and the appropriate U.S. response to the proliferation of agreements. Another major issue is the role of the United States in the multilateral, rules-based trading system under the World Trade Organization (WTO), historically led by the United States. The WTO has served as the foundation of the international trading system and WTO agreements serve as the floor of commitments in U.S. FTAs, but the institution has languished for decades in terms of achieving new multilateral trade disciplines and liberalization in important areas, such as digital trade. President Trump may formally request and justify to Congress an extension of current U.S. Trade Promotion Authority (TPA) until 2021, to provide authority for expedited consideration of future trade agreements if they meet specific conditions and criteria. This process would present Congress a significant opportunity to examine the U.S. role in the WTO and current and future trade agreement negotiations, particularly in how they meet TPA's congressionally-mandated U.S. trade negotiating objectives. The United States under the Trump Administration has renewed the use of specific trade laws that have not been used in several years, such as Section 232, designed to investigate the national security impact of specific imports. It has also placed greater emphasis on "fair" and "reciprocal" trade. For example, with respect to China, a Section 301 case was launched involving China's policies on intellectual property rights and forced technology transfer, among other measures. China continues to be viewed as a growing main competitor of the United States in the global economy, as recognized in the recently-released U.S. National Security Strategy. The policy implications for Congress of potential action under various trade investigations may depend on a number factors such as: how firms, industries and workers are affected by measures, such as increased tariffs, that may be taken; what other countries' reactions may be (such as possible retaliation); and how future actions are in line with core U.S. commitments and obligations under the WTO and other trade agreements. The U.S.-China trade and economic relationship is complex and wide-ranging. It will likely entail continued close examination by Congress in terms of current and future policy issues. In addition to specific trade practices of concern, Congress may undertake closer scrutiny of the economic and geopolitical implications of China's sizable Belt and Road Initiative to finance and develop infrastructure across multiple countries and regions, as well as the proliferation of China's industrial policies in high technology industries that may challenge U.S. firms and potentially disrupt global markets if fully implemented. International trade and finance issues have been important to Congress because they can affect the overall health of the U.S. economy and specific sectors, the success of U.S. businesses and workers, and Americans' standard of living. They also have implications for U.S. geopolitical interests. Conversely, geopolitical tensions, risks, and opportunities can have major impacts on international trade and finance. These issues are complex and at times controversial, and developments in the global economy often make policy deliberation more challenging, because they involve balancing many competing interests. Congress is in a unique position to address these and other issues, particularly given its constitutional authority for legislating and overseeing international trade and financial policy. This report provides a brief overview of select trade and finance issues that may be of interest to the 115 th Congress. The United States in the Global Economy Since the end of World War II, the United States has served as the chief architect of an open and rules-based international economic order that has been characterized by trade expansion and growing economic integration. Some see this global economic order fragmenting and becoming less governable. The U.S. leadership role is being challenged both from abroad by rising economic powers such as China and from within the United States by groups that have been adversely affected by U.S. integration in the global economy. Overall, the global economy in 2017 began to display signs of a synchronized recovery among major economies from the 2008-2009 financial crisis and deep economic recession. Similarly, international financial markets improved and are expected to continue growing, despite recent signs of increased volatility. Nevertheless, uncertainty over the direction of monetary policy among major central banks, some concerns about rates of inflation, slower growth in real wages and productivity, and demographic challenges are among the issues that could restrain the recovery. The International Monetary Fund (IMF) estimates that global real annual GDP growth increased by 3.7% in 2017, and will increase by 3.9% in 2018, up slightly from previous estimates. This forecast is based on the U.S. economy growing at a rate of 2.7%, as a result of a return to a more normal monetary policy stance and a temporary boost arising from the macroeconomic impact of tax reform and cuts. The U.S. Bureau of Economic Analysis (BEA) reported that the rate of U.S. economic growth slowed in the fourth quarter of 2017 to 2.6%, compared to an annualized rate of 3.2% in the third quarter. Of broader potential significance is the movement of the dollar against other major currencies. Since the start of 2017, the dollar has depreciated 9% against other major currencies, following a large appreciation over the previous three years. Depreciation in the value of the dollar generally makes imports more expensive reducing the purchasing power of U.S. consumers, and may worsen the U.S. trade deficit in the short term depending on the price sensitivity of import consumption. However, a weaker dollar also generally makes U.S. exports more competitive. The IMF forecasts that developed economies as a group will grow at 2.3% in 2018. Although the economic recovery in the EU is progressing, the growth rate is projected to remain low in comparison with other economic recoveries, reflecting high levels of corporate debt and non-performing loans that are restraining business investment. Emerging market and developing economies are projected by the IMF to grow by 4.9%, up from 4.7% in 2017, while China's economy is projected to grow at 6.6% in 2018, down slightly from the 6.8% rate experienced in 2017. Commodity exporters are projected to experience a stronger rate of economic growth as a result of a partial recovery in commodity prices, which also would support a higher rate of growth in global trade volumes. Increased global manufacturing activity and investment in infrastructure and equipment are also projected to support higher levels of global trade. Despite these positive signs, the World Economic Forum (WEF) notes a number of risks that could limit the strength and pace of the projected recovery and rate of global economic growth. These risks include: cybersecurity risks in both the private and government sectors; economic risks, including rising trade protectionism; environmental risks; and geopolitical risks (such as conflict over North Korean nuclear development). Other risks include savings and investment relative to GDP, which serve as building blocks for future growth, but continue to lag behind pre-financial 2008 crisis levels in the advanced economies. Similarly, global trade is growing, but lags behind historical levels. Emerging markets (EMs) as a group are expected to face fewer risks to sustainable rates of economic growth in 2018 due to a modest recovery in global trade and more stable exchange rates, inflation, commodity prices, and equity markets. Growth rates are projected to recover somewhat in Russia and Brazil, due to more stable oil and commodity prices, but increased uncertainty over political and policy direction could constrain the rate of growth in Brazil. Additionally, China is expected to experience slower growth rates as it attempts to navigate toward a more sustainable growth model that is more focused on boosting innovation and private consumption, rather than fixed investment and exporting, as sources of economic growth. In Venezuela, a major economic and financial crisis has surfaced that could cause the economy to continue to contract. The IMF projects that continued social turmoil in Venezuela will cause economic activity to fall by 15% in 2018. These and other developments, such as ongoing tension and concern over North Korea's nuclear arms policies, contribute to uncertainties that potentially could impact global markets. Over the long term, developed and developing economies are struggling to find the right policy mix to address low growth, low inflation, and low levels of productivity growth, referred to as structural stagnation by some. Developed and some developing economies are experiencing declining or flat birth rates, which portend a smaller work force in the future and lower potential rates of economic growth. Aging work forces, a demographic unfolding everywhere except Africa and the Middle East, may also restrain economic growth. Under similar challenging conditions, nations in the past have turned to broad, multinational trade liberalization agreements to stimulate economic growth through improvements in productivity by removing market-distorting barriers. The United States accounts for approximately a quarter of global gross domestic product (GDP) in nominal U.S. dollars and 9.1% of global trade ( Figure 1 ). Although still recovering from the worst recession in eight decades, overall U.S. economic conditions have improved with the unemployment rate at 4.1% in December 2017 from a high of 10% in 2009. The stabilization in oil prices is affecting the U.S. economy. Relatively low energy prices are expected to raise consumers' real incomes, improve the competitive position of some industries, and stabilize employment and output in the energy sector. With improvements in the economy as a whole, average U.S. real household incomes are slowly recovering from the 2008-2010 economic recession. The United States, similar to other economies, has experienced widening disparity in incomes that many view as fueling domestically-focused political movements and a backlash against globalization. The Trump Administration achieved a major goal by lowering corporate tax rates, a move that is projected to stimulate the economy. The Administration has indicated that it is also turning to infrastructure spending. It has also made reducing U.S. bilateral trade deficits a priority issue, as the U.S. trade deficit in 2017 reached its highest level since 2008. However, using a broader measure, the current account (which includes the trade balance, as well as unilateral transfers and income on overseas investments), the U.S. deficit has fallen significantly since its peak in 2006, as have the surpluses in China and Japan. For many economists, an improving outlook for global trade and the potential role for the United States in supporting global growth as a major importer and overseas investor may overshadow potential concerns over global imbalances. The Euro and Japanese yen have experienced periods of volatility since the Brexit referendum vote during the summer of 2016. Policy actions by the Bank of England have led to a slight appreciation in the pound through early 2018. Renewed capital flows to developing economies have sustained a slight appreciation in some currencies, including the Chinese renminbi and the South African rand. In addition, the Mexican peso continued to depreciate in international foreign markets, reflecting uncertainties over the potential impact of a renegotiation of NAFTA. Stronger economic performance and still low interest rates and low rates of price inflation have provided impetus for the U.S. Federal Reserve to strengthen monetary policy by raising interest rates in small steps. In addition, other major economies in Europe and Japan have attempted to pursue more expansionary monetary policies. Reduced levels of uncertainty in global financial markets have reduced upward pressure on the dollar, as investors have been less prone to seek safe haven currencies and dollar-denominated investments. The Role of Congress in International Trade and Finance The U.S. Constitution assigns authority over foreign trade to Congress. Article I, Section 8, of the Constitution gives Congress the power to "regulate Commerce with foreign Nations" and to "lay and collect Taxes, Duties, Imposts, and Excises." For roughly the first 150 years of the United States, Congress exercised its power to regulate foreign trade by setting tariff rates on all imported products. Congressional trade debates in the 19th century often pitted Members from northern manufacturing regions, who benefitted from high tariffs, against those from largely southern raw material exporting regions, who gained from and advocated for low tariffs. A major shift in U.S. trade policy occurred after Congress passed the highly protective "Smoot-Hawley" Tariff Act of 1930, which significantly raised U.S. tariff levels and led U.S. trading partners to respond in kind. As a result, world trade declined rapidly, exacerbating the impact of the Great Depression. Since the passage of the Tariff Act of 1930, Congress has delegated certain trade authority to the executive branch. First, Congress enacted the Reciprocal Trade Agreements Act of 1934, which authorized the President to enter into reciprocal agreements to reduce tariffs within congressionally pre-approved levels, and to implement the new tariffs by proclamation without additional legislation. Congress renewed this authority periodically until the 1960s. Subsequently, Congress enacted the Trade Act of 1974, aimed at opening markets and establishing nondiscriminatory international trade norms for nontariff barriers as well. Because changes in nontariff barriers in reciprocal bilateral, regional, and multilateral trade agreements may involve amending U.S. law, the agreements require congressional approval and implementing legislation. Congress has renewed or amended the 1974 Act five times, which includes granting "fast-track" trade negotiating authority. Since 2002, "fast track" has been known as trade promotion authority (TPA). In 2015, Congress authorized new TPA, through 2021, provided the President requests an extension and Congress does not enact an extension disapproval resolution before July 1, 2018. Congress also exercises trade policy authority through the enactment of laws authorizing trade programs and measures to address unfair and other trade practices. It also conducts oversight of the implementation of trade policies, programs, and agreements. These include such areas as U.S. trade agreement negotiations, tariffs and nontariff barriers, trade remedy laws, import and export policies, economic sanctions, and the trade policy functions of the federal government. Additionally, Congress has an important role in international investment and finance policy. It has authority over bilateral investment treaties (BITs) through Senate ratification, and the level of U.S. financial commitments to the multilateral development banks (MDBs), including the World Bank, and to the International Monetary Fund (IMF). It also authorizes the activities of various agencies, such as the Export-Import Bank (Ex-Im Bank) and the Overseas Private Investment Corporation (OPIC). Congress also has oversight responsibilities over these institutions, as well as the Federal Reserve and the Department of the Treasury, whose activities affect international capital flows and short-term movements in the international exchange value of the dollar. Congress also closely monitors developments in international financial markets that could affect the U.S. economy. Policy Issues for Congress Trade Promotion Authority (TPA)6 Legislation to renew Trade Promotion Authority (TPA)—the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 )—was signed by President Obama on June 29, 2015, after months of debate and passage by both houses of Congress. TPA allows implementing bills for specific trade agreements to be considered under expedited legislative procedures ("fast track")—limited debate, no amendments, and an up or down vote—provided the President observes certain statutory obligations in negotiating trade agreements. These obligations include adhering to congressionally-defined U.S. trade policy negotiating objectives, as well as congressional notification and consultation requirements before, during, and after the completion of the negotiation process. The primary purpose of TPA is to preserve the constitutional role of Congress with respect to consideration of implementing legislation for trade agreements that require changes in domestic law, which includes tariffs, while also bolstering the negotiating credibility of the executive branch by ensuring that trade agreements will not be changed once concluded. Since the authority was first enacted in the Trade Act of 1974, Congress has renewed or amended TPA five times (1979, 1984, 1988, 2002, and 2015). The latest grant of authority expires on July 1, 2021, provided that the President requests its extension by April 1, 2018, and neither chamber introduces and passes an extension disapproval resolution by July 1, 2018. If legislation is introduced in Congress in the future to implement the results of negotiations to renegotiate or modernize the North American Free Trade Agreement, it may be eligible to receive expedited consideration under TPA. The World Trade Organization (WTO)7 The WTO is an international organization that administers the trade rules and agreements negotiated by its 164 participating members to eliminate barriers and create non-discriminatory rules and principles to govern trade. It also serves as a forum for dispute settlement resolution and trade liberalization negotiations. The United States was a major force behind the establishment of the WTO on January 1, 1995, and the new rules and trade liberalization agreements that occurred as a result of the Uruguay Round of multilateral trade negotiations (1986-1994). The WTO succeeded the General Agreement on Tariffs and Trade (GATT), which was established in 1947. In contrast to its predecessors, the Trump Administration has taken a more skeptical stance toward the institution. While the Administration thus far has largely concentrated on perceived shortcomings of the WTO dispute settlement system (see below), past U.S. leadership was critical to supporting and advancing a forward-looking multilateral trading system. The WTO's future as an effective multilateral trade negotiating organization for broad-based trade liberalization remains in question. The current deadlock in major on-going negotiations is largely due to differences between leading emerging-market economies, such as India, China and Brazil, developing economies, and advanced countries. Most developing countries want to continue to link the broad spectrum of agricultural and non-agricultural issues under the Doha Round and have been reluctant to lower their tariffs on industrial goods. They maintain that unless all issues are addressed in a single package, issues important to developing countries will be ignored. Conversely, developed economies have pushed for change in the negotiating dynamics, arguing that the WTO needs to address new issues, such as e-commerce and digital trade, especially given the growth of major emerging markets, and that advanced developing countries should make commercially meaningful new commitments on market access to their markets. WTO members have been working to achieve consensus on future work plans, but were unable to announce major deliverables or negotiated outcomes at the 11 th Ministerial Conference in Buenos Aires, Argentina in December 2017. While many were disappointed by the lack of progress, in the view of the United States, the ministerial outcome signaled that "the impasse at the WTO was broken," paving the way for like-minded countries to pursue new work in other key areas. The most recent round of multilateral trade negotiations, the WTO Doha Round, began in November 2001, but concluded with no clear path forward after the 10 th Ministerial Conference in December 2015, in Nairobi Kenya. The Nairobi Declaration, issued at the Ministerial, underscored the importance of a multilateral rules-based trading system with regional and plurilateral agreements as a complement to, not a substitute for, the multilateral forum. Work to build on the current WTO agreements outside of the specific Doha agenda continues, including through sectoral or plurilateral agreements, for example, on services (see text box ). At the more recent 11 th Ministerial, separate groups of WTO members committed to new work programs or open-ended plurilateral talks on e-commerce, investment facilitation, and micro, and small and medium-sized enterprises. The United States signed on to the declaration in support of e-commerce. U.S. Bilateral and Regional Trade Agreements In addition to the WTO, the United States has worked to reduce and eliminate barriers to trade and create non-discriminatory rules and principles to govern trade through plurilateral, regional, and bilateral agreements. It has concluded 14 free trade agreements (FTAs) with 20 countries since 1985, when the first U.S. bilateral FTA was concluded with Israel ( Figure 2 ). The Trump Administration has signaled a shift on U.S. bilateral and regional trade agreements. President Trump withdrew the United States from the Trans-Pacific Partnership (TPP), an FTA negotiated during the Obama Administration between the United States and 11 other countries in the Asia-Pacific region. The Trump Administration has also initiated a renegotiation of the North American Free Trade Agreement (NAFTA), an FTA between the United States, Canada, and Mexico, as well as official talks to potentially modify the bilateral U.S.-South Korea (KORUS) FTA. The Trump Administration to date has not acted on other trade negotiations launched during the Obama Administration, including an FTA between the United States and the European Union (EU) on a potential Transatlantic Trade and Investment Partnership (T-TIP) and a potential Trade in Services Agreement (TiSA) with 23 WTO members. President Trump has expressed interest in negotiating bilateral trade agreements, including an FTA with the United Kingdom, Japan, and other TPP partners. North American Free Trade Agreement (NAFTA) Renegotiation9 NAFTA, a comprehensive FTA among the United States, Canada, and Mexico, entered into force on January 1, 1994. NAFTA established trade liberalization commitments and set new rules and disciplines for future free trade agreements (FTAs) on issues important to the United States, including rules of origin, intellectual property rights (IPR), foreign investment, agriculture and services trade, dispute resolution, worker rights, and environmental protection. NAFTA's market-opening provisions gradually eliminated nearly all tariff and most nontariff barriers on goods produced and traded within North America. At the time of NAFTA, average applied U.S. duties on imports from Mexico were 2.07%, while U.S. producers faced average Mexican tariffs of 10%, in addition to nontariff and investment barriers in Mexico. The U.S.-Canada FTA had been in effect since 1989. Trade among NAFTA partners has tripled since the agreement entered into force, forming a more integrated North American market. Many trade policy experts and economists give credit to NAFTA and other FTAs for expanding trade and economic linkages among countries, creating more efficient production processes, increasing the availability of lower-priced consumer goods, and improving living standards and working conditions. Other proponents contend that FTAs have political dimensions that create positive ties among member countries and improve democratic governance. However, some policymakers, labor groups and consumer advocacy groups argue that NAFTA has had a negative effect on the U.S. economy. They strongly oppose NAFTA and other FTAs, maintaining that trade agreements result in outsourcing, lower wages, and job dislocation. The Trump Administration has made NAFTA renegotiation and modernization a prominent priority of its trade policy agenda. President Trump has viewed the agreement as the "worst trade deal," and has stated that he may seek to withdraw from the agreement. He has focused on the trade deficit with Mexico as a major reason for his critique. In May 2017, the Trump Administration sent a 90-day notification to Congress of its intent to begin talks to renegotiate NAFTA, as required by the 2015 Trade Promotion Authority (TPA) ( P.L. 114-26 ), and negotiations started in August 2017. Negotiators were initially committed to concluding negotiations by the end of 2017 or early 2018. After a contentious fourth round of talks in October 2017, negotiators agreed to extend their timeline with a possible conclusion date in the spring of 2018 at the earliest. Subsequent rounds of negotiations have also remained contentious. NAFTA is 24 years old and renegotiation provides parties opportunities to address issues not covered in the original text. Technology and industrial production processes have changed significantly and the widespread use of the internet has significantly affected economic activities and the use of e-commerce. A modernization could incorporate elements of more recent U.S. FTAs, such as provisions to address digital and newer services trade barriers and enhanced IPR protection. Many U.S. manufacturers, services providers, and agricultural producers oppose efforts to eliminate NAFTA and ask that the Trump Administration strive to "do no harm" in the negotiations because they have much to lose if the United States pulls out of the agreement. Other groups contend that NAFTA should be rewritten to include stronger and more enforceable labor protections, provisions on currency manipulation, and stricter rules of origin. Reported issues of contention in the negotiations include U.S. proposals for stronger rules of origin in the auto sector, a "sunset clause" in which NAFTA parties would re-evaluate the agreement every five years, modified dispute resolution provisions, and changes to government procurement provisions. U.S.-South Korea (KORUS) FTA Modifications10 The U.S.-South Korea (KORUS) FTA has been the centerpiece of U.S.-South Korea economic relations since its entry into force in March 2012. KORUS was signed in 2007, but implementing legislation was not passed by Congress until 2011 after the United States exchanged side letters with the South Korean government effectively changing certain commitments on auto and agricultural trade in the original agreement. Like all U.S. FTAs, the agreement will eventually eliminate nearly all tariffs (over 99% of tariff lines) on imports into both countries. As one of the most recent U.S. FTAs in effect, it arguably includes the most extensive commitments on nontariff issues ranging from intellectual property rights (IPR) to labor and environmental protections. Trade between the two countries has grown modestly since the FTA's entry into force, but U.S. imports have risen faster than U.S. exports, leading to an increase in the bilateral trade deficit with South Korea ( Figure 3 ). Given the myriad factors affecting trade flows, most economists argue that overall trade balances are a poor measure of the success of trade agreements, noting that other variables, including a slowdown in South Korea's economic growth during the period, were likely the key drivers of the trade deficit increase. Investment between the two countries also surged between 2011 and 2016. Views on the KORUS FTA are mixed. Proponents argue it led to increased consumer choice, improved South Korea's regulatory process, and further opened markets for U.S. goods and services. Critics assert it has had negative effects on U.S. employment opportunities in industries competing with South Korean imports. Although the business community broadly supports the agreement, it has raised concerns with South Korea's implementation of certain commitments. The Trump Administration has criticized the KORUS FTA, citing the growth in the U.S. trade deficit with South Korea. The Administration requested consultations with the South Korean government in August 2017 to address its concerns with the FTA. The two sides agreed to formal talks to potentially modify the pact, the first of which was held January 5, 2018. It is unclear what specific commitments the Trump Administration seeks to modify as it has neither notified Congress of its intent to negotiate nor provided negotiating objectives for the talks. Trans-Pacific Partnership (TPP)11 In January 2017, President Trump withdrew the United States from the Trans-Pacific Partnership (TPP). The TPP was a proposed free trade agreement (FTA) among 12 countries in the Asia-Pacific region, including the United States. The Obama Administration cast TPP as a comprehensive and high standard agreement with economic and strategic significance for the United States. Some U.S. stakeholders argue the TPP withdrawal, coupled with ongoing FTA negotiations that do not involve the United States, may negatively affect U.S. export competitiveness and leadership in establishing new trade disciplines in Asia. Others in the United States supported the President's withdrawal, viewing certain TPP nontariff commitments as infringing on U.S. sovereignty and raising concerns that reduced import tariffs would negatively affect U.S. employment in import competing industries. The Trump Administration has expressed interest in negotiating bilateral FTAs with Japan and other TPP parties with which the United States does not already have FTAs. The remaining 11 parties are moving forward to ratify the TPP without U.S. participation. In January 2018, the group announced the conclusion of negotiations on a new agreement—the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—expected to be signed in early March. U.S. withdrawal required certain modifications to the text, both logistically and as a result of a change in some countries' calculus on the appropriate balance of concessions given the withdrawal of the original pact's largest market. The 11 countries have agreed to maintain the vast majority of the original TPP text, however, including each country's market access commitments (i.e., tariff reduction schedules). Some provisions pushed by the United States, mostly on intellectual property rights and investment, have been suspended. The economic significance of a CPTPP agreement would be smaller without U.S. participation. However, it would provide those countries liberalized trade with Japan, the world's third largest economy. Japan is leading the CPTPP process. The Regional Comprehensive Economic Partnership (RCEP), an Association of South-East Asian Nations (ASEAN)-led negotiation, may also take on increased significance in the wake of U.S. withdrawal from TPP. RCEP encompasses ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam), as well as China, Japan, South Korea, Australia, India, and New Zealand, but not the United States. The remaining TPP countries may also seek to solidify their trading relationship with China, whether within RCEP or bilaterally, as China is the largest trading partner for most TPP countries. Transatlantic Trade and Investment Partnership (T-TIP)12 The Transatlantic Trade and Investment Partnership (T-TIP) is a potential "comprehensive and high-standard" free trade agreement (FTA) between the United States and the European Union (EU). These economies are each other's largest overall trade and investment partner. T-TIP aims to liberalize U.S.-EU trade and investment and address tariff and nontariff barriers on goods, services, and agriculture. It also aims to set globally relevant rules and disciplines to support economic growth and multilateral trade liberalization. T-TIP negotiations began in 2013. With the 15 th and latest negotiating round in October 2016, the two sides had consolidated texts in many areas. Yet, they face unresolved complex and sensitive issues on numerous fronts, raising questions about whether sufficient political momentum exists to overcome differences. Presently, negotiations are inactive as both sides evaluate T-TIP's status. In the EU, the UK withdrawal process (Brexit) adds complexity to T-TIP's prospects. Public opposition to T-TIP in the EU due to concerns over genetically modified organisms (GMOs), investor-state dispute settlement (ISDS), and data privacy has also added uncertainty, as have U.S. attempts to tighten Buy American policies. Some in the EU Parliament and European Commission (EC) are reportedly calling for a tougher EU approach against the Trump Administration's "America First" policies. On the U.S. side, T-TIP's outlook is also uncertain. Support for T-TIP remains high among some Members of Congress, yet trade remains a controversial issue. The Trump Administration is reportedly evaluating the status of T-TIP. U.S. Trade Representative (USTR) Lighthizer recently commented on the importance and size of the U.S.-EU trade relationship. According to press reporting of the 2018 World Economic Forum, Secretary of Commerce Wilbur Ross said that it was no accident that the United States withdrew from the TPP but not the T-TIP negotiations, while EC Trade Commissioner Cecelia Malmström noted that there are "lots of trade irritants" between the United States and the EU and that "parameters have changed" for the T-TIP negotiations. If T-TIP negotiations resume, potential issues for Congress include the level of priority both sides place on T-TIP, given the U.S. renegotiation of NAFTA and the EU's trade negotiations with other countries, and the shape of the future agreement on controversial issues. If T-TIP negotiations stall indefinitely or terminate, Congress may examine other ways to enhance U.S.-EU trade relations. Brexit and a Potential U.S.-UK Free Trade Agreement (FTA)16 In June 2016, the United Kingdom (UK) voted in favor of exiting the EU ("Brexit"), presenting issues about transatlantic trade relations. Trade is equivalent to about 60% of the UK economy, in large part due to reduced trade barriers through the EU's Single Market. At $2.7 trillion, the UK was the EU's second largest economy behind Germany and accounted for about 16% of EU GDP in 2016. Brexit confronts U.S. firms operating in the UK and benefiting from the UK's access to the Single Market with economic and financial uncertainties. The UK is a key U.S. trade and investment partner, and Brexit's impact on U.S.-UK trade relations depends on a number of variables, including the UK's negotiated terms of withdrawal from the EU, the UK's future trade relationship with the EU, and any redefinition of UK and EU terms of trade in the WTO. Following the Brexit referendum, some Members of Congress and the Trump Administration called for launching U.S.-UK FTA negotiations, though some Members have moderated their support with calls to ensure that such negotiations do not constrain promoting broader transatlantic trade relations. On January 27, 2017, President Trump and Prime Minister May discussed how the two sides could "lay the groundwork" for a future U.S.-UK FTA. In July 2017, the two sides launched a U.S.-UK Trade and Investment Working Group to explore a possible post-Brexit FTA. However, the UK cannot negotiate new trade agreements with other countries until it leaves the EU. Some experts view a potential U.S.-UK FTA as more politically feasible than other U.S. FTAs, given similarities in U.S. and UK trade policy approaches and the two countries' "special relationship;" others caution that, even among like-minded trading partners, domestic political interests can complicate trade negotiations. Brexit raises questions about other aspects of U.S. trade policy as well. Some argue that Brexit could complicate the T-TIP negotiations, if resumed, given the UK's traditionally liberalizing role in the EU. Others say that a potential U.S.-UK FTA could add pressure to advance any further T-TIP negotiations. The UK's future status also could affect other U.S. trade policy interests, such as the Trade in Services Agreement (TiSA) negotiations (see below). Trade in International Services Agreement (TiSA)19 TiSA is a potential agreement that would liberalize trade in services among its signatories. The term "services" refers to an expanding range of economic activities, such as construction, retail and wholesale sales, e-commerce, financial services, professional services (e.g., accounting and legal services), logistics, transportation, tourism, and telecommunications. The impetus for TiSA comes from the lack of progress in the WTO Doha Round on services trade liberalization. A subset of WTO members, led by the United States and Australia, launched informal discussions in early 2012 to explore negotiating a separate agreement focused on trade in services. The United States and the 22 other TiSA participants account for more than 70% of global trade in services. Negotiations began in April 2013, and 21 rounds of negotiations took place through 2016. The Trump Administration has not stated an official position on TiSA, and no negotiations were held in 2017. Negotiations on services present unique trade policy issues, such as how to construct trade rules that are applicable across a wide range of varied economic activities. The General Agreement on Trade in Services (GATS) under the WTO is the only multilateral set of rules on trade in services. GATS came into effect in 1995, and many policy experts have argued that the GATS should be updated and expanded if it is to liberalize services trade effectively. The TiSA negotiations are of congressional interest given the significance of the services sector in the U.S. economy and TiSA's potential impact on domestic services industries seeking to expand internationally. Services account for almost 78% of U.S. gross domestic product (GDP) and for over 82% of U.S. private sector employment. U.S.-China Commercial Relations21 Since China embarked upon economic and trade liberalization in 1979, U.S.-Chinese economic ties have grown extensively. Total bilateral trade rose from about $2 billion in 1979 to $636 billion in 2017. China was the United States' largest trading partner, largest source of imports ($506 billion), and third largest merchandise export market ($130 billion). The U.S. merchandise trade deficit with China was $375 billion (up 8.1% over 2016 levels), by far the largest U.S. bilateral trade imbalance. From 2008 to 2017, U.S. merchandise exports to China grew by 82.4%, the second fastest growth rate among the top 10 U.S. export markets in 2017 (after Hong Kong). The U.S.-China Business Council estimates that China is a $400 billion market for U.S. firms when U.S. exports of goods and services to China plus sales by U.S-invested firms in China are counted. China's large population, vast infrastructure needs, and rising middle class could make it an even more significant market for U.S. businesses, provided that new economic reforms are implemented and trade and investment barriers are lowered. According to the Rhodium Group, annual Chinese foreign direct investment (FDI) in the United States rose from $4.6 billion in 2010 to $46.2 billion in 2016. China is important to the global supply chain for many U.S. companies, some of which use China as a final point of assembly for their products. Low-cost imports from China help keep U.S. inflation low. As the world's largest economy and trading country, China's economic conditions and policies have a major impact on the U.S. and global economy, and thus have been of interest to Congress. Despite growing U.S.-Chinese commercial ties, the bilateral relationship is complex and at times contentious. From the U.S. perspective, many trade tensions stem from China's incomplete transition to an open-market economy. While China has significantly liberalized its economic and trade regimes over the past three decades—especially since joining the World Trade Organization (WTO) in 2001—it continues to maintain (or has recently imposed) a number of policies that appear to distort trade and FDI flows, which, some policymakers argue, often undermine U.S. economic interests and cause U.S. job losses in some sectors. A 2018 American Chamber in China (AmCham China) business climate survey of its member companies found that while a majority of respondents felt optimistic about their investments in China, 81% said that foreign businesses in China were "less welcomed" in China than before, compared to 44% who felt that way in 2014. The United States has initiated more WTO dispute settlement cases (21 cases through February 15, 2018, though none so far by the Trump Administration) against China than any other WTO member. China has brought 12 WTO dispute settlement cases against the United States. In December 2016, it brought a WTO case over U.S. treatment of China as a non-market economy (NME) for the purposes of applying anti-dumping measures. In addition, on February 6, 2018, China initiated WTO cases against the United States over safeguard measures on imported washing machines and solar cells. Industrial Policies and State Capitalism The Chinese government continues to play a major role in economic decision-making. For example, at the macroeconomic level, the Chinese government maintains policies that induce households to save a high level of their income, much of which is deposited in state-controlled Chinese banks. This enables the government to provide low-cost financing to Chinese firms, especially state-owned enterprises (SOEs) which dominate several economic sectors in China. Fortune's 2016 Global 500 list of the world's largest companies included 103 Chinese firms, 75 of which were classified as being 50% or more owned by the Chinese government. At the microeconomic level, the Chinese government (at the central and local government level) seeks to promote the development of industries deemed critical to the country's future economic development by using various means, such as subsidies, preferential loans, tax exemptions, and access to low-cost land and energy. Many analysts contend that such distortionary policies contribute to overcapacity in several Chinese industrial sectors, such as steel and aluminum. Additionally, the Chinese government imposes numerous restrictions on foreign firms seeking to do business in China, such as discriminatory regulations and standards, uneven enforcement of commercial laws (such as its anti-monopoly laws), FDI barriers and mandates, export restrictions on raw materials, technology transfer requirements imposed on foreign firms, and public procurement rules that give preferences to domestic Chinese firms. The Chinese government has outlined a number of policies to promote China's transition from a manufacturing center to a major global source of innovation and reducing the country's dependence on foreign technology by promoting "indigenous innovation" and a 2025 "Made in China" plan. In recent years, the Chinese government has proposed new regulations for banking and insurance, which, under the pretext of protecting national security, appear to impose new restrictions against foreign providers of information and communications products (ICT) and services. Intellectual Property Rights (IPR) Protection and Cyber-Theft American firms cite the lack of effective and consistent protection and enforcement in China of U.S. IPR as one of the largest challenges they face in doing business in China. Although China has significantly improved its IPR protection regime over the past few years, many U.S. industry officials view piracy rates in China as unacceptably high. While AmCham China's 2017 business survey found that 95% of respondents felt that IPR enforcement had improved over the past five years, 66% said the IPR enforcement of trade secrets was ineffective and 52% said protection of trademarks and brands was ineffective. The USTR's 2016 report on foreign trade barriers stated that over the past decade, China's internet restrictions have "posed a significant burden to foreign suppliers," and that eight out of the top 25 most globally visited sites (such as Yahoo, Facebook, YouTube, eBay, Twitter and Amazon) are blocked in China. Cyberattacks by Chinese entities against U.S. firms have raised concerns over the potential theft of U.S. IPR, especially trade secrets. According to the U.S. Customs and Border Protection China (including Hong Kong) accounted for 88% of the $1.4 billion in counterfeit goods seized by in FY2016. On April 1, 2015, President Obama issued an executive order authorizing certain sanctions against "persons engaging in significant malicious cyber-enabled activities." Shortly before Chinese President Xi's state visit to the United States in September 2015, some press reports indicated that the Obama Administration was considering imposing sanctions against Chinese entities over cyber-theft. After high-level talks between Chinese and U.S. officials on cybersecurity, President Obama and President Xi announced in September 2016 that they reached an agreement. The agreement stated that neither country's government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors. They also agreed to set up a high-level dialogue mechanism to address cybercrime and to improve two-way communication when cyber-related concerns arise. The U.S.-China High-Level Joint Dialogue on Cybercrime and Related Issues met in December 2015 and June 2016, although it is unclear if the dialogue has produce concrete results. The Trump Administration's Approach At their first official meeting as heads of state in April 2017, President Trump and Chinese President Xi Jinping announced the establishment of a "100-day plan on trade" as well as a new high-level forum called the "U.S.-China Comprehensive Economic Dialogue" (CED). In May 2017, the two sides announced that China would open its markets to U.S. beef, biotechnology products, credit rating services, electronic payment services, and bond underwriting and settlement. The United States agreed to open its markets to Chinese cooked poultry and welcomed Chinese purchases of U.S. liquefied natural gas. Chinese officials also indicated their support for continuing the BIT negotiations, although the Trump Administration did not indicate its position. Following the meeting, President Trump in a series of tweets appeared to indicate that he would link U.S. trade policy towards China with China's willingness to pressure North Korea to curb its nuclear and missile programs. In July 2017, the two sides held the first session of the CED in Washington, DC, which sought to build on the 100-day action plan through a new one-year action plan on trade and investment, seeking to achieve a more balanced economic relationship. The outcome of the meeting is unclear as, unlike past high-level meetings, no joint fact sheet was released. The U.S. side issued a short statement that said that "China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve," which led some U.S. observers to claim that the CED was marred with high tensions and disagreements. China issued a four-page document on the "positive outcomes" of the CED, including the broad outline of a one-year plan covering broad economic and trade topics. The document also stated that the two sides discussed trade in services, steel, aluminum, and high technology. In August 2017, the Trump Administration announced it would launch a Section 301 investigation into China's protection of U.S. IPR and forced technology transfer policies (see textbox ). The Section 301 case against China could have significant implications for bilateral commercial ties, especially if the case is pursued unilaterally and not through the WTO dispute settlement process and if trade sanctions against China are ultimately imposed. During President Trump's visit to China in November 2017, the U.S. Commerce Department announced it had facilitated $250 billion in deals between private U.S. businesses and Chinese entities. However, many analysts argued that some of the deals were already in the making, while others were non-binding. In remarks made at an event with Chinese President Xi, Trump stated that he was trying to make U.S.-China commercial ties "fair and reciprocal," noting China's trade barriers and IPR practices, which he cited as causes of the large U.S. trade deficit with China. Overall, however, the Trump Administration appears to be taking a harder line against China on trade issues. Looking ahead, the executive order requiring the U.S. Department of Commerce and USTR to submit an Omnibus Report on Significant Trade Deficits will likely heavily focus on China. The Administration's Section 232 investigations on steel and aluminum imports (see below) are leading to the imposition of import restrictions against China. Finally, the Administration has made the enforcement and application U.S. anti-dumping and countervailing measures (where Chinese imports have been the largest target) a major priority. When President Trump announced and signed his Presidential Memorandum on China's IPR policies on August 14, he said that "this is only the beginning." Some analysts argue that the Trump Administration's "America First" economic policies (such as the U.S. withdrawal from TPP) could undermine U.S. global leadership and weaken its ability to push China toward liberalizing its economy. The Office of the Director of National Intelligence stated in its 2018 World Threat Assessment report that "China and Russia will seek spheres of influence and check U.S. appeal and in their regions. Meanwhile, US allies' and partners' uncertainty about the willingness and capability of the United States to maintain its international commitments may drive them to consider reorienting their policies, particularly regarding trade, away from Washington." Economic Effects of Trade Trade and trade agreements have wide-ranging effects on the economy, including on economic growth, the distribution of income, and employment gains or losses. For most economists, liberalized trade results in both economic costs and benefits, but they argue the long-run net effect on the economy as a whole is positive. It is argued that the economy as a whole operates more efficiently and grows more rapidly as a result of competition through international trade and investment, and consumers benefit by having available a wider variety of goods and services at varying levels of quality and price than would be possible in an economy closed to international trade. Trade also can have long-term positive dynamic effects on an economy and enhances production and employment. However, the costs and benefits associated with expanding trade and trade agreements do not accrue to the economy at the same speed; costs to the economy in the form of job and firm losses are felt especially in the initial stages of the agreement, while benefits to the economy accrue over time. According to the World Bank, liberalizing trade and foreign investment have reduced the number of people in the world living in extreme poverty (under $1 per day) by half, or 600 million, over the past 25 years, transforming the global economy. Trade and U.S. Jobs33 Trade is one among a number of forces that drive changes in employment, wages, the distribution of income, and ultimately the U.S. standard of living. Most economists argue that macroeconomic forces within an economy, including technological and demographic changes, are the dominant factors that shape trade and foreign investment relationships and complicate efforts to disentangle the distinct impact that trade has on the economy. Various measures are used to estimate the role and impact of trade in the economy and of trade on employment. One measure developed by the Department of Commerce concludes that exports support, directly and indirectly, 11.7 million jobs in the U.S. economy. According to these estimates, jobs associated with international trade, especially jobs in export-intensive manufacturing industries, earn 18% more on a weighted average basis than comparable jobs in other manufacturing industries. More open markets globally and other changes have subjected a larger portion of the domestic workforce to international competition. According to the International Monetary Fund (IMF), the effective global labor market quadrupled over the past two decades through the opening of China, India, and the former East European bloc countries. Standard economic theory recognizes that some workers and producers in the economy may experience a disproportionate share of the short-term adjustment costs as a result of such economic transformations. Although difficult to measure, some estimates suggest that adjustment costs may be significant over the short-run and can entail dislocations for some segments of the labor force, some companies, and some communities. Closed plants can result in depressed commercial and residential property values and lost tax revenues, with effects on local schools, local public infrastructure, and local community viability. In a dynamic economy like that of the United States, jobs are constantly being created and replaced as some economic activities expand, while others contract. As part of this process, various industries and sectors evolve at different speeds, reflecting differences in technological advancement, productivity, and efficiency. Those sectors that are the most successful in developing or incorporating new technological advancements usually generate greater economic rewards and are capable of attracting larger amounts of capital and labor. In contrast, those sectors or individual firms that lag behind generally attract less capital and labor and confront ever-increasing competitive challenges. In addition, advances in communications, transportation, and technology have facilitated a global transformation of economic production into sophisticated supply chains that span national borders, defy traditional concepts of trade, and effectively increase the number of firms and workers participating in the global economy. Trade and trade liberalization can have a differential effect on workers and firms in the same industry. Some estimates indicate that the short-run costs to workers who attempt to switch occupations or switch industries in search of new employment opportunities may experience substantial effects. One study concluded that workers who switched jobs as a result of trade liberalization generally experienced a reduction in their wages, particularly in occupations where workers performed routine tasks. These negative income effects were especially pronounced in occupations exposed to imports from low-income countries. In contrast, occupations associated with exports experienced a positive relationship between rising incomes and growth in export shares. As a result of the differing impact of trade liberalization on workers and firms, some governments have adopted special safeguards and worker retraining and other social safety net policies to mitigate the potential adverse effects of trade liberalization or address certain trade practices that may cause or threaten to cause injury. Trade Adjustment Assistance (TAA)39 Trade Adjustment Assistance (TAA) is a group of programs that provide federal assistance to parties that have been adversely affected by foreign trade. Reduced barriers to trade can offer domestic benefits, including increased consumer choice and new export markets, but trade can also have negative effects among domestic industries that face increased competition. TAA aims to mitigate some of these negative domestic effects. TAA programs are authorized by the Trade Act of 1974, as amended, and were last reauthorized by the Trade Adjustment Assistance Reauthorization Act of 2015 (TAARA; Title IV of P.L. 114-27 ). The largest TAA program, TAA for Workers (TAAW), provides federal assistance to workers who have been separated from their jobs because of increases in directly competitive imports or because their jobs moved to a foreign country. The largest components of the TAAW program are (1) funding for career services and training to prepare workers for new occupations and (2) income support for workers who are enrolled in an eligible training program and have exhausted their unemployment compensation. The TAAW program is administered at the federal level by the Department of Labor and FY2017 appropriations were $849 million. TAA programs are also authorized for firms and farmers that have been adversely affected by international competition. TAA for Firms supports trade-impacted businesses by providing technical assistance in developing business recovery plans and by providing matching funds to implement those plans. TAA for Firms is administered by the Department of Commerce and the FY2017 appropriation was $13 million. The TAA for Farmers program was reauthorized by TAARA, but the program has not received an appropriation since FY2011. Intellectual Property Rights (IPR)40 Intellectual property (IP) is a creation of the mind that may be embodied in physical and non-physical (including digital) objects. IPR are legal, private, enforceable rights that governments grant to inventors and artists that generally provide time-limited monopolies to right holders to use, commercialize, and market their creations and prevent others from doing the same without their permission. IP is a source of comparative advantage of the United States, and IPR infringement has adverse consequences for U.S. commercial, health, safety, and security interests. Protection and enforcement of IPR in the digital environment is of increasing concern, including cyber-theft. At the same time, lawful limitations to IPR, such as exceptions in copyright law for media, research, and teaching (known as "fair use"), also may have benefits. IPR in Trade Agreements & Negotiations IPR protection and enforcement has been a long-standing objective in U.S. trade agreement negotiations. The United States generally seeks IP commitments that exceed the minimum standards of the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), known as "TRIPS-plus." The 2015 Trade Promotion Authority (TPA) incorporated past trade negotiating objectives to ensure that U.S. free trade agreements (FTAs) "reflect a standard of protection similar to that found in U.S. law" ("TRIPS-plus") and to apply existing IPR protection to digital media through adhering to the World Intellectual Property Organization (WIPO) "Internet Treaties." The TPA also contained new objectives on addressing cyber-theft and protecting trade secrets and proprietary information. Treatment of IPR may be a key issue in the NAFTA renegotiations. Updated or new provisions may include enhanced provisions on pharmaceutical patent protections, copyright protections, trademark protection, disciplines for geographic indicators (GIs), and enforcement measures, as well as new provisions on data exclusivity periods for biologics and criminal penalties for cyber-theft of trade secrets found in more recent U.S. FTAs. Congress could examine whether the IPR outcomes in a possible revised NAFTA outcome are consistent with U.S. trade negotiating objectives in TPA. Additionally, U.S. government actions to enforce foreign trading partners' IPR obligations within the WTO and under existing U.S. FTAs could intensify. Possible oversight issues for Congress include approaches to, as well as prioritization of, potential future U.S. trade enforcement actions in the IPR context. Other IPR Trade Policy Tools The United States maintains other trade policy tools to advance IPR goals, including the "Special 301" and "Section 337." These tools may be particularly relevant in addressing U.S. issues with respect to emerging economies, such as China, India, and Brazil, which present significant IPR challenges but are not a part of existing U.S. trade agreements or negotiations. Additionally, with President Trump's expressed intent to focus on trade enforcement, such tools may take on greater prominence. Special 301. The United States Trade Representative (USTR) publishes annually a "Special 301" report, pursuant to the Trade Act of 1974, as amended. This report identifies countries that do not offer "adequate and effective" IPR protection, for example for patents and copyrights, and designates them on various "watch lists." If the USTR designates a country as a Special 301 "Priority Foreign Country," a category reserved for the most egregious IPR offenders, the country could be subject to an investigation under Section 301 of the Trade Act of 1974, as amended; this could result in trade enforcement action. Reflecting the evolution of IPR issues, the Trade Facilitation and Trade Enforcement Act of 2015 ( P.L. 114-125 ) required USTR to identify issues in countries' protection of trade secrets in the "Special 301" report. China has been a top country of concern, and continues to be identified on the Special 301 "Priority Watch List" (among other countries, such as India). While not designating China as a "Priority Foreign Country," in August 2018, USTR initiated a Section 301 investigation of China's IPR practices under separate authority in the Section 301 statute (see China section). Section 337. The U.S. International Trade Commission (ITC), pursuant to the Tariff Act of 1930, as amended, conducts "Section 337" investigations into allegations that U.S. imports infringe U.S. IP. Based on the investigations, ITC can issue, among other things, orders prohibiting counterfeit and pirated products from entering the United States. International Investment The United States is both a major source and recipient of foreign direct investment (FDI). In 2016, it was the largest source of FDI ($299 billion) and the largest recipient of FDI ($391 billion). The U.S. dual position as a leading source and destination for FDI means that the United States has important economic, political, and social interests at stake in the development of international policies regarding direct investment. U.S. investment policy has become a focal point of the U.S. trade policy debate, intersecting with questions about economic impact, trade restrictions, national security, and regulatory sovereignty. In recent decades, U.S. presidents have issued statements affirming U.S. investment policy that is open to inbound investment. President Trump also expressed support for investment in the United States during his remarks at the World Economic Forum in January 2018. Some analysts, however, point to legislative efforts to expand the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) as a potential harbinger of a more restrictive attitude toward foreign investment in the United States. The Administration's approach to investment issues in the NAFTA renegotiation also may be indicative of possible changes in the direction of U.S. investment policy. Foreign Investment and National Security42 The United States has established domestic policies that treat foreign investors no less favorably than U.S. firms, with some exceptions for national security. Under current U.S. law, the President exercises broad discretionary authority over developing and implementing U.S. direct investment policy, including the authority to suspend or block investments that "threaten to impair the national security." At the same time, Congress also is directly involved in formulating the scope and direction of U.S. foreign investment policy. In July 2007, Congress asserted its role in making and conducting foreign investment policy when it adopted and the President signed the Foreign Investment and National Security Act of 2007 ( P.L. 110-49 ) that formally established the Committee on Foreign Investment in the United States (CFIUS). This law broadens Congress's oversight role, and explicitly includes homeland security and critical infrastructure as issues that the President must consider when evaluating the national security implications of foreign investment. The law also grants the President the authority to suspend or block foreign investments that are judged to threaten U.S. national security, although the law does not define what constitutes national security relative to a foreign investment. It also requires review of investments by foreign investors owned or controlled by foreign governments. The law has been used five times to block a foreign acquisition of a U.S. firm, although a number of investments have been withdrawn before the review was completed. In 2017, growing concerns over the impact of Chinese investment in U.S. high-technology firms resulted in measures being introduced in both the House and the Senate to amend the CFIUS process. Of particular note are S. 2098 and H.R. 4311 , respectively, identified as the Foreign Investment Risk Review Modernization Act of 2017, or FIRRMA. The legislation represents the most comprehensive reform of the foreign investment review process under CFIUS since it was created. The proposed changes could recast the law's generally defensive approach that largely focuses on the potential impact of individual investments on national security to a more assertive role that emphasizes U.S. economic as well as national security interests. Additionally, the proposed changes include provisions that would distinguish foreign investments by country depending on whether the country has security or other special types of arrangements with the United States. Countries that do not have such arrangements with the United States would face more scrutiny. Over the past decade, national security-related concerns have become more prominent in the investment policies of numerous countries. International organizations have long recognized the legitimate concerns of nations in restricting foreign investment in certain sectors of their economies, but the recent increase in such restrictions has raised a number of policy issues. Countries have adopted new measures to restrict foreign investment or have amended existing laws concerning investment-related national security reviews. Countries also have different approaches for reviewing and restricting foreign investment on national security-related grounds. As a result of these differences, foreign investors in similar economic activities can face different entry conditions in different countries. U.S. International Investment Agreements (IIAs)45 The United States negotiates international investment agreements (IIAs), based on a "model" Bilateral Investment Treaty (BIT), to reduce restrictions on foreign investment, ensure nondiscriminatory treatment of investors and investment, and advance other U.S. interests. U.S. IIAs typically take two forms: (1) BITs, which require a two-thirds vote of approval in the Senate; or (2) BIT-like chapters in free trade agreements (FTAs), which require simple majority approval of implementing legislation by both houses of Congress ( Figure 4 ). While U.S. IIAs are a small fraction of the more than 3,300 IIA agreements worldwide, they are often viewed as more comprehensive and of a higher standard than those of other countries. A focal point for Congress on investment issues likely will be the NAFTA renegotiation. In considering NAFTA, Congress may look to the Trans-Pacific Partnership (TPP), which represented the most recent set of investment rules negotiated by the United States. TPP carried over core investor protections, as well as added new provisions, including clarification of protections for investors and governments' right to regulate in the public interest, enhanced investor-state dispute settlement (ISDS) procedures for transparency and public participation, and an exception allowing governments to decline to accept ISDS challenges against tobacco control measures. Treatment of ISDS, binding international arbitration of private investors claims against host country-governments for violation of investment obligations, could be a focus in the NAFTA negotiations. ISDS, which is in the current NAFTA, traditionally has been favored by the U.S. government and businesses but contested by some civil society groups. The USTR's negotiating objectives for NAFTA do not mention ISDS, but it is possible that USTR will attempt to renegotiate these commitments. Questions may arise over whether to retain ISDS, make changes to it modeled after TPP, or pursue an alternate model—such as a new Investment Court System (ICS), as contemplated in the EU-Canada Comprehensive Economic and Trade Agreement (CETA). The number of ISDS cases has expanded significantly with the rapid growth of FDI in recent decades ( Figure 5 ). Investment issues in other U.S. trade negotiations, such as the Transatlantic Trade and Investment Partnership (T-TIP) if continued, could present other areas of congressional oversight. Additionally, the United States has engaged in BIT discussions with emerging and developing economies that are not a part of current U.S. FTA negotiations, notably China and India, but those discussions appear to be currently stalled. While such potential BITs present opportunities for enhanced commercial relations, debate exists over whether they can achieve high standard investment commitments. Congress also may weigh in on possible multilateral discussions on a permanent multilateral investment court, a proposal advanced by the EU and Canada, as well as possible WTO discussions on a new framework on investment facilitation. Promoting Investment in the United States47 U.S. investment policy includes attracting investment to the United States. The Department of Commerce's SelectUSA program, established in 2011, aims to coordinate federal efforts to attract and retain business investment in the United States, complementing state investment promotion activities. SelectUSA serves as an information resource on investment, helps resolve investment issues involving federal programs and activities, and advocates at a national level to attract inward investment. It has operated with a budget of up to $10 million in recent years. A key issue presented by SelectUSA for Congress is whether to codify the program. Supporters argue that a permanent or long-term authorization could stabilize SelectUSA's role, boost U.S. exports and jobs, and reiterate U.S. interest in competing for investment. Critics contend that the program duplicates existing state- and local-level investment promotion programs, and that policies to improve the U.S. investment environment (e.g., on education, the labor force, and the tax system) would be more effective in attracting and retaining FDI. The Trump Administration's decision to hold a 2017 SelectUSA Investment Summit, hosted by Secretary of Commerce Wilbur Ross, appears to signal support for investment attraction efforts generally. Moreover, SelectUSA activities appear to be consistent with President Trump's efforts to retain U.S. firms' manufacturing plants in the United States and dissuade others from moving operations abroad. Trade Enforcement50 Trade enforcement represents a broad range of functions, such as ensuring commitments under U.S., WTO, and other trade agreements are upheld, including through dispute settlement; detecting and preventing fraud at the border; ensuring product safety and regulatory compliance; and ensuring U.S. trade laws on exports and imports are followed. The USTR is the lead agency in enforcing U.S. rights under the WTO and other trade agreements. The front-line trade enforcement agency at the border is U.S. Customs and Border Protection (CBP) of the Department of Homeland Security. In collaboration with its sister agency, U.S. Immigration and Customs Enforcement (ICE), CBP works to detect high-risk activity, deter non-compliance, and disrupt fraudulent trade behavior. CBP is also responsible for facilitating trade and clearing imports at U.S. ports of entry; in order to complete this task it must coordinate with 47 partner government agencies that have licensing and regulatory authority over various kinds of imported merchandise including food, firearms, and pharmaceuticals. U.S. trade laws include trade remedies used by the United States and other countries to mitigate the adverse impact of various trade practices on domestic industries and workers, such as antidumping (AD) laws and countervailing duty (CVD) laws. Federal agencies involved in trade remedy investigations and enforcement include the U.S. International Trade Commission (ITC), the International Trade Administration (ITA) of the Department of Commerce (Commerce), and the Interagency Trade Enforcement Center (ITEC). Other U.S. trade laws that the USTR and other agencies implement and enforce include "Special 301" and Section 337, which address IPR unfair trade practices (see IPR section). Dispute Settlement52 The United States has several means of enforcing trade agreements through the dispute settlement process of the WTO and various U.S. FTAs. Dispute settlement is a well-used feature of the WTO agreements with over 500 cases filed since 1995. U.S. FTAs also have dispute settlement mechanisms, but they are used less often. The USTR is authorized to launch cases on behalf of the United States, after input from other agencies and stakeholders in the private sector or non-governmental organizations (NGOs). Usually, countries first seek to settle their differences through consultation, and both the WTO and U.S. FTAs provide mechanisms to do so. If a dispute is launched in the WTO, the Dispute Settlement Understanding (DSU) provides procedures to keep the handling of the dispute on track. The timetable to conclude a case before a dispute settlement panel is six months, with an additional two months for the decision to be adopted by the Dispute Settlement Body. Cases can be appealed to the Appellate Body. If a party is found to violate an agreement, it has time to bring its law into conformity with the decision. If the party refuses to bring itself into compliance, or if the compliance panel deems the steps taken to be insufficient, the aggrieved party can retaliate by withdrawing trade concessions (i.e., reimposing tariffs) to a level equivalent to the economic damage of the infringing measure. Overall, the entire dispute settlement process can take two to three years. U.S. FTAs contain similar dispute settlement mechanisms. The Administration appears to be taking a skeptical approach to the WTO's dispute settlement system in particular. It has blocked the appointment of Appellate Body (AB) panelists, imperiling the ability of the AB to hear cases. USTR Lighthizer has called for systemic changes in the body, but, thus far, the United States has not made specific proposals. Some Members of Congress have identified other perceived shortcomings of dispute settlement in trade agreements to which the United States is a party. These include whether USTR should be bringing more cases to dispute settlement, whether panelists have interpreted agreements too expansively, and whether proceedings are completed in a timely manner. Trade Remedies54 The United States and its trading partners use laws known as trade remedies to mitigate the injury (or threat thereof) of various trade practices to domestic industries and workers. The three most frequently applied are: an tidumping (AD) remedies that provide relief from injurious imports sold at less than fair market value; co untervailing duty (CVD) remedies that provide relief from injurious imports subsidized by a foreign government or public entity; and sa feguard (Section 201) remedies that provide temporary relief from import surges of fairly traded goods. AD/CVD laws are administered primarily through the International Trade Administration (ITA) of the Department of Commerce (ITA), which addresses the existence and amount of dumping or subsidies, and the United States International Trade Commission (ITC), which determines injury to the domestic industries petitioning for redress. In AD and CVD cases, the remedy is an AD or CVD "order" that places an additional duty assessed to offset the calculated amount of dumping or subsidy. In safeguard cases that are determined by the President, a temporary import quota or a tariff may be imposed. In addition, the World Trade Organization (WTO) agreements contain specific obligations on these measures to which its member countries, including the United States, adhere. Congress has enacted and amended U.S. trade remedy laws over time. Individual AD and CVD cases require no direct congressional action and are quasi-judicial. Nonetheless, they are often the subject of congressional interest, especially if constituents are involved as domestic manufacturers or as importers of merchandise subject to trade remedy investigations. Safeguard remedies, based on Section 201 of the Trade Act of 1974, are designed to provide a temporary "safeguard" (for example, additional tariffs or quotas on imports) in order to facilitate positive adjustment of a domestic industry to import competition. "Positive adjustment" in the law means the ability of the industry to compete successfully with imports after termination of the safeguard measure, or the industry's orderly transfer of resources to other productive pursuits; and the ability of dislocated workers to transition productively. The ITC is the principal agency involved in Section 201 investigations, but implementation of a remedy requires presidential action. If the President's action is different from the ITC's recommendation and Congress disagrees, Congress may enact a joint resolution of disapproval, in which case the ITC's recommendation is implemented. Trade remedy laws and actions are often controversial, with different impacts on stakeholders and also because many trade experts view them as protectionist. Others assert that they are an essential means of mitigating the adverse impact of unfair trade on domestic companies, workers, and the communities in which they are located. Although there are limited options for congressional action in trade remedy cases, Congress has oversight of the agencies that conduct these investigations. National Security and Section 23256 Section 232 of the Trade Expansion Act of 1962 (as amended) is sometimes called the "national security clause," because it provides the President with the ability to impose restrictions on imports that the Secretary of Commerce determines threaten to impair the national security. If requested, or upon self-initiation, the Bureau of Industry and Security (BIS) of the Department of Commerce must consult with the Secretary of Defense and other agencies, and conducts the investigation based on federal regulations codified in 15 C.F.R. §705 (Effect of Imported Articles on the National Security). Section 232 specifies factors that Commerce must consider regarding the impact of the subject imports. If the Commerce Department determines in the affirmative, the President, upon receipt of the report, has 90 days to (1) determine whether he/she concurs with its findings; and (2) if the President concurs, determine the nature and duration of the action to be taken to adjust the subject imports. The President may decide to impose tariffs, quotas, or other measures to offset the adverse effect, without any limits on the duration on tariff or quota amounts. Section 232 sets out timelines and procedures the President must follow once a decision is made. The Commerce and Defense Departments have broad discretion in Section 232 cases to define the scope of the investigation, and the WTO allows members to take measures in order to protect "essential security interests," though U.S. actions under Section 232 could be challenged under WTO dispute settlement procedures or potentially be subject to retaliation or imitation by trading partners. Digital Trade57 The internet has become a facilitator of existing international trade in goods and services, as well as a platform itself for new digitally-originated services. As digital trade flows make up an important and growing segment of the economy, addressing digital trade barriers has emerged as a key negotiating objective in U.S. trade agreements. The United States generally seeks to preserve a free and open internet. Congressional issues include oversight of agencies charged with regulating cross-border data flows and oversight of the treatment of digital trade issues in the renegotiation of the North American Free Trade Agreement (NAFTA), a potential Transatlantic Trade and Investment Partnership (T-TIP), a potential plurilateral Trade in Services Agreement (TiSA), or other international forums. New Barriers The increase in digital trade raises new policy challenges, including how best to address new and emerging digital trade barriers, including restrictions on cross-border data flows and localization barriers; intellectual property rights (IPR) infringement in the online environment; forced source-code disclosure; online filtering, blocking, and neutrality policies; local standards and burdensome testing and certification requirements; and government-to-government cooperation on cybersecurity, consumer protection, and data privacy. The United States is beginning to address these and other barriers to digital trade through existing and proposed trade agreements as well as in other international settings. Digital trade norms are being discussed in forums such as the NAFTA renegotiation, the WTO, the Group of 20 (G-20), the Organization for Economic Cooperation and Development (OECD), and the Asia-Pacific Economic Cooperation (APEC), providing the United States with multiple opportunities to engage in and shape global developments. EU-U.S. Data Flows Cross-border data flows between the United States and Europe are the highest in the world. In October 2015, the Court of Justice of the European Union (CJEU) invalidated the Safe Harbor Agreement of 2000 between the United States and the 28-member European Union (EU), under which personal data could legally be transferred between EU member countries and the United States. The decision was driven by European concerns that the U.S. approach to data privacy did not guarantee a sufficient level of protection for European citizens' personal data. In early 2016, U.S. and EU officials announced an agreement on a replacement to Safe Harbor: the EU-U.S. Privacy Shield, which was approved by the European Commission (the EU's executive) and entered into force in July 2016. The final agreement included additional obligations on the U.S. government, including a new ombudsman in the U.S. State Department and supplementary safeguards and limitations on surveillance. It also included additional obligations for U.S. companies, such as robust data processing. The Privacy Shield also involves proactive monitoring and enforcement by U.S. agencies, and is subject to an annual joint review by the United States and the EU. While U.S. and EU companies are relying on the Privacy Shield to ensure their transatlantic digital data flows are allowed, some parties have begun to challenge the Privacy Shield in court. The EU reaffirmed the Privacy Shield after the first annual joint review held in September 2017, but identified specific recommendations for improvement. In April 2016, the EU adopted a new General Data Protection Regulation (GDPR) that will establish a single set of rules for data protection throughout the EU. The GDPR goes into effect in May 2018 and may impose additional requirements on companies enrolled under the Privacy Shield. EU privacy regulators issued guidance stating that the use of binding corporate rules to transfer data will remain valid under GDPR, but companies may need to harmonize the rules to the new requirements. EU Member States authorities will enforce GDPR implementation. Congress may monitor GDPR implementation and its impact on the ability of U.S. companies to do business in the EU. Exchange Rates61 Exchange rates, the price of currencies relative to each other, are among the most important prices in the global economy. They affect the price of every country's imports and exports, as well as the value of every overseas investment. Changes in exchange rates can dramatically impact international trade and investment flows. Governments take different approaches to exchange rates. Some, including the United States, Japan, and the Eurozone, let the market determine the value of their currency ("floating" currencies), while others target the value of their currency to a specific value ("pegged" currencies). Over the past decade, some Members of Congress and policy experts have raised concerns that some governments purposefully undervalue their currency to gain an unfair advantage for their exports, or "manipulate" their currencies, arguing that U.S. companies and jobs have been adversely affected by them doing so. Some economists are skeptical about currency manipulation and whether it is a significant problem. They raise questions about whether government policies have long-term effects on exchange rates, whether it is possible to differentiate between "manipulation" and legitimate central bank activities, and the net effect of alleged currency manipulation on fluctuations in the value of the dollar ( Figure 6 ) and the U.S. economy. Multilaterally, members of the International Monetary Fund (IMF) have committed to refraining from manipulating their exchange rates to gain an unfair trade advantage, but the IMF has never publicly labeled a country as a currency manipulator. The Department of the Treasury is tasked under U.S. law with reporting on and responding to currency manipulation, but Treasury has not found currency manipulation in more than two decades. During the 2016 presidential campaign, Donald Trump criticized China and Japan as currency manipulators. Since President Trump assumed office, however, the Department of the Treasury has not determined China to be manipulating its currency. Additionally, President Trump supported Japan's monetary policies during his February 2017 summit with Japanese Prime Minister Shinzo Abe. In the NAFTA renegotiation, USTR has identified addressing currency manipulation as a negotiating objective, even though Mexico and Canada have floating currencies. Any provisions on currency in NAFTA could set precedent for future negotiations. Labor and Environment Some Members of Congress and others have sought to improve labor and environmental conditions in other countries through the inclusion of provisions addressing those issues in U.S. FTAs. They have been concerned that lax or lower standards in other countries may make U.S. products less competitive, resulting in lost jobs and production to overseas firms. Alternatively, they could lower wages and standards in the United States, contributing to a perceived "race to the bottom." Others have tried to limit the scope and enforceability of such provisions, or believe that the competence to address these issues lies elsewhere, such as with international organizations. They also view trade agreements as enabling greater economic growth that can provide more resources for addressing labor and environmental issues. Labor Provisions in FTAs64 The issue of worker rights has become prominent in the negotiation of U.S. FTAs. Some stakeholders believe that worker rights provisions are necessary to protect U.S. labor from perceived unfair competition and to raise standards in other countries. Others believe that worker rights are more appropriately addressed at the International Labor Organization (ILO) or through cooperative efforts and capacity building on worker rights and economic growth. Since 1988, Congress has included worker rights as a principal negotiating objective in Trade Promotion Authority (TPA) legislation. The United States has been in the forefront of using trade agreements to promote core internationally-recognized worker rights consistent with the ILO Declaration on Fundamental Principles and Rights at Work (1998) . These include freedom of association and the effective recognition of the right to collective bargaining, elimination of all forms of compulsory or forced labor, effective abolition of child labor, and elimination of discrimination in respect of employment and occupation. The ILO is the primary multilateral organization responsible for promoting labor standards through international conventions and principles. A specialized agency of the United Nations, it has a tripartite structure composed of representatives from government, business and labor organizations. The ILO promotes labor rights through assessment of country standards and technical assistance, but it has no real enforcement authority. The WTO does not address worker rights. In the NAFTA renegotiation, the United States may seek to strengthen labor provisions and have a stronger enforcement mechanism. Labor provisions in U.S. FTAs have evolved since NAFTA, which was the first U.S. FTA that addressed worker rights by committing the parties to enforce their own labor laws and to resolve disputes ( Figure 7 ). The most recent U.S. FTAs (with Peru, Colombia, Panama, and South Korea) incorporate stronger language by which parties must adopt, maintain, and enforce ILO core labor principles. The proposed TPP included similar provisions, in addition to three labor consistency plans with specific labor commitments in regard to worker rights for Brunei, Malaysia, and Vietnam. Some Members of Congress sought such a plan for Mexico in the context of TPP, and are doing so again in the NAFTA renegotiations. Environment Provisions in FTAs65 The nexus between trade and environmental protection is a concern to U.S. policymakers and stakeholders. Some observers argue that economic expansion brought on by trade liberalization adversely impacts the environment, and that some countries may adopt less stringent environmental policies to attract trade and investment. Other policymakers and stakeholders believe that trade liberalization and environmental protection are mutually supportive. They argue that while economic growth may adversely impact the environment during the initial stages of industrialization, it can also provide resources to mitigate such effects as countries develop. They also argue that trade liberalization can support U.S. environmental goals through the elimination of tariffs on environmental goods, and the reduction of trade-distorting subsidies. In FTAs, the United States has negotiated environmental provisions, which have evolved over time ( Figure 8 ). They first appeared as a side agreement to NAFTA, committing the parties to enforce their own laws and cooperatively resolve disputes in a special venue, among other goals. The Trade Act of 2002 was the first grant of trade promotion authority (TPA) containing environmental negotiating objectives, calling for countries not to fail to enforce their own environmental laws in a manner affecting trade between the United States and the partner country. Environmental obligations were expanded in U.S. FTAs with Colombia, Panama, Peru, and South Korea, and were largely reflected in the 2015 grant of TPA. Under those FTAs and the 2015 TPA legislation, parties are obligated to adopt and maintain their own laws consistent with seven multilateral environmental agreements (MEAs) to which each was a party. Parties also were obligated not to derogate from their laws in order to attract trade and investment. In addition, these provisions were subject to the same dispute settlement provisions as other parts of the agreement with the withdrawal of trade concessions as the ultimate penalty for non-compliance. The WTO does not have provisions related to environmental protection. In the NAFTA renegotiations, Congress may seek to have revised environmental provisions incorporated into the main body of the agreement. Congress may also examine the extent to which any renegotiated environmental provisions are consistent with TPA. For example, Congress may examine whether any resulting agreement incorporates the seven multilateral MEAs listed in TPA. It may also scrutinize whether new provisions contained in the TPP for the first time, such as on fishing subsidies, are included in a revised NAFTA and whether the provisions are mandatory or hortatory. Export Controls and Sanctions Congress has authorized the President to control the export of various items for national security, foreign policy, and economic reasons. Separate programs and statutes for controlling different types of exports exist for nuclear materials and technology, defense articles and services, and dual-use goods and technology. Under each program, licenses of various types are required before export. The Departments of Commerce, State, Energy, and Defense administer these programs. At the same time, Congress also legislates country-specific sanctions that restrict aid, trade, and other transactions to address U.S. policy concerns about proliferation of weapons, regional stability, and human rights. In the 115 th Congress, these controls and sanctions may raise difficult issues over how to balance U.S. foreign policy and national security objectives against U.S. commercial and economic interests. Export Controls66 In 2009, the Obama Administration launched a comprehensive review of the U.S. export control system. In the current system, responsibility for licensing exports is divided among the Departments of Commerce, State, and the Treasury, based on the nature of the product (munitions or dual-use goods) and basis for control. The Department of Defense has an important advisory role in examining license applications. Enforcement is shared among these agencies, as well as the Departments of Justice and Homeland Security. Key elements of the Administration's reform agenda included a four-pronged approach that would create a single export control licensing agency for both dual-use and munitions exports, adopt a unified control list, create a single integrated information technology system, and establish a single enforcement coordination agency. Under this initiative, the Administration undertook efforts to harmonize the Commerce Control List (CCL), which focuses on dual-use items (i.e., items with both commercial and defense uses), with the U.S. Munitions List (USML). This has been done through a category-by-category review of USML items, congressional notification, and a migration of less sensitive items to the CCL. Eighteen of 21 USML categories have been scrubbed; however, three remaining categories (firearms, guns and armament, and ammunition) remain pending. To fulfill other parts of the reform initiative, an interagency Export Enforcement Coordination Center (E2C2) became fully operational in 2012, and an interagency integrated information technology system debuted in 2015. The Obama Administration did not pursue the idea of a single licensing agency to administer export control licensing, which would have required legislation. The 115 th Congress and the Trump Administration may take stock of the work done by the Obama Administration through oversight, including the viability and placement of any proposed licensing agency. Congress also may attempt to reauthorize or rewrite the now-expired Export Administration Act (EAA), the statutory basis of dual-use export controls. Economic Sanctions67 Economic sanctions may be defined as coercive economic measures taken against a target to bring about a change in policies. They can include such measures as trade embargoes; restrictions on particular exports or imports; denial of foreign assistance, loans, and investments; control of foreign assets under U.S. jurisdiction; and prohibition of economic transactions that involve U.S. citizens or businesses. Secondary sanctions, in addition, impede trade, transactions, and access to U.S.-located assets of foreign persons and entities in third countries that engage with a primary target. The United States maintains an array of economic sanctions against foreign governments, entities, and individuals. Specifically, the United States: maintains sanctions regimes against foreign governments it has identified as supporters of acts of international terrorism (Iran, North Korea, Sudan, Syria), nuclear arms proliferators (Iran, North Korea, Syria), egregious violators of international human rights standards (Belarus, Burma, Burundi, Central African Republic, Cuba, Democratic Republic of the Congo, Iran, Libya, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Venezuela, Western Balkans, Zimbabwe, and the Hizbollah organization), and those threatening regional stability (Iran, North Korea, Russia, Syria); imposes economic restrictions on individuals and entities found to be active in egregious human rights abuses and corruption within the state system, international terrorism, narcotics trafficking, weapons proliferation, illicit cyber activities, conflict diamond trade, and transnational crime; and targets individuals and entities with economic and diplomatic restrictions to meet the requirements of the United Nations Security Council (Central African Republic, Democratic Republic of Congo, Eritrea, Guinea-Bissau, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, South Sudan, Sudan, Yemen, and individuals affiliated with the Islamic State (Da'esh), al-Qaida, or the Taliban). The 115 th Congress, early on, staked out a substantial position in several foreign policy decisions facing the 45 th President—whether to seek to deter Iran's missile proliferation activities, human rights abuses, and support of international terrorism, any of which could risk abrogation of the U.S. agreement to the multilateral Iran nuclear deal; further isolate Russia in an effort to restore the Crimea region to Ukraine, deter Russia's support of the government of Syria, and impede cyber intrusions in democratic processes in the United States and Europe; and halt North Korea's progress in developing a nuclear weapon and the means to deliver them. Sanctions as a foreign policy tool figure heavily in each of these challenges. Miscellaneous Tariff Bills (MTBs)68 Many Members of Congress introduce bills to support importer requests for the temporary suspension of tariffs on chemicals, raw materials, or other non-domestically made components generally used as inputs in the manufacturing process. A rationale for these requests is that they help domestic producers of manufactured goods reduce costs, making their products more competitive. Due to the large number of bills typically introduced, they are often packaged together in a broader miscellaneous tariff bill (MTB). The most recent MTB, P.L. 111-227 , was enacted on August 11, 2010, and expired on December 31, 2012. MTB consideration has been controversial in previous Congresses due to congressional moratoriums on "earmarks," which have included measures to provide "limited tariff benefits," defined in House and Senate rules as tariff reductions benefiting ten or fewer entities. On May 20, 2016, President Obama signed P.L. 114-159 , the American Manufacturing Competitiveness Act of 2016, which reformed the process for considering MTBs. The legislation passed in the House by a wide margin (415-2) and in the Senate by unanimous consent. The law provides a new process for initiating two MTBs, one in 2016 and one in 2019. In the procedure outlined in the law, the International Trade Commission (ITC), rather than Congress, is responsible for receiving petitions for reduced or suspended duties (duty suspensions), collecting public feedback, gathering input from related Federal agencies, and reporting findings directly to the House Ways and Means and Senate Finance Committees. Congress retains authority to enact any further tariff suspensions based on ITC input. The 2016 MTB process began on October 15, 2016 with a Federal Register notice from the ITC asking for members of the public to submit petitions within a 60-day period (closed mid-December 2016). Congress received the final MTB report on June 9, 2017. On November 11, 2017 identical bills H.R. 4318 and S. 2108 , the Miscellaneous Tariff Bill Act of 2017, were introduced. The House passed H.R. 4318 in January 2018. Floor action on the Senate bill is pending. Trade and Development The United States uses trade as a tool to spur economic growth in developing countries. The two main components of this policy are trade preference programs and funding for trade capacity building. Trade preference programs grant limited duty-free access to the U.S. market to eligible developing countries, providing a market-oriented incentive to invest in productive capacity and access international markets. Trade capacity building involves U.S. assistance (funding, training, or otherwise) to facilitate developing countries' engagement in international trade, and encompasses activities ranging from support of efficient customs systems to implementation of trade agreements. Trade Preferences69 Since 1974, Congress has created six trade preference programs designed to assist developing countries: Generalized System of Preferences (GSP—expired December 31, 2017), which applies to all eligible developing countries; Andean Trade Preference Act (APTA—expired July 31, 2013); Caribbean Basin Economic Recovery Act (CBERA—permanent); Caribbean Basin Trade Partnership Act (CBTPA—expires September 30, 2020); African Growth and Opportunity Act (AGOA—expires September 30, 2025); Haitian Opportunity through Partnership Encouragement Act (HOPE—expires September 30, 2025); and trade preferences for Nepal (expires on December 31, 2025). Most of these programs give temporary, non-reciprocal, duty-free access to the U.S. market for a select group of exports from eligible countries. The 114 th Congress passed the Trade Preferences Extension Act of 2015 ( P.L. 114-27 ) to reauthorize and make certain revisions to AGOA, GSP, and HOPE. The 114 th Congress also passed customs legislation ( H.R. 644 ), including new duty-free treatment on select U.S. imports from Nepal. The 115 th Congress continues its oversight of these programs, and may consider, among other issues, reauthorization of GSP, which expired at the end of 2017. As the 115 th Congress debates other potential trade agreements it may also evaluate those agreement's potential impact on preference program beneficiaries. Given the Administration's discretion over product and country eligibility, Congress may seek to consult closely with the Administration over its enforcement of statutory eligibility criteria to ensure adherence to congressional objectives. Generalized System of Preferences (GSP) The GSP program provides non-reciprocal, duty-free tariff treatment to approximately 3,500 products imported from designated beneficiary developing countries (BDCs) and about 1,500 additional products from eligible least-developed beneficiary developing countries. In order to remain eligible for GSP, countries must meet certain criteria established by Congress, including taking steps to protect intellectual property rights (IPR) and internationally recognized worker rights. The GSP program also includes certain limits on product eligibility intended to shield U.S. manufacturers and workers from potential adverse impact due to the duty-free treatment. These include specific exclusion of certain "import sensitive" products (e.g., textiles and apparel), and limits on the quantity or value of any one product imported from any one country under the program (least-developed countries excepted). The U.S. program was first authorized in Title V of the Trade Act of 1974, and is subject to periodic renewal by Congress. The GSP program was most recently extended until December 31, 2017 (Title II of P.L. 114-27 ) ; it has since expired. In February 2018, the House passed legislation ( H.R. 4979 ) that would provide a three year extension of the program and would make technical changes to the competitive need limitations provision of the program, H.R. 4979 , and has not yet been renewed, which means that Congress could consider GSP renewal in the coming months. The Trump Administration's stance on GSP appears to be relatively favorable. First, in response to P.L. 114-27 , which gave the President authority to designate certain luggage and travel articles eligible for GSP, President Trump provided duty-free access to all GSP beneficiaries, rather than the Obama Administration's authorization of duty-free access for these goods from least-developed and AGOA beneficiaries only. Second, the White House has backed improved enforcement of preference programs (rather than supporting possible elimination), as partially referenced by a Trade Policy Staff Committee (TPSC) self-initiated investigation of Bolivia's compliance with GSP eligibility related to child labor. According to a USTR press release, the Administration also aims to remove certain products from GSP eligibility where the country is "sufficiently competitive." African Growth and Opportunity Act (AGOA)73 AGOA is a non-reciprocal U.S. trade preference program that provides duty-free treatment to qualifying imports from eligible sub-Saharan African (SSA) countries. AGOA benefits build on and are more extensive than those provided through GSP. In particular, AGOA includes duty-free treatment for certain textile and apparel products, and allows eligible least-developed AGOA countries to export apparel products to the United States duty-free regardless of the origin of the fabrics used in their production ("third-country fabric provision"). Congress first authorized AGOA in 2000 ( P.L. 106-200 ) to encourage export-led growth in SSA and improve U.S. relations with the region. In the 114 th Congress, Congress extended AGOA's authorization for ten years to September 30, 2025, the longest reauthorization in the program's 16-year history. This longer time frame may help address concerns over investor uncertainty about the program and give AGOA beneficiaries a competitive advantage in producing exports for the U.S. market. However, the utilization of AGOA preferences remains concentrated in few countries and few product categories, and a number of domestic constraints may continue to hinder AGOA countries' export capabilities. Congress could seek to address these challenges, such as through H.R. 3445 and S. 832 , which would direct the President to establish additional trade capacity building efforts towards AGOA countries. In terms of oversight, the 115 th Congress may have interest in the Trump Administration's implementation of AGOA eligibility criteria. The Administration is currently conducting an "out-of-cycle" AGOA eligibility review of Rwanda, Tanzania, and Uganda, regarding a ban on used clothing imports from the United States. On December 27, 2017, President Trump reinstated AGOA eligibility for Gambia and Swaziland. The 115 th Congress may also consider whether and how to advance U.S. trade and investment relations with the region beyond unilateral preferences. The Trump Administration has announced its interest in potential FTA negotiations in the region moving forward. Trade Capacity Building Trade capacity building (TCB) refers to a wide range of activities that support a country's ability to engage in international trade. These efforts may include various forms of assistance targeting, among other issues: negotiation and implementation of bilateral and multilateral trade agreements, customs procedures and processes, legal and regulatory structures for trade-related issues such as intellectual property rights (IPR), labor and environmental protections, technical assistance to help countries meet export standards and phyto-sanitary rules and improve their commercial environments, and development assistance for infrastructure projects that support trade, such as ports. The United States uses TCB activities to promote economic development, increase U.S. opportunities for trade and investment, and enhance other trade policies. Currently no single agency is responsible for coordinating U.S. government TCB. USAID typically receives the most funding to implement such activities given its foreign assistance objectives, but infrastructure-related funding through the Millennium Challenge Corporation (MCC) also comprises a large share of TCB funds. A number of other U.S. government agencies also have responsibilities and funding for TCB, including the Departments of Agriculture, Commerce, Labor, State, the Treasury, and the Interior, and the Trade and Development Agency. USTR has no funding obligated for TCB projects, but is responsible for developing and coordinating U.S. international trade and investment policies and plays a lead role in the interagency system. Other agencies, such as Customs and Border Protection (CBP) and the Patent and Trademark Office, often provide technical expertise to support USAID efforts. Coordination of TCB activities among U.S. government agencies has been an ongoing concern for Congress. In the 114 th Congress, legislation was introduced to enhance the effectiveness and efficiency of U.S. efforts, and formalize the coordination of U.S. TCB efforts ( S. 2201 ). The 115 th Congress may continue its oversight of TCB activities. U.S. Trade Finance and Promotion Agencies76 The federal government seeks to expand U.S. exports and investment through finance and insurance programs and other forms of assistance for U.S. businesses (see text box ) in order to support U.S. jobs and economic growth. Trade finance and promotion activities also may support U.S. foreign policy goals. Many of these activities are driven by demand from U.S. commercial interests. These activities present issues for Congress in terms of their economic justifications, use of federal resources, and intersection with U.S. policy goals and priorities. They also raise questions collectively about the federal trade organizational structure. Export-Import Bank of the United States (Ex-Im Bank) Ex-Im Bank, the official U.S. export credit agency (ECA), provides direct loans, loan guarantees, and export credit insurance, backed by the full faith and credit of the U.S. government, to help finance U.S. exports of goods and services to contribute to U.S. employment. It aims to provide such support when alternative financing is not available or to counter government-backed export credit financing extended by other countries. Ex-Im charges interest, premiums, and other fees for its services, which it uses to fund its activities. Proponents of the agency contend that it supports U.S. exports and jobs, contributes financially to the U.S. Treasury, and manages its risks. Critics argue that it crowds out private sector activity, provides "corporate welfare," and poses a risk to taxpayers. Ex-Im Bank operates under a renewable general statutory charter, which the 114 th Congress extended through the end of FY2019 ( P.L. 114-94 ). Congress also approves an annual appropriation setting an upper limit on Ex-Im Bank's operating expenses. In addition, presidential appointments to Ex-Im Bank's Board of Directors require Senate approval. Several positions on the Board of Directors are currently unfilled. Currently, the absence of a quorum of its Board of Directors constrains it from approving medium- and long-term export financing above $10 million. Ex-Im Bank reported a backlog of over $40 billion in larger transactions in its pipeline. President Trump nominated five individuals for positions on Ex-Im Bank's Board of Directors. In December 2017, the Senate Banking Committee approved four of these nominations, which are now pending in the Senate. Ex-Im Bank abides by Organization for Economic Cooperation and Development (OECD) guidelines for ECA activity. Foreign ECAs, of both OECD and non-OECD members, increasingly are providing financing outside of the scope of the OECD Arrangement. ECA financing by China, a non-OECD member, is of particular concern. Congress may consider the effectiveness of current international ECA rules and negotiations to enhance existing ECA rules or develop new arrangements, as well as potentially begin the process of consideration of future reauthorization of the agency in FY2019. Overseas Private Investment Corporation (OPIC) OPIC is the official U.S. development finance institution (DFI). It seeks to promote economic growth in developing economies by providing project and investment funds financing for overseas investments and insuring against the political risks of investing abroad, such as currency inconvertibility, expropriation, and political violence. In FY2017, OPIC authorized $3.8 billion in new commitments for financing and political risk insurance, reaching a record high of $23.2 billion for its overall portfolio exposure. OPIC's activities are backed by the full faith and credit of the U.S. government. OPIC charges fees for its services, which it uses to funds it activities, and is subject to the annual appropriations process. The FY2017 omnibus appropriations act ( P.L. 115-31 ) extended OPIC's authority through September 30, 2017. OPIC subsequently has been operating under continuing resolutions. OPIC may face more scrutiny in the 115 th Congress, as the Trump Administration's FY2019 budget request proposes consolidating OPIC and other U.S. government development finance activities, such as USAID's Development Credit Authority program, into a new development finance institution. OPIC supporters argue that the agency fills gaps in private sector investment support arising from market failures (e.g., financial crises, risk levels), helps U.S. businesses compete against competitors backed by foreign DFIs, contributes to deficit reduction, and advances U.S. foreign policy interests by contributing to economic development in developing countries. OPIC critics argue that it diverts capital away from efficient uses and crowds out private alternatives; take issue with OPIC assuming risks unwanted by the private sector; and question OPIC's development benefits. Changes in the international development finance landscape, including the growing role of emerging markets and creation of new multilateral institutions, also raise additional questions about OPIC's competitiveness and the potential need for international rules on investment financing. International Trade Administration (ITA) of U.S. Department of Commerce Part of the Department of Commerce, the International Trade Administration (ITA) is charged with "creat[ing] prosperity by strengthening the international competitiveness of U.S industry, promoting trade and investment, and ensuring fair trade and compliance with trade laws and agreements." ITA provides export assistance to U.S. companies seeking foreign business opportunities, including export counseling, market research, business matching services, and advocacy, as well as support for U.S. investment attraction through the SelectUSA program (see "International Investment" section). ITA has a network of trade promotion and policy professionals (formerly and still commonly known as the U.S. and Foreign Commercial Service) in over 70 countries and over 100 U.S. locations to promote U.S. exports, supports U.S. commercial interests overseas, and attracts investment to the United States. Congress may consider ITA funding levels and ITA's role in U.S. export promotion efforts. U.S. Trade and Development Agency (TDA) TDA, an independent agency, operates under a dual mission of advancing overseas economic development and promoting U.S. commercial interests in developing and middle-income countries. TDA seeks to link U.S. businesses to export opportunities overseas, including through infrastructure development, that lead to economic growth in developing and middle-income countries by funding a range of pre-export activities. TDA is smaller than Ex-Im Bank and OPIC, with $70.3 million in obligations for programs in FY2017. President Trump's FY2019 budget request reiterates his prior year's proposal to eliminate TDA. The budget requested $12.1 million to conduct an "orderly closeout" of TDA starting in FY2019. In considering the budget request, Congress may evaluate TDA's mission and the agency's effectiveness and efficiency. TDA supporters maintain that the agency's focus on export promotion and international development sets it apart from other federal government agencies, as well as its role in assisting businesses at early stages of international transactions. Critics calling for TDA's termination assert instead that its functions overlap other agencies. International Financial Institutions (IFIs) and Markets Since World War II, governments have created and used formal international institutions and more informal forums to discuss and coordinate economic policies. As economic integration has increased over the past 30 years, international economic policy coordination has become even more active and significant. Governments use a mix of formal international institutions and international economic forums to coordinate economic policies. Formal institutions, such as the International Monetary Fund (IMF), the World Bank, and the regional development banks (MDBs), are established through formal agreements and have permanent offices with staff. Governments have also relied on more informal forums for economic discussions, such as the G-7 and the G-20, that do not have formal rules or a permanent staff. Congress exercises oversight of U.S. participation in international economic forums and the international financial institutions. Congress authorizes and appropriates U.S. contributions to these institutions, and the Senate must approve high-level political appointees. Congress may also want to exercise oversight of U.S. policy towards new institutions led by emerging markets of which the United States is not a member, including the Asia Infrastructure Investment Bank (AIIB), and how the international financial architecture has evolved since the financial crisis. More broadly, given long-standing economic and foreign policy interests in a stable, thriving global economy, the 115 th Congress is likely to continue monitoring major economic developments overseas and their potential impact on U.S. economic and foreign policy interests. One such issue may be the evolving economic conditions in the Eurozone, which spiraled into crisis following the global financial crisis of 2008-2009. Although economic conditions have stabilized, fundamental challenges remain. Venezuela is experiencing an acute economic crisis, and there is speculation that the government will default on its debt, some of which is held by U.S. investors. International Economic Cooperation (G-7 and G-20)82 Prior to the global financial crisis of 2008-2009, international economic discussions at the top leadership level took place among a small group of developed industrialized economies. The Group of 8 (G-8) includes Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States. In response to the global financial crisis, leaders decided that a broader group of developed and emerging-market economies, the Group of 20 (G-20), would become the premier forum for international economic cooperation and coordination ( Figure 9 ). The G-20 accounts for 85% of global economic output, 75% of global exports, and two-thirds of the global population. The leaders of the G-20 countries hold annual summits, as well as more frequent gatherings of finance ministers, central bankers, and other officials. Leaders and officials of the smaller group of developed countries also continue to meet. Since 2014, however, they have convened as the G-7, excluding Russia following its annexation of the Crimean region of Ukraine. Congress exercises oversight over the Administration's participation in the G-7 and G-20. Additionally, legislative action may be required to implement commitments made by the Administration in the G-7 and G-20 process. The G-7 and G-20 have rotating presidencies, which shape the forum's agenda for a given year. Italy hosted the G-7 summit in Taormina in May 2017, and Germany hosted the G-20 summit in Hamburg in July 2017. These were the first G-7 and G-20 summits attended by President Trump, whose "America First" platform has signaled a reorientation of U.S. foreign policy. While the United States has traditionally played a leadership role in these forums, many commentators viewed the United States as isolated at the summits. Differences between the United States and other countries were most pronounced over climate change and trade. Some commentators  are concerned that the United States' isolation reflects a growing trend of abdication of U.S. leadership and abandonment of U.S. allies. Others argue that differences were overblown and that President Trump is pursuing policies  consistent  with his campaign pledges. International Monetary Fund (IMF)84 The International Monetary Fund (IMF) is an international organization focused on promoting international macroeconomic stability. Created in 1945, it has grown in membership over the past six decades to 189 countries. Although the IMF's functions have changed as the global economy has evolved, today it is focused on surveillance of member states and the global economy, lending to member states facing economic crises, and technical assistance to strengthen members' capacity to design and implement effective policies. The FY2016 Consolidated Appropriations Act ( P.L. 114-47 ) authorized U.S. participation in an IMF reform package, which doubled the size of IMF core resources ("quota") and gave emerging-markets a stronger voice in the governance of the institution. The legislation also sunsets U.S. contributions to a supplemental fund at the IMF, the New Arrangements to Borrow (NAB), in 2022, which would be the first time the United States has reduced its financial commitment to the institution since it was created. Members are evaluating IMF rules on providing large loans, which were used controversially during the Eurozone crisis. Legislation proposed in the 115 th Congress, The IMF Reform and Integrity Ac t ( H.R. 1573 ), would limit the ability of the U.S. Executive Director to the IMF to vote for large IMF programs, especially, where the Fund is co-financing with larger creditors. Multilateral Development Banks (MDBs)85 The MDBs provide financing funded from private capital markets to developing countries in order to promote economic and social development. The United States is a member, and major donor, to five major multilateral development banks (MDBs): the World Bank, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank. These institutions were established after World War II to provide financing for economic development at a time when private sector financing, especially for war-torn, post-conflict, or developing countries, was not available. While the MDBs have thrived and grown over the past decades, the international economy has changed dramatically. Many developing and low-income countries are able to borrow on the international capital markets to finance their development projects. At the same time, emerging-market countries are creating their own MDBs, including the China-led Asian Infrastructure Investment Bank (AIIB, see below). Congress authorizes and appropriates U.S. funding for the MDBs, which may shift under the Trump Administration. In March 2017, the Trump Administration proposed cutting $650 million over three years compared to the commitments made under the Obama Administration. Meanwhile, the World Bank is seeking a general capital increase to increase the size of its non-concessional lending facility for primarily middle-income countries (the International Bank for Reconstruction and Development, IBRD). Congress also conducts oversight of U.S. participation in the MDB and the Senate must approve U.S. representatives at the institutions. In January 2018, the House passed, H.R. 3326 , World Bank Accountability Act of 2017 . If passed into law, the bill would authorize replenishment of U.S. funds to the World Bank's conditional lending facility for low-income countries (the International Development Association, IDA), while also conditioning future U.S. funding to the World Bank on a variety of reforms to fight corruption, strengthen management accountability, and undermine violent extremism. The Asian Infrastructure Investment Bank (AIIB)87 On October 24, 2014, China and 20 other countries signed an agreement to establish a new development bank, the Asian Infrastructure Investment Bank (AIIB). Formally established in late 2015, the AIIB has 61 members, including four G-7 economies (France, Germany, Italy and the United Kingdom). As its name suggests, the new entity is expected to focus on financing infrastructure projects throughout Asia. China sees the AIIB as a means to finance what it calls a "Silk Road Economic Belt," a network of highways, railways and other critical infrastructure linking China to Central and South Asia, the Middle East and Europe. As of February 2018, the AIIB has approved 24 projects worth $4.4 billion. AIIB officials are targeting $4 billion to $5 billion in yearly lending. The United States is not a member of the AIIB. Some observers are concerned that these new development banks may duplicate existing multilateral and regional institutions, and might provide financing with minimal, if any, policy conditionality and without adhering to established environmental and social safeguards, which many developing countries believe are burdensome. By contrast, the United States and other major donors consider policy conditionality, safeguards, and other governance best practices, including measures such as rules on procurement, as being central to the effectiveness of development assistance, and have used their leadership in the MDBs to advance these priorities. While the United States is not a member of the AIIB, and thus will not be authorizing and appropriating financial contributions, Congress has several avenues to shape U.S. policy toward the institution. These include oversight of the AIIB's operations and shaping the evolving relationship between the AIIB and the MDBs where the United States is a member. Economic Crisis in Venezuela89 Venezuela is facing a political crisis under the authoritarian rule of President Nicolás Maduro, who appears to have continued to consolidate power over the political opposition in recent months. Underpinning Venezuela's political crisis is an economic crisis. Venezuela is a major oil producer and exporter, and the 2014 crash in oil prices, combined with years of economic mismanagement, hit Venezuela's economy hard. Venezuela's economy has contracted by 35% since 2013, a larger contraction than the United States experienced during the Great Depression. Venezuela is struggling with inflation, shortages of food and medicine, substantial budget deficits, and deteriorating living conditions with significant humanitarian consequences. In response to the Maduro regime's increasingly undemocratic actions, the Trump Administration imposed sanctions restricting Venezuela's access to U.S. financial markets in August 2017, increasing fiscal pressure on the government. In November 2017, the Venezuelan government announced it would seek to restructure its debt. Debt restructuring is expected to be a long and complex process, and it is unclear whether Venezuela will make coming debt repayments. U.S. investors holding Venezuelan bonds (issued by the government or the state oil company, Petróleos de Venezuela, S.A.  [PdVSA]) could face substantial losses if Venezuela suspends payment or seeks an aggressive restructuring of its debt. Venezuelan dollar-denominated bonds were issued under New York law, and bondholder lawsuits seeking repayment would take place in U.S. courts. Legal challenges could result in the seizure of Venezuela's assets in the United States, such as CITGO (whose parent company is PdVSA), oil exports, and cash payments for oil exports. Looking Forward Members of Congress exert significant influence over the course of U.S. trade policy and its implementation through their legislative, appropriations, and oversight roles. Given current debates about trade and U.S. trade policy, fundamental questions about the future direction of trade and international economic issues are likely to continue to be areas of interest for the 115 th Congress. In engaging on these issues, Congress may conduct oversight of the renegotiation of the North American Free Trade Agreement (NAFTA), and potentially consider implementing legislation for a revised NAFTA, and oversight of modification of the KORUS FTA; consider new bilateral trade agreement negotiations, including with the UK or Japan; examine the status of trade negotiations launched under the previous Administration, including the potential Transatlantic Trade and Investment Partnership (T-TIP) with the European Union (EU), a potential plurilateral Trade in Services Agreement (TiSA), and ongoing discussions at the WTO, as well as the future implications of the TPP without U.S. participation; conduct oversight and take possible legislative action concerning a range of other trade issues, including U.S. trade relations with China and other major economies, as well as U.S. export and import policies and programs; and monitor developments in capital flows and global debt levels, the international financial institutions and U.S. funding levels, the evolution of the AIIB, and other countries' exchange rate policies, among other international finance issues. U.S. trade and economic policy affects the interest of all Members of Congress and their constituents. Congressional actions on these issues can impact the health of the U.S. economy, the success of U.S. businesses and their workers, the standard of living of Americans, and U.S. geopolitical interests. Some of these issues may be highly contested, as Members of Congress and affected stakeholders have differing views on the benefits, costs, and role of U.S. trade policy. The dynamic nature of the global economy—including the increasingly interconnected nature of the global market, the growing influence of emerging markets, and the growing role of digital trade, among other factors—provide the backdrop for a robust and complex debate in the 115 th Congress over a range of trade and finance issues.

The U.S. Constitution grants authority to Congress to regulate commerce with foreign nations. Congress exercises this authority in numerous ways, including through oversight of trade policy and consideration of legislation to implement trade agreements and authorize trade programs. Policy issues cover areas such as U.S. trade negotiations, U.S. trade and economic relations with specific regions and countries, international institutions focused on trade, tariff and nontariff barriers, worker dislocation due to trade liberalization, enforcement of trade laws and trade agreement commitments, import and export policies, international investment, economic sanctions, and other trade-related functions of the federal government. Congress also has authority over U.S. financial commitments to international financial institutions and oversight responsibilities for trade- and finance-related agencies of the U.S. government. Issues in the 115th Congress During the 2016 presidential campaign, U.S. trade policy and trade agreements received significant attention, particularly regarding the impact of trade agreements on the U.S. economy and workers. Among the more potentially prominent international trade and finance issues the 115th Congress is considering, or may consider, are: the status of Trade Promotion Authority (TPA), which is authorized through 2021, provided the President requests an extension and Congress does not enact an extension disapproval resolution before July 2018; the Administration's renegotiation of the North American Free Trade Agreement (NAFTA) and efforts to modify the U.S.-South Korea (KORUS) free trade agreement (FTA); U.S.-China trade relations, including investment issues, intellectual property rights (IPR) protection, forced technology transfer, currency issues, and market access liberalization; proposals to launch new bilateral FTAs, such as with the United Kingdom, Japan, or possibly with countries in Africa; the future of U.S.-Asia trade and economic relations, given President Trump's withdrawal of the United States from the Trans-Pacific Partnership (TPP) and China's expanding Belt and Road Initiative; the future status of trade negotiations launched under the Obama Administration, including for the proposed Transatlantic Trade and Investment Partnership (T-TIP) FTA with the European Union (EU) and the Trade in Services Agreement (TiSA); oversight of World Trade Organization (WTO) agreements and negotiations, including the completed Trade Facilitation Agreement (TFA) and expansion of the Information Technology Agreement (ITA), as well as potential agreements on environmental goods and the WTO's future overall direction; the Administration's enforcement of U.S. trade laws; the effects of trade on the U.S. economy, jobs, and manufacturing, as well as policies that support U.S. workers and industries adversely affected by trade agreements; international finance and investment issues, including U.S. funding for and oversight of international financial institutions (IFIs), the creation of development and infrastructure banks by emerging economies, and U.S. negotiations on new bilateral investment treaties (BITs), notably with China and India; and oversight of international trade and finance policies to support development and/or foreign policy goals, including trade preferences for sub-Sahara Africa and sanctions on Iran, North Korea, Russia, and other countries.

Most Recent Developments In early March 2006, President Bush made a three-day trip to India, the first such visit by aU.S. President in six years. In a speech preceding his trip, the President called India a "naturalpartner for the United States" and identified five broad areas of bilateral cooperation: counterterrorism, democracy promotion, trade promotion, health and environmental protections, andenergy initiatives. On March 2, the President and Prime Minister Singh issued a statementexpressing their mutual satisfaction with the "great progress" made in advancing the U.S.-India"strategic partnership." The statement, which reviewed bilateral efforts to expand ties in a numberof key areas and called for further such efforts, notably announced "successful completion of India's[nuclear facility] separation plan," a reference to ongoing and complex negotiations related toPresident Bush's July 2005 vow to achieve "full civilian nuclear energy cooperation with India." OnMarch 9, the Administration informally submitted to key congressional committee chairman aproposal for adjusting U.S. laws relevant to nuclear commerce. As President Bush was in NewDelhi, the Pentagon issued a statement lauding bilateral military relations with India and anticipatingpossibly major arms sales to that country. (1) In the wake of major U-S.-India bilateral agreements signed in the summer of 2005, Congressheld four relevant hearings in the latter months of that year. On September 8, October 26, andNovember 16, the House International Relations Committee (HIRC) considered the perspectives ofState Department officials and nongovernmental experts on the progress and meaning of increasinglywarm U.S.-India relations and relevant agreements. Similar panels testified before the SenateForeign Relations Committee on November 2. This Senate hearing, along with the October Househearing, was focused specifically on what has become the most controversial aspect of the July 2005Joint Statement issued by President Bush and Prime Minister Manmohan Singh: an intention toachieve full bilateral civilian nuclear energy cooperation. In mid-October 2005, the chairs and ranking members of the Senate Foreign Relations andHouse International Relations Committees sent a letter to Secretary of State Rice requesting that theAdministration begin "substantive discussion" with their committees on possible legislativeproposals related to envisaged civil nuclear cooperation with India. During the October 26 HIRChearing, Committee Chairman Henry Hyde called "strange and unusual" the Administration'sminimal consultation with Congress on the details of such plans and said he was "troubled" by publicstatements from the Administration suggesting that congressional support for such cooperation wasbroad and virtually guaranteed. (2) In a November letter which echoed much of the analysis ofnongovernmental hearing witnesses, a group of 18 experts, scholars, and former U.S. governmentofficials urged Members of the Congress to "critically examine" the proposed nuclear cooperationagreement, saying it "poses far-reaching and potentially adverse implications for U.S. nuclearnonproliferation objectives" and is unlikely to bring India "into closer alignment with other U.S.strategic objectives." (3) In late January, U.S. Ambassador to India Mulford caused a diplomatic stir when heexplicitly linked progress on the proposed nuclear deal with India's upcoming International AtomicEnergy Agency (IAEA) vote on Iran, saying if India chose not to vote with the United States, hebelieved the U.S.-India initiative "will die in the Congress." A State Department spokesman calledthe Ambassador's comments a "personal opinion" and denied that the issues were linked. India'sExternal Affairs Ministry responded that India "categorically rejects" any attempts to link the twoissues, and opposition and leftist Indian political figures criticized the remarks as "a serious affrontto India and its sovereignty." (4) On February 4, India voted with the majority (and the UnitedStates) on an IAEA resolution to refer Iran to the U.N. Security Council. New Delhi called theresolution "well-balanced" and insisted that its vote should not be interpreted as detracting fromIndia's traditionally close relations with Iran. The United States later expressed being pleased withIndia's vote. (5) Developments relevant to civil nuclear cooperation with India have progressed in countriesother than the United States. In September 2005, India and France issued a joint statement promisingthat the two countries would work toward "conclusion of a bilateral nuclear cooperation agreement,"and France committed itself to working with other countries and the NSG to accomplish this. However, after four months of uncertainty over the issue of separating India's civilian and militarynuclear facilities, Paris indicated that New Delhi would have to make "some compromises" in thisarea, with the French Ambassador to India identifying a common French-U.S. interest in reachinga consensus among NSG members, which he said "is not easy." Also in September, Canada reversedits previous policy and announced that it would supply nuclear-related "dual-use items" to India'scivil nuclear program. Following the March 2 U.S.-India Joint Statement, Australia, which is hometo nearly half of the world's unmined uranium, indicated that it might alter its policy of not sellingthis resource to non-signatories of the Nuclear Nonproliferation Treaty, meaning India may becomeeligible. (6) After more than seven months of intensive negotiations over a "credible, defensible, andtransparent" Indian plan to separate its civilian and military nuclear facilities as per the July 18 JointStatement, U.S. and Indian officials were able to reach agreement just hours before the issuance ofthe March 2 Joint Statement while President Bush was in New Delhi. The Indian plan, whichrequires India to move 14 of its 22 reactors into permanent international oversight by the year 2014and place all future civilian reactors under permanent control, exempts India's fast breeder reactorsand also would guarantee an uninterrupted supply of nuclear fuel for India's civilian facilities. UnderSecretary of State Burns, the lead U.S. negotiator, insists that the plan is a boost for U.S.nonproliferation efforts, claiming that the percentage of Indian nuclear facilities under safeguardswill grow as most future facilities are likely to be designated civilian. Numerous nonproliferationexperts remain critical of of the proposed deal. On March 8, the White House issued a press releaseresponding to critics. (7) On November 1, 2005, S. 1950 , to promote global energy security throughincreased cooperation between the United States and India on non-nuclear energy-related issues, wasintroduced in the Senate. On December 15, H.Con.Res. 318 , expressing concernregarding nuclear proliferation with respect to proposed full civilian nuclear cooperation with India,was introduced in the House. Overview and Congressional Interest On July 18, 2005, during the first state visit to Washington, D.C., by an Indian leader sinceNovember 2001, President George W. Bush and Prime Minister Manmohan Singh issued a JointStatement resolving to establish a "global partnership" between the United States and India throughincreased cooperation on economic issues, on energy and the environment, on democracy anddevelopment, on non-proliferation and security, and on high-technology and space. Of particularinterest to many in Congress were the statement's assertion that, "as a responsible state withadvanced nuclear technology, India should acquire the same benefits and advantages as other suchstates," and President Bush's assurance that he would work on achieving "full civilian nuclear energycooperation with India." (8) Such cooperation would require changes in both U.S. law and Nuclear Suppliers Group (NSG)guidelines. This clause is widely viewed as representing the most direct (if still implicit) recognitionto date of India's de facto status as a nuclear weapons state and thus as a reversal of more than threedecades of U.S. nonproliferation policy. Notably omitted from the July 18 statement was anymention of India's aspirations for a permanent seat on the U.N. Security Council. Just weeks earlier,the United States and India signed a ten-year defense framework agreement. (9) Many observers view this andother U.S. moves to build strategic relations with India as part of an effort to "counterbalance" therise of China as a major power, although both Washington and New Delhi insist that their strategiccooperation is not directed against any third party. This report reviews the major provisions of U.S.-India bilateral agreements signed in 2005and further explicated in March 2006, including the status of issues addressed in the now completedNext Step in Strategic Partnership initiative, security relations, economic relations, and global issues. The report reviews arguments made in favor of and in opposition to increased bilateral cooperationin each major issue-area and includes Indian perspectives. Regional issues involving China,Pakistan, and Iran also are discussed. (10) U.S.-India agreements in June and July 2005 represent a new set of landmarks in rapidlywarming ties between the world's two most populous democracies. After decades of estrangementduring the Cold War, U.S.-India relations were freed from the constraints of global U.S.-Sovietbipolarity in 1991, the same year that New Delhi began efforts to transform its once quasi-socialisteconomy through fiscal reform and market opening. However, relations with India continued to beviewed primarily through the lens of U.S. nonproliferation interests. The marked improvement ofrelations that began in the latter months of the Clinton Administration -- President Clinton spent sixdays in India in March 2000 -- was accelerated after a November 2001 meeting between PresidentBush and then-Indian Prime Minister Atal Bihari Vajpayee, when the two leaders agreed to greatlyexpand U.S.-India cooperation on a wide range of issues. India's swift post-9/11 offer of full supportfor U.S.-led counterterrorism operations was widely viewed as reflective of the positive newtrajectory in bilateral relations. Pro-U.S. sentiment may be widespread in India (11) and many in Washingtonand New Delhi see a crucial common interest in cooperating on efforts to defeat militant Islam. President Bush's 2002 National Security Strategy of the United States stated that "U.S.interests require a strong relationship with India," and a recent National Intelligence Councilprojection said the likely rise of China and India "will transform the geopolitical landscape" indramatic fashion. (12) In January 2004, President Bush and Prime Minister Vajpayee formally launched the "Next Stepsin Strategic Partnership" (NSSP) initiative, which sought to address longstanding Indian interestsby expanding bilateral cooperation in the areas of civilian nuclear activities, civilian space programs,and high-technology trade, and expanding dialogue on missile defense. (13) In March 2005, the BushAdministration unveiled a "new strategy for South Asia" based in part on a judgment that the NSSPwas insufficiently broad and that sets as a goal "to help India become a major world power in the 21stcentury." (14) Nongovernmental proponents of closer U.S.-India security cooperation often refer to the riseof China and its potential disturbance of Asian stability as a key reason to "hedge" by bolstering U.S.links with India. While the Bush Administration has sought to downplay this probable motivator,Pentagon officials reportedly assert that India is likely to purchase up to $5 billion worth ofconventional weapons from the United States, including platforms that could be "useful formonitoring the Chinese military." (15) Skeptics of a U.S. embrace of India note that the IndianParliament passed resolutions condemning U.S. military operations against Iraq and later declinedU.S. requests for troop contributions in the effort to stabilize that country. India's U.N. Mission hasvoted with the United States roughly 20 percent of the time over the past five years. (16) According to the current Indian Prime Minister, three major factors have driven a redefinitionof U.S.-India ties: the end of the Cold War, the accelerating pace of globalization, and the increasinginfluence of nearly two million Indian-Americans. However, there is concern among elements ofIndia's security establishment and influential leftist political parties that the United States is seekingto turn India into a regional "client state." In accord with India's traditional nonalignment sentiments,leftist figures have called the July 18 Joint Statement overly concessional to U.S. interests and afurther violation of the ruling coalition's commitment to independence in foreign affairs. Suchcriticism may have elicited assurances by India's defense ministry that decisions about any futurejoint Indian-U.S. military operations would be strictly guided by India's national interest and theprinciples of its foreign and defense policies. In 2003, the Indian external affairs minister denied thatIndia's relations with the United States could be used as a "counterforce" against China, saying, "Wecategorically reject such notions based on outmoded concepts like balance of power. We do not seekto develop relations with one country to 'counterbalance' another." (17) The Administration's policy of assisting India's rise as a major power has significantimplications for U.S. interests in Asia and beyond. The course of U.S. relations with China andPakistan, especially -- and the relationship between Beijing and Islamabad, itself -- is likely to beaffected by an increase in U.S.-India strategic ties. Of most immediate interest to the U.S. Congressmay be the Bush Administration's intention to achieve "full civilian nuclear energy cooperation withIndia," and its promise to bring before Congress related and required legislative proposals. (18) Many in Congress alsoexpress concerns about India's relations with Iran and the possibility that New Delhi's policies towardTehran's controversial nuclear program may not be congruent with those of Washington. Morebroadly, congressional oversight of U.S. foreign relations in Asia likely will include considerationof the potential implications of increased U.S. cooperation with India in functional areas such asarms sales and high-technology trade. With rapid increases in Indian and Chinese influence on theworld stage, many in Congress will seek to determine how and to what extent a U.S.-India "globalpartnership" will best serve U.S. interests. Next Steps in Strategic Partnership and Beyond Since 2001, the Indian government has pressed the United States to ease restrictions on theexport to India of dual-use high-technology goods, as well as to increase civilian nuclear and civilianspace cooperation. These three key issues came to be known as the "trinity," and top Indian officialsstated that progress in these areas was necessary to provide tangible evidence of a changed U.S.-Indiarelationship. (19) Therewere later references to a "quartet" when the issue of missile defense was included. Prior to theformal launching of the NSSP initiative in January 2004, the United States had sought to balanceIndian interests in cooperation on and trade in sensitive technologies with concerns aboutproliferation and security. According to Secretary of State Powell in October 2003, We have been trying to be as forthcoming as we canbecause it's in our interest to be forthcoming, but we also have to protect certain red lines that wehave with respect to proliferation, because it's sometimes hard to separate within space launchactivities and industries and nuclear programs, that which could go to weapons, and that which couldbe used solely for peaceful purposes. (20) India's export controls are generally considered sturdy, with some analysts calling New Delhi's trackrecord comparable to or better than that of most signatories to multilateral export regimes. (21) However, others callattention to recent U.S. sanctions on four Indian individuals and entities said to have been involvedin WMD-related transfers to Iran. The "strategic partnership" forwarded by the NSSP involvedprogress through a series of reciprocal steps in which both countries took action designed to expandengagement on nuclear regulatory and safety issues, enhanced cooperation in missile defense,peaceful uses of space technology, and creation of an appropriate environment for increasedhigh-technology commerce. (22) Despite the "nuts-and-bolts" nature of NSSP efforts, someanalysts characterized the initiative's overarching goal -- increasing rather than denying New Delhi'saccess to advanced technologies -- as a revolutionary shift in the U.S. strategic orientation towardIndia. (23) On July 18,2005, the State Department announced successful completion of the NSSP, calling it "an importantmilestone" in the transformation of U.S.-India relations and an enabler of further cooperativeefforts. (24) The July 18Joint Statement includes provisions for moving forward in three of the four NSSP issue-areas (theJune 28 defense agreement calls for expanded collaboration on missile defense). Since 1998, several Indian entities have been subjected to case-by-case licensingrequirements and appear on the U.S. Commerce Department's "Entity List" imposing licensingrequirements for exports to foreign end users involved in weapons proliferation activities. InOctober 2001, President Bush waived nuclear-related sanctions on aid to India, and the number ofIndian companies on the Entity List was reduced from 159 to 2 primary and 14 subordinate. InSeptember 2004, as part of NSSP implementation, the United States modified some export licensingpolicies and removed the Indian Space Research Organization (ISRO) headquarters from the EntityList. Further adjustments came in August 2005 when six more subordinate entities were removed. Indian companies remaining on the Entity List are four subordinates of the ISRO, four subordinatesof the Defense Research and Development Organization, one Department of Atomic Energy entity,and Bharat Dynamics Limited, a missile production agency. (25) It may be that numerous Indian observers will remain skeptical about the NSSP process evenafter the July 18 Joint Statement, viewing it in the past as a mostly symbolic exercise that will notalter a perceived U.S. intention of ensuring its own technological superiority. (26) Many such analystsbelieve that past U.S. moves have not been substantive, opining that changes in licensingrequirements for high-technology trade have been of little consequence for prospective Indian buyersand progress on space and nuclear energy cooperation has been marginal. Months after its January2004 launch, the NSSP appeared to some Indian analysts to have "crashed against bureaucraticobstacles in Washington" (often an oblique reference to the nonproliferation interests of the StateDepartment). (27) Civilian Nuclear Cooperation(28) Among the more controversial and far-reaching provisions of the July 18 Joint Statement isan implicit recognition of India's status as a nuclear weapons state. The Bush Administration notesIndia's "exceptional" record on (horizontal) nonproliferation and its newly enacted laws to strengthenexport controls on sensitive technologies. The Administration insists that U.S. interests are bestserved with India "joining the mainstream of international thinking and international practices onthe nonproliferation regime." (29) The Director General of the International Atomic Energy Agency(IAEA) has welcomed the agreement as "out of the box thinking" that could contribute to theenhancement of nuclear safety and security. (30) Many favorable analysts view the decision in the context of aperceived need to "counterbalance" a rising China, calling nuclear cooperation with India a meansof both demonstrating U.S. resolve to assist India in increasing its power and stature, and bringingNew Delhi into the global nonproliferation regime rather than leaving it on the outside. For theseobservers, engaging a de facto nuclear India as such is a necessary and realistic policy. (31) There is evidence that India's increasingly voracious energy needs can partially be offsetthough increased nuclear power capacity, although at present nuclear power accounts for about 2.6%of India's total electricity generation. Prime Minister Singh asserts that a major expansion of India'scapacity in this sector is "imperative," and India sets as its goal generation of at least 20,000megawatts of nuclear power by the year 2020 (present capacity is less than 3,000 MWe). GeneralElectric, which built India's Tarapur nuclear power plant in 1969, is an American company thatmight see financial gains from resumed sales of nuclear fuel to India. (32) In April 2005, Secretary of State Rice noted that current U.S. law precludes the sale ofnuclear technology to India, and she conceded that U.S. nuclear cooperation with India would have"quite serious" implications for the Nuclear Nonproliferation Treaty (NPT). (33) Critics of such cooperationinsist that a policy of "exceptionalism" toward India may permanently undermine the coercive powerof the NPT. They say such a move would seriously risk turning the existing nonproliferation regimefrom "imperfect but useful mechanisms to increasingly ineffectual ones," and they fault the BushAdministration for "lowering the bar too much" with a selective and self-serving policy. (34) Many opponents worrythat the Joint Statement exacerbates a global perception that the United States cannot be countedupon to honor its own nonproliferation obligations, including those made in the 1995 and 2000 NPTReview Conferences. This may encourage other supplier countries, such as France, Russia, andChina, to relax their own rules and provide increased aid to potential security risks, such as Iran,Pakistan, and Syria. (35) A further concern is that NPT member countries with advanced scientific establishments that haveforesworn nuclear weapons may become tempted to develop their own such capabilities, especiallyif negotiations over the status of Iran and North Korea break down. (36) Some also see overt U.S.strengthening of India as disruptive to existing balances of power involving both Pakistan andChina. (37) Moreover,some in Congress do not believe the United States should sell nuclear materials to any country thatis not a member of the NPT and which has detonated a nuclear device. (38) During a September 8, 2005 hearing on U.S.-India relations, the first held after the July 18Joint Statement, Members of the House International Relations Committee expressed widespreadapproval of increasingly warm U.S.-India relations. However, many also expressed concerns aboutthe potential damage to international nonproliferation regimes that could result from changes in U.S.law that would allow for civil nuclear cooperation with India. Some voiced negative appraisals ofthe Bush Administration's lack of prior consultation with Congress leading up to the July 18 JointStatement. Administration officials appearing before the panel insisted that the United States wasnot condoning India's nuclear weapons program and that bringing India into the mainstream ofnonproliferation norms would represent a "net gain" for international nonproliferation efforts. Theseofficials also assured the Committee that the Administration will do nothing to undercut NSG guidelines or the body's consensus process, even as they conceded that preliminary consultationswith NSG members had brought "mixed results," with some expressing reservations and/oropposition to making an exception for India. (39) Many influential Indian figures have weighed in with criticism of the specifics of greaterU.S.-India nuclear cooperation. For example, former Indian Prime Minister Vajpayee of theBharatiya Janata Party (BJP) criticized the July 18 Joint Statement as causing "consternation" amongIndian nuclear scientists and defense analysts. His primary objections were that separating India'scivilian and military nuclear facilities could erode India's ability to determine the future size of itsnuclear deterrent and that the costs of such separation would be "prohibitive." India's mainopposition BJP asserts that India stands to lose from the July 18 deal while the United States riskslittle, a claim echoed by some nongovernmental analysts. (40) Prime Minister Singh has dismissed such criticisms asmisguided, insisting that the stipulations will not lead to any limitations on or outside interferencein India's nuclear weapons program, and that substantive Indian action is conditional upon reciprocalU.S. behavior. (41) Under the heading of "Energy and the Environment," the July 18 Joint Statement containsan agreement to "strengthen energy security and promote the development of stable and efficientenergy markets in India ..." This clause has obvious relevance to the above discussion and may alsobe considered in the context of U.S. efforts to discourage India from pursuing construction of aproposed pipeline that would deliver Iranian natural gas to India through Pakistan (see "RegionalIssues" section below). Washington and New Delhi launched a new Energy Dialogue in May 2005. The forum's five Working Groups, one of which addresses nuclear power, seek to help secure clean,reliable, affordable sources of energy. (42) Civilian Space Cooperation A U.S.-India Joint Working Group on Civil Space Cooperation was established in March2005. The inaugural meeting was held in Bangalore, home of the Indian Space ResearchOrganization (ISRO), in June of that year. This forum is meant to provide a mechanism forenhanced cooperation in areas including joint satellite activities and launch, space exploration,increased interoperability among existing and future civil space-based positioning and navigationsystems, and collaboration on various Earth observation projects. The next meeting is slated to takeplace in Washington, D.C., by spring 2006. (43) The July 18 Joint Statement calls for closer ties in spaceexploration, satellite navigation and launch, and in the commercial space arena. U.S. proponentsaver that increased civil space cooperation with India can lead to practical solutions to everydayproblems related to communication, navigation, the environment, meteorology, and other areas ofscientific inquiry. Immediate benefits could include launching U.S. instruments on a planned Indianmoon mission and working to include an Indian astronaut in the U.S. astronaut training program. The two nations also express a readiness to expand cooperation on the Global PositioningSystem. (44) Whilecurrent cooperative plans may be considered noncontroversial, there have in the past been U.S.efforts to prevent India from obtaining technology and know-how which could allow New Delhi toadvance its military missile programs. (45) High-Technology Trade The United States and India established a U.S.-India High-Technology Cooperation Group(HTCG) in November 2002. The July 2003 inaugural HTCG session saw trade representatives fromboth countries discuss a wide range of issues relevant to creating conditions for more robust bilateralhigh technology commerce, including market access, tariff and non-tariff barriers, and exportcontrols. Several public-private events have been held under HTCG auspices, including a July 2003meeting of some 150 representatives of private industries in both countries to share their interestsand concerns with governmental leaders. Commerce Department officials have sought to dispel"trade-deterring myths" about limits on dual-use trade by noting that only a very small percentageof total U.S. trade with India is subject to licensing requirements and that the great majority of dual-use licensing applications for India are approved. (46) In February 2005, the inaugural session of the U.S.-IndiaHigh-Technology Defense Working Group met in Bangalore, where participants sought to identifynew opportunities for cooperation in defense trade. The July 18 Joint Statement noted the signingof a Science and Technology Framework Agreement. A later resolution of a dispute over intellectualproperty may lead to increased scientific collaboration. (47) U.S. proponents of increased high-technology trade with India assert that expanded bilateralcommerce in dual-use goods will benefit the economies of both countries while meeting New Delhi'sspecific desire for advanced technologies. The United States has taken the position that "the burdenof action rests largely on Indian shoulders" in this arena given past frustrations with Indian tradebarriers and inadequate intellectual property rights protections. (48) In addition to concernsabout sensitive U.S. technologies being transferred to third parties, critics warn that sharinghigh-technology dual-use goods with India could allow that country to advance its strategic militaryprograms. Some in Congress have expressed concern that providing India with dual-use nucleartechnologies could allow that country to improve its nuclear weapons capabilities. (49) Security Relations Since September 2001, and despite a concurrent U.S. rapprochement with Pakistan,U.S.-India security cooperation has flourished. Both countries acknowledge a desire for greaterbilateral security cooperation and a series of measures have been taken to achieve this. TheIndia-U.S. Defense Policy Group -- moribund since India's 1998 nuclear tests and ensuing U.S.sanctions -- was revived in late 2001 and meets annually. U.S. diplomats have called bilateralmilitary cooperation among the most important aspects of transformed U.S.-India relations. On June28, 2005, Indian Defense Minister Pranab Mukherjee was in Washington, DC, where the UnitedStates and India signed a ten-year defense framework agreement that refers to a "new era" forbilateral relations and calls for collaboration in multilateral operations, expanded two-way defensetrade, increasing opportunities for technology transfers and co-production, expanded collaborationrelated to missile defense, and establishment of a bilateral Defense Procurement and ProductionGroup. The United States views defense cooperation with India in the context of "common principlesand shared national interests" such as defeating terrorism, preventing weapons proliferation, andmaintaining regional stability. (50) Some analysts believe that India, as a major democracy with a well-trained and professionalmilitary, is a worthy candidate for greater security cooperation with the United States, even ifsignificant asymmetries (on technology transfers, for example) could persist and limit therelationship. Greater interoperability and coordination with the Indian armed forces has the potentialto benefit the United States in areas including counterterrorism, counternarcotics,counterproliferation, and peacekeeping operations. (India has extensive experience in this lattercategory.) (51) Skepticspoint to an Indian strategic culture rooted in concepts of nonalignment and multipolarity as reasonsthat a true strategic partnership will be difficult to develop in the security realm. (52) Apparently divergent U.S.and Indian worldviews are demonstrated in significantly differing policies toward Iraq and thestrategy for fighting religious extremism, relations with and investments in Iran and Burma, and,perhaps most importantly for New Delhi, relations with Pakistan. Also, the Indian military is quitenew to doctrines entailing force projection, having long been focused on defending the country'ssovereignty from internal or neighboring threats. Several Indian officials have expressed concern that the United States is a "fickle" partnerthat may not always be relied upon to provide the reciprocity, sensitivity, and high-technologytransfers sought by New Delhi. Indian military officers voice frustration at what they see asinconsistent U.S. policies and a lack of U.S. credibility. (53) The June defense pact and July Joint Statement apparently seekto mollify Indian concerns in these areas, but it remains to be seen whether or not leaders in bothcapitals can overcome potential political opposition and provide what their counterparts seek fromthe defense relationship. Military-to-Military Relations Since early 2002, the United States and India have held numerous and unprecedented jointexercises involving all military branches. February 2004 "Cope India" mock air combat saw Indianpilots in late-model Russian-built fighters hold off American pilots flying older F-15Cs, surprisingU.S. participants with their innovation and flexibility in tactics. While military-to-militaryinteractions are extensive and growing, some analysts believe that joint exercises are of limitedutility without a greater focus on planning for potential combined operations that arguably wouldadvance the interests of both countries. One suggests that there is no reason why the United Statesand India cannot formalize a memorandum of understanding on cooperative military operations inthe Indian Ocean region. (54) Such a move could, however, antagonize security planners inboth Islamabad and Beijing. Arms Sales Along with increasing military-to-military ties, the issue of U.S. arms sales to India has takena higher profile. In early 2004, a group of 15 private U.S. arms dealers traveled to New Delhi fortalks with Indian officials on potential sales. The Indian government reportedly possesses anextensive list of desired U.S.-made weapons, including P-3C Orion maritime patrol aircraft, PAC-3anti-missile systems, electronic warfare systems, and possibly even F-16 fighters. In March 2005,the Bush Administration welcomed Indian requests for information on the possible purchase of F-16or F/A-18 multi-role fighters and indicated that Washington is "ready to discuss the sale oftransformative systems in areas such as command and control, early warning, and missile defense." The Director of the Pentagon's Defense Security Cooperation Agency is slated to visit New Delhiin September 2005 for classified technical briefings on U.S. missile defense systems and combataircraft, and India may seek to purchase the USS Trenton , a decommissioned U.S. Navy transportship. India has emphasized a desire that security commerce with the United States not be a"buyer-seller" interaction, but instead should become more focused on technology transfers,co-development, and co-production. (55) At present, approximately 70% of India's imported militaryequipment has come from Russia. Missile Defense India was among the first (and few) countries to welcome President Bush's May 2001 callfor development of missile defenses. Expanded dialogue on missile defense was among the fourissue-areas of the NSSP and the June 28 defense pact calls for expanded collaboration in this area. The United States has been willing to discuss potential sales to India of missile defense systems andhas provided technical briefings on such systems. While New Delhi has expressed interest inpurchasing Arrow and/or Patriot anti-missile systems for limited area use, the Indian defenseminister states that India has no intention of "accepting a missile shield from anyone." Some Indiancommentary on missile defense has counseled against Indian purchases of U.S.-made systems, sayingthey are unlikely to be effective, could be overwhelmed by augmented Chinese and Pakistani missileinventories, and would increase regional insecurities. (56) U.S. proponents of increased missile defense dialogue with Indiaview it as meshing with President Bush's policy of cooperating with friendly countries on missiledefense. Skeptics warn that the introduction of anti-missile systems in South Asia could disrupt theexisting regional balance and perhaps fuel an arms race there. The Proliferation Security Initiative The Proliferation Security Initiative (PSI) launched by President Bush in May 2003 seeksto create multilateral cooperation on interdiction of WMD-related shipments. According to the StateDepartment, PSI is not an organization, but rather an activity in which more than 60 "participants"cooperate and coordinate efforts. New Delhi has been concerned that a "core group" comprisingPSI's founding states represented a two-tiered system, but has since been reassured that organizationwill be nondiscriminatory. However, India's navy chief indicates that India has "reservations" aboutthe mechanics of maritime interventions and that New Delhi seeks to be among the initiative'sdecision-makers rather than a "peripheral participant." (57) Neither the June 28 defense pact nor July 18 Joint Statementmake direct mention of the PSI. Economic Relations As India's largest trading and investment partner, the United States strongly supports NewDelhi's continuing economic reform policies. U.S. exports to India in 2004 were valued at $6.1billion (up 22% over 2003), while imports from India totaled $15.6 billion (up 19% over 2003),making India the 22nd largest U.S. trading partner. The U.S.-India Economic Dialogue, which wasinaugurated in New Delhi in March 2000, has four tracks: the Trade Policy Forum, the Financialand Economic Forum, the Environment Dialogue, and the Commercial Dialogue. Each of thesetracks is led by the respective U.S. agency and Indian ministry. The July 18 Joint Statement includescalls for revitalizing the Economic Dialogue, most concretely through the launch of a new CEOForum, and promoting modernization of India's infrastructure "as a prerequisite for the continuedgrowth of the Indian economy." The CEO Forum, composed of ten chief executives from eachcountry representing a cross-section of key industrial sectors, seeks to more effectively bring privatesector input to government-to-government deliberations. In March 2006, the Forum issued a reportidentifying India's poor infrastructure and dense bureaucracy as key impediments to increasedbilateral trade and investment relations. (58) In September 2004, U.S. Under Secretary of State Larson told a Bombay audience that "theslow pace of economic reform in India" has meant "trade and investment flows between the U.S. andIndia are far below where they should and can be," adding that "the picture for U.S. investment isalso lackluster." (59) InAugust 2005, the New Delhi government announced that it was abandoning plans to sell more thana dozen state-owned companies in what many analysts called a major setback to India's economicreform program, one that likely will affect the flow of foreign investment there. The move was seenas a gesture to India's communist parties which support the ruling coalition in New Delhi. (60) Despite the generallyclosed nature of the Indian economy and U.S. concerns, India's recent GDP growth rates are amongthe highest in the world, averaging more than 6.5% annually for 2002-2004. In November 2005, U.S. Treasury Secretary Snow made a five-day visit to India focusingon that country's efforts to further liberalize its financial sector and improve financing infrastructure.During his stay, Secretary Snow led the U.S. delegation at a meeting of the U.S.-India Financial andEconomic Forum in New Delhi. During the same month, U.S. Trade Representative Portman visitedNew Delhi for meetings with top Indian officials, where he inaugurated the U.S.-India Trade PolicyForum and urged "ambitious" cuts in India's trade-distorting agricultural subsidies. AmbassadorPortman and Indian Commerce Minister Nath made agreements to establish several focus groups topromote bilateral trade. U.S. proponents of increased economic cooperation with India make traditional free-marketarguments that more bilateral trade and investment will benefit the economies and citizens of bothcountries. Some U.S. interest groups have expressed concern that closer U.S.-India economic tiescould accelerate the practice by some U.S. firms of outsourcing IT and customer service jobs toIndia. Proposals have been made in Congress and various state governments to restrict outsourcingwork overseas. Bush Administration officials have expressed opposition to government restrictionson outsourcing, but they have told Indian officials that the best way to counter such "protectionist"pressures in the United States is to further liberalize markets. Other U.S. interest groups have raisedconcern over the outsourcing of financial services (such as call centers) to other countries that entailtransmitting private information of U.S. consumers. U.S. officials have urged India to enact newprivacy and cybersecurity laws to address U.S. concerns over identify theft. (61) Global Issues Terrorism In the July 18 Joint Statement, President Bush and Prime Minister Singh resolved to "combatterrorism relentlessly" through "vigorous counterterrorism cooperation." The June 28 defense pactcalls for strengthening the capabilities of the U.S. and India militaries to "promote security and defeatterrorism." (62) AU.S.-India Joint Working Group on Counterterrorism was established in January 2000 and meetsregularly; the two countries also share relevant intelligence. New Delhi has long been concernedwith the threat posed to India's security by militant Islamic extremism, especially as related toseparatism in its Jammu and Kashmir state. Following major terrorist attacks on the United Statesin September 2001, Washington's own attention to this threat became greatly focused, and India'soffers of full cooperation with U.S. counterterrorism efforts included base usage and territorialtransit. However, ensuing U.S. operations in Afghanistan were better facilitated throughaccommodation with Pakistan, leaving many in New Delhi uncomfortable with a (renewed) U.S.embrace of a country that Indian leaders believed to be "the epicenter of terrorism." Thus, whileWashington and New Delhi agree on the need to combat terrorism, there remains a disconnect in thetwo countries' definitions of the term and in their preferred policies for combating it globally (forexample, the 2003 U.S.-led invasion of Iraq and its aftermath gave pause to Indian leaders who mayhave been predisposed to greater U.S.-Indian counterterrorism cooperation). (63) United Nations Reform India, Germany, Brazil, and Japan (the "G4") have engaged in an effort to expand the U.N.Security Council (UNSC) and gain permanent membership in that body. After confirming that Indiais a worthy candidate for such status, the United States on July 12 announced a rejection of the "G4"proposal and urged U.N. member states against voting for changes. In early August, it was reportedthat the United States and China would begin coordinating their efforts to defeat the G4 measure,which requires a two-thirds majority in the U.N. General Assembly for passage. In what manyanalysts called the one substantive disappointment for India during the Prime Minister's DC visit,the July 18 Joint Statement makes no explicit mention of New Delhi's U.N. aspirations, although itdoes reflect President Bush's view that "international institutions are going to have to adapt to reflectIndia's central and growing role." Many in Congress have expressed support for India's permanentrepresentation on the UNSC. The Bush Administration's position is that proposed change in themakeup of the UNSC should take place only in the context of an overall agenda for U.N. reform. Other Global Issues The inaugural session of the U.S.-India Global Issues Forum was held in October 2002; themost recent meeting came in May 2005. Within this forum, the United States and India discussissues related to protection of the environment, sustainable development, protection of thevulnerable, combating transnational organized crime, and promotion of democratic values andhuman rights. (64) Otherrelevant provisions in the July 18 Joint Statement include establishment of a new U.S.-India GlobalDemocracy Initiative and a new U.S.-India Disaster Relief Initiative. The United States and Indiaalso cooperate on efforts to combat HIV/AIDS; the Joint Statement calls for strengtheningcooperation in this area. Bilateral initiatives pursued in the "global issues" realm may be consideredpolitically noncontroversial. Regional Issues Closer U.S.-India relations growing from an overt U.S. desire to increase India's power haveimplications for U.S. relations with other regional countries, as well as for the dynamics among thosecountries. Policy makers in Beijing, Islamabad, and Tehran are among those who follow closely thecourse of a U.S.-India "global partnership" with an eye toward how their own geopolitical standingis affected. China A rising concern for U.S. policymakers is China's growing global "reach" and theconsequences that China's increasing international economic, military, and political influence hasfor U.S. interests. After decades of relatively little U.S. attention to India, recent U.S. moves toembrace New Delhi are widely seen in the context of Washington's search for friendly Asian powersthat may offset Beijing's power, prevent future Chinese hegemony, and give Washington morenuanced opportunities for leverage in Asia. However, for many observers, it appears unlikely thatIndia will be willing to play a role of "balancer" against China except on New Delhi's own terms andnot those imposed from abroad; in this view, New Delhi tends to see Beijing more as an opportunitythan as a problem. For some American analysts, the emergence of an overt counterweight allianceis viewed as both misguided as policy and unlikely as an outcome. (65) A brief but intense India-China border war in 1962 had ended the previously friendlyrelationship between the two leaders of the Cold War "nonaligned movement." (66) Just days before NewDelhi's May 1998 nuclear tests, India's defense minister called China "potential threat number one,"and a 2002 projection by India's Planning Commission warned, "The increasing economic andmilitary strength of China may pose a serious challenge to India's security unless adequate measuresare taken to fortify our own strengths." The Indian Defense Ministry asserts that China's closedefense and arms sales relations with Pakistan -- which include key nuclear and missile transfers --its military modernization, its strategic weapons, and "its continental and maritime aspirationsrequire observation." Significant elements of India's defense establishment consider China a potentfuture threat, express worry about New Delhi's perceived military vulnerability vis-a-vis Beijing, andview with alarm a Chinese "string of pearls" strategy that may seek to restrain India through a seriesof alliances with its neighbors. More recently, some Indian analysts have concluded that Chinaprovided Pakistan with cruise missile technology. In addition, there are signs that the global oilmarket's center of gravity is shifting toward the vast markets of India and China, and the twocountries' energy companies often find themselves competing for oil and gas supplies abroad. (67) Despite still unresolved issues, particularly on conflicting territorial claims, high-levelexchanges between New Delhi and Beijing regularly include statements from both sides that thereexists no fundamental conflict of interest between the two countries. Upon the Indian PrimeMinister's June 2003 visit to Beijing -- the first such visit in more than a decade -- the two countriesissued a joint statement asserting, "The common interests of the two sides outweigh their differences. The two countries are not a threat to each other." Recent years have seen bilateral securityengagement including modest, but unprecedented, joint military exercises and plans to expandbilateral defense cooperation. In April 2005, Chinese Prime Minister Wen Jiabao visited New Delhiwhere India and China agreed to launch a "strategic partnership" to include broadened defense linksand efforts to expand economic relations. Trade between India and China is growing rapidly andmany in both countries see huge potential benefits in further trade expansion. New Delhi andBeijing also have agreed to cooperate on energy security. (68) Pakistan For many observers, the July 18 Joint Statement struck a serious blow to the "hyphenization"of U.S. relations with India and Pakistan. A persistent and oftentimes perplexing aspect of U.S.engagement in South Asia has been the difficulty of maintaining a more-or-less balanced approachtoward two antagonistic countries while simultaneously promoting perceived U.S. interests in theregion. Despite India's clearly greater status in material terms, the United States has for the pasthalf-century found itself much more closely engaged with Pakistan, even if U.S. policy toward oneSouth Asian power often required justification in the context another's perceived interests. In recentyears, however, the United States has shown increasing signs of delinking its India policy from itsPakistan policy, and this process has been starkly illuminated with an explicit recognition of Indiaas "a responsible state with advanced nuclear technology." Islamabad expressed "serious concern"over recent U.S.-India agreements and their potential meaning for Pakistan. Islamabad has requestedand been refused an opportunity to be given the same consideration as is being shown to New Delhi(Pakistan's nonproliferation case was seriously undercut by the exposure of A.Q. Khan's globalproliferation network). (69) Increased U.S.-India cooperation may lead Pakistan to furtherdeepen its ties with China. India has never been completely comfortable with the post-9/11 U.S. embrace of Pakistanas a key ally, and New Delhi reacted with disappointment to March 2004 news that Pakistan wouldbe designated a major non-NATO ally (MNNA) of the United States. When the BushAdministration suggested that India could be considered for similar status, New Delhi flatly rejectedany military alliance with Washington. Many in India regarded U.S. handling of the MNNAannouncement as a betrayal. One year later, New Delhi was again expressing disappointment withthe United States, this time after the Bush Administration's decision to resume sales of F-16 fightersto Pakistan. (70) NewDelhi likely will continue to view warily Islamabad's relations with both Washington and Beijing. Iran As noted above, a potentially major area of friction in U.S.-India relations could be futuredealings with Iran. India-Iran relations have traditionally been positive and, in January 2003, the twocountries launched a "strategic partnership" with the signing of the New Delhi Declaration and sevenother substantive agreements. Later that same year, India's external affairs minister said that Indiawould continue to assist Iran's nuclear energy program. In September 2004, the State Departmentsanctioned two Indian scientists for violating the Iran Nonproliferation Act of 2000 by transferringto Iran WMD-related equipment and/or technology (India denied any transfers took place). (71) In 2005, New Delhi gaveconditional diplomatic support for Iran's controversial nuclear program -- so long as it abided byinternational obligations -- and indicated it would decline any U.S./Western requests that it act asintermediary with Tehran on this issue. Many Indian and international analysts assert that Indianrelations with Iran will be an important litmus test of the New Delhi government's pledge to pursuean independent foreign policy. (72) In recent years, Indian firms have taken long-term contracts for purchase of Iranian gas andoil. Building upon growing India-Iran energy ties is the proposed construction of a pipeline todeliver Iranian natural gas to India through Pakistan. The project has become a point of contentionin U.S.-India relations. In June 2004, Indian External Affairs Minister Natwar Singh said Indiawould be willing to consider building the $4-$7 billion pipeline if Pakistan provided securityguarantees. The Bush Administration repeatedly has insisted that it is "absolutely opposed" to anygas pipeline projects involving Iran; a U.S. arms control official has said "it would be a mistake toproceed with this pipeline" as it would generate revenue that Iran would use "for funding its weaponsof mass destruction program and for supporting terrorist activities." (73) In January 2006, Secretaryof State Rice explained: We have to recognize that India is a big and importantand growing economy. It will have to access civil nuclear energy if it's not to be totally dependenton carbon and if it is not to be dependent on carbon relationships with countries that we've hadconcerns about. (74) U.S. law requires the President to impose sanctions on foreign companies that make an "investment"of more than $20 million in one year in Iran's energy sector. However -- despite U.S. concerns andwith the strong support of Indian leftist and opposition parties -- New Delhi has maintained that itsrelations with Tehran are affable and that the pipeline project is in India's own national interest. InJuly 2005, Indian and Pakistani officials made a "serious commitment" to begin work on thepipeline, and a key Indian official reportedly said the United States had not pressured India to changeits course on this issue. (75) During a September 2005 hearing on U.S.-India relations, numerous members of the HouseInternational Relations Committee expressed serious concerns about India's relations with Iran,especially with New Delhi's apparent opposition to the referral of Iran's nuclear case to the U.N.Security Council. Some senior members of the panel suggested that full Indian cooperation with theUnited States on this matter should be a prerequisite for U.S.-India cooperation in the civil nuclearfield. President Bush later expressed to the Indian prime minister growing U.S. concerns aboutdevelopments in Iran, and 12 Members of the House signed a letter to Singh strongly encouragingIndian cooperation in holding Iran accountable for potential violations of internationalagreements. (76) As theIAEA prepared for a late-September meeting to consider referral of Iran to the UN Security Council,India declined to take a strong stand and urged a consensus on further negotiation. BushAdministration officials reportedly pressured New Delhi by linking its policy on Iran's nuclearprogram with movement on the civil nuclear cooperation deal. (77) When the September 24 IAEA roll was taken, New Delhi surprised most observers by votingwith the majority (and the United States) on a resolution finding Iran in noncompliance(consideration of referral to the Security Council was deferred). The vote brought waves of criticismfrom Indian opposition parties and others who accused the New Delhi government of betraying afriendly country by "capitulating" to U.S. pressure. New Delhi later defended the vote in theinterests of "allowing time for further negotiations" and being in India's national interest. A seniorState Department official later called India's vote a "dramatic example" of New Delhi's stance toprevent Iran from acquiring a nuclear weapons capability. (78) Relevant Congressional Hearings The U.S.-India 'Global Partnership': How Significant for American Interests? , House InternationalRelations Committee, November 16, 2005. U.S.-Indian Nuclear Energy Cooperation: Security and Nonproliferation Implications , SenateForeign Relations Committee, November 2, 2005. The U.S.-India 'Global Partnership': The Impact on Nonproliferation , House International RelationsCommittee, October 26, 2005. The U.S. and India: An Emerging Entente? , House International Relations Committee, September8, 2005.

India is enjoying rapidly growing diplomatic and economic clout on the world stage, and thecourse of its rise (along with that of China) is identified as one of the most important variables in 21stcentury international relations. In recognition of these developments, U.S. policy makers havesought to expand and deepen U.S. links with India. On July 18, 2005, President George W. Bushand Prime Minister Manmohan Singh issued a Joint Statement resolving to establish a "globalpartnership" between the United States and India through increased cooperation on numerouseconomic, security, and global issues, including "full civilian nuclear energy cooperation." Suchcooperation would require changes in both U.S. law and international guidelines; the BushAdministration may present to Congress related and required legislative proposals in 2006. On June28, 2005, the United States and India signed a ten-year defense framework agreement that calls forexpanding bilateral cooperation in a number of security-related areas. U.S.-India bilateralagreements in 2005 represent a new set of landmarks in rapidly warming ties between the world'stwo most populous democracies. A policy of assisting India's rise as a major power has significantimplications for U.S. interests in Asia and beyond. The status of U.S. relations with China andPakistan, especially, is likely to be affected by increased U.S.-India strategic cooperation. Manyobservers view U.S. moves as part of an effort to "counterbalance" the rise of China as a majorpower. Following major U.S.-India agreements, Congress held four relevant hearings during autumn2005. Two of these hearings focused specifically on the most controversial aspect of the July 2005Joint Statement: proposed civilian nuclear cooperation. Congressional approval of increasinglywarm U.S.-India relations appears to be widespread. However, some Members also have expressedconcerns about the potential damage to international nonproliferation regimes that could result fromchanges in U.S. export laws and international guidelines. Senior Members also have voicedconcerns about India's relations with Iran and the possibility that New Delhi's policies towardTehran's controversial nuclear program may not be congruent with those of Washington. Morebroadly, congressional oversight of U.S. foreign relations in Asia likely will include considerationof the potential implications of increased U.S. cooperation with India in functional areas such asarms sales and high-technology trade. With rapid increases in Indian and Chinese influence on theworld stage, many in Congress will seek to determine how and to what extent a U.S.-India "globalpartnership" will best serve U.S. interests. This report reviews the major provisions of U.S.-India bilateral agreements, including thestatus of issues addressed in the recently completed Next Step in Strategic Partnership initiative,security relations, and economic relations. The report reviews arguments made in favor of and inopposition to increased bilateral cooperation in each major issue-area and includes Indianperspectives. Regional issues involving China, Pakistan, and Iran also are discussed. The report willbe updated as warranted by events. See also CRS Issue Brief IB93097, India-U.S. Relations , and CRS Report RL33016 , U.S. Nuclear Cooperation With India .

Choices Ahead for Policy Makers Regardless of the public conversation, the Earth's climate is changing. Changes are exhibited in observations of average temperatures over land and in the oceans, melting glaciers and ice caps, shifting precipitation patterns, modified growing seasons, shifting distributions of plants and animals, and a variety of additional observations. (Many but not all elements of climate show distinct trends.) Regional climates in the United States have shifted as well ( Figure 1 ). A variety of factors contribute to the changes, their weights differing depending on the time periods and geographic locations under examination. In public media, the controversy over causes may appear much greater than the broad scientific agreement that exists: the scientific evidence best supports rising atmospheric concentrations of "greenhouse gases" (GHG) (particularly carbon dioxide, methane, nitrous oxides) and other air pollutants as having contributed to the majority of global average temperature increase since the late 1970s. (See box.) The rise of GHG concentrations is due to emissions from human-related activities. Other air pollution, irrigation, the built environment, and depletion of ozone in the stratosphere may be more important for changing temperature and/or precipitation patterns in some locations over the past 30 years but have small overall effect on global average temperature. For short periods, such as a few years, volcanic eruptions and solar cycles may have noticeable influence. Over time scales of hundreds to tens of thousands of years, cycles of the Sun's radiation and the features of the Earth's orbit and wobble have dominated, triggering effects amplified by feedbacks in the climate system and visible in glacial cycles. Regardless of causes, climate changes have potentially large economic and ecological consequences, both positive and negative, which depend on the rapidity, size, and predictability of change. Some of the impacts of past change are evident in shifting agricultural productivity, forest insect infestations and fires, shifts in water supply, record-breaking summer high temperatures, and coastal erosion and inundation. People and natural systems respond to climate changes regardless of whether the government responds. Over time, the consequences of climate change for the United States and the globe will be influenced by choices made or left to others by the U.S. Congress. Congress has engaged, over the past three decades, in authorizing and funding federal programs to improve understanding of climate changes (past and predicted) and their implications. Science programs predominated prior to 1990. In 1992, the Senate gave its advice and consent to U.S. ratification of the United Nations Framework Convention on Climate Change (UNFCCC), effectively agreeing to its objective: ... to achieve ... stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner. This commitment is legally binding, though not practicably enforceable, and has guided some subsequent federal actions, including the first U.S. climate action plan in 1992, published under President George H. W. Bush. Since the 1990s, some federal programs and many legislative proposals have sought to slow greenhouse gas (GHG)-induced climate change through regulatory, voluntary, and financial efforts to abate emissions. Many such proposals remain controversial and few have been enacted. In 2007, the Supreme Court ruled in Massachusetts v. EPA that the Clean Air Act's (CAA's) "sweeping" definition of "air pollutant" embraces "any air pollutant ... including any physical, chemical ... substance or matter which is emitted into or otherwise enters the ambient air." Also, the Court ruled that EPA could not use policy considerations in deciding whether to regulate GHG emissions; EPA can avoid taking further action "only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion." Following this decision, EPA found that GHG-induced climate change endangers human health and welfare and has acted to promulgate regulations to control six GHG. Most experts, and also the Obama Administration, would prefer new legislation strategically addressing GHG abatement, rather than authorities under the CAA, as a policy vehicle to address climate change. The 111 th Congress debated bills that would have established comprehensive climate change policy, and that would have included new regulatory authority to cap emissions of GHG and to allow emissions sources the flexibility to trade the emissions allowances like a commodity ("cap-and-trade"). Debate in the 112 th Congress has focused more on restricting authorities of the EPA to control GHG as pollutants under the CAA, or to reduce or eliminate funding for climate change-related federal programs. New federal programs (especially in the Department of the Interior) aimed at planning for adaptation to climate change, regardless of its cause, have emerged in the 2000s. Many agencies and some in Congress consider projections of impacts and preparation to be among the stewardship responsibilities of the federal government for publicly held resources that may be affected by climate change, as well as for protecting human health and general welfare. Some of those in Congress who consider such programs to be warranted may not, however, fully support Administrative proposals for funding, in light of budget pressures or concerns about strategies or program design. Underlying efforts explicitly to address climate change are other programs enacted for other purposes that influence U.S. contributions and vulnerabilities to climate change. For example, regulations and financial incentives for agriculture, energy, and infrastructure shape these sectors' emissions of GHG, technological opportunities, and vulnerabilities in the face of changing seasonality, water availability and temperatures, inundation of flood plains, winds, and other climate-linked phenomena. Ongoing public concerns and international pressures for U.S. collaboration to mitigate and adapt to climate change are likely to keep climate change on Congress's legislative agenda for the foreseeable future. To support congressional considerations, this report outlines (1) conceptual approaches to setting goals for policies, and (2) brief descriptions of the principal "policy tools" that could be wielded to achieve policy goals. Conceptual Policy Approaches Neither domestically nor internationally have policy-makers converged on a common approach to setting goals or managing climate change-related risks. Some do not consider that there are sufficient risks of climate change to merit governmental intervention. For policy-makers who may wish to consider addressing climate change, this section articulates four competing strategies for setting climate change policies: (1) research and wait-and-see, (2) science-based goal setting, (3) economics-based policies, and (4) incrementalism or adaptive management. Research and "Wait-and-See" For several decades, policy-makers have been aware of the large range of projections of GHG-induced climate change and adverse impacts, as well as of the potentially large costs associated with avoiding GHG-induced climate change. In the face of these uncertainties, arguably the primary strategy followed by the U.S. federal government has been to support research and to "wait-and-see." Proponents assume that scientific research will yield more certainty about climate change that would help make better policy decisions, and yield answers in a timeframe consistent with making effective policy decisions. They may also assume that investment in technology research will reduce GHG abatement costs, making it cheaper to reduce emissions later. Following this approach, the U.S. government has invested many billions of dollars in climate research and "clean" technologies over the past two decades, with a small fraction allocated to policies that directly mitigate the risks or promote adaptation to them. Some scientists and advocates for emissions abatement action have welcomed the resources for research, but also expressed the likelihood that research may well widen, not narrow, uncertainties. No matter how much is invested in research, critical uncertainties are likely to remain. Some people have argued that research cannot provide "right" policy answers and that this strategy constitutes avoidance of difficult decisions. In contrast, others have pointed to analysis that wrong actions taken in the context of uncertainties may result in unnecessary costs. Some have suggested that economic conditions in the future may make addressing climate change more affordable than the present: increasing incomes and improving technologies could make it easier for future generations to pay to address climate change than for people today. Research has made significant scientific progress over the past three decades. Still, it may be easier to argue that uncertainties may now be better characterized but not narrowed; some may have widened. It is unclear that further research within the next decade or two will significantly narrow crucial uncertainties, such as prediction of precipitation patterns over the next 50 years (needed to estimate climate change risks, such as impacts on costs of agricultural production or flood control, as examples). If over that period GHG emissions continue to rise, future GHG policies would need to make greater and more rapid reductions in order to avoid any particular level of risk reduction. Federally supported research also has made new technologies available and reduced the costs of others. The lowering of technology costs during that period may or may not offset the added costs of starting later, with greater, more rapid GHG reductions to achieve a given level of risk reduction. Science-Based Goals Some advocates propose a science-centric approach, looking to physical or biological criteria to identify appropriate policy goals. This assumes that science alone can provide an objective standard of a "safe" or "tolerable" level or rate for climate change, or at least an inflection point beyond which the projected damages of climate change may rise more steeply. Proponents of this approach may look to past rates of temperature change, past (i.e., pre-industrial) atmospheric concentrations of GHG, or indicators of ecosystem adaptability, for identifying the policy goal. Typically, the science-based approach draws on the estimated relationships between GHG emissions, GHG atmospheric concentrations, global average temperature changes, and projected impacts of climate change for identifying equivalent targets across these different parameters ( Figure 2 and Table 1 ). Table 1 summarizes estimates of the amount that climate would change (Column 3, measured as the increase in the global mean temperature above the preindustrial levels) if GHG concentrations in the atmosphere were to rise to different levels (Column 1) and then stabilize there. CO 2 concentrations in 2011 are about 392 parts per million (ppm). GHG levels (Column 2, converted to CO 2 -equivalents and added) are about 450 ppm. Today's concentrations (Columns 1 and 2) are comparable to the first level, but are projected to continue to rise indefinitely unless strong policy inducements reduce emissions eventually to net zero. The estimates indicate that higher GHG concentrations would be associated with higher projected temperature increases; allowing GHG concentrations to rise higher would allow later abatement action—a delay in the years by which emissions would have to peak and then decline in order to stabilize concentrations at a given level; allowing higher GHG concentrations would allow high GHG emissions compared to emissions in the year 2000. Based on the kinds of estimates in Table 1 , recent policy debates have included the following proposals for science-centric policy targets: preventing increases of global temperature that exceed 1.5 o C or 2 o C above 1990 levels; stabilizing atmospheric GHG concentrations at or below 350, 450, or 550 ppm (with current CO 2 concentrations at about 392 ppm); setting maximum GHG emission levels or "caps" (typically with an implicit concentration or temperature target) that would be progressively reduced, such as a cap by 2020 on the GHG emissions of industrialized countries at 30% below their 1990 levels, or a global GHG emissions cap at 50% below 1990 levels by 2005; or setting years by which the emissions or some or all countries would peak and then decline. A science-centric approach is embedded in the international negotiating framework. Countries agreed in the United Nations Framework Convention on Climate Change to an objective of avoiding "dangerous" climate change, often characterized as avoiding a particular temperature increase (first bullet above); negotiations have tended to focus on reducing emissions to levels compatible with achieving that objective of avoiding "dangerous" change. The U.S. congressional debate on climate change strategy has focused most strongly on percentage-reduction targets for GHG emissions and on which policy tools to use rather than debating what science-based policy goals might be. There are many challenges to using primarily science to set climate change policy targets. First, differing degrees of confidence in scientific findings affects different peoples' willingness to take actions. Arguably, much of the U.S. public debate has been about whether to have confidence in the consensus of climate change scientists. Second, policy targets are easiest to communicate with simple metrics, but simple metrics may not clearly reflect the many complex dimensions of climate science. For example, although global average temperature is a common proxy for climate change ("global warming"), many risks may be more closely tied to other dimensions, such as changes in local temperature extremes, time of last frost, maximum spring river flow, storm severity, or sea levels. Other impacts may depend strongly on the changing character of precipitation, which may increase or decrease at different locations and times, more than on temperature change. Metrics alternative to global average temperature change are more difficult to characterize as policy targets, and averages may not correlate with adverse impacts. Third, scientists, economists, and other experts differ in their views of which climate changes and impacts are important for setting policy. For example, should decisions emphasize what is happening (or not happening) now, or give weight to the distant impacts over many centuries of possible melting of most of Antarctica? Or, is it practical to consider that the Earth's biomes may shift and reorganize substantially over coming decades, when the full impacts of such changes may be impossible to predict? Some people may not weigh impacts occurring outside their state or country as heavily as those at home. Some may give more weight to impacts on humans than on other species or landscapes. Science does not offer tools for handling such policy considerations. Fourth, policy-makers and stakeholders have very different preferences for accepting different risks and their willingness to accept risks. As a 2011 National Research Council report states: It should be emphasized that choosing among different targets is a policy issue rather than a strictly scientific one, because such choices involve questions of values, e.g., regarding how much risk to people or to nature might be considered too much. Sometimes, scientific guidance for limits is available if there are thresholds above which adverse effects begin to occur or the rate of increase of adverse effects becomes more rapid or irreversible. These are called "critical thresholds" or "tipping points." Scientists have been examining a host of potential critical thresholds in the climate system: they exist in many ecological systems and could be catastrophic for some populations or systems, or possibly on a global scale (e.g., if the Amazon rainforest were to collapse and shift to a deciduous forest or savannah system). The effects of CO 2 emissions on ocean acidification, though not "climate change," may present thresholds with greater scientific certainty for setting policies than CO 2 effects on temperature. (See text box. ) For some, appropriate GHG emissions limits may be tied to assessment of technological feasibility (and technology costs). While technologies exist today to begin a trajectory of major GHG reductions, targets that would stabilize GHG concentrations would require development and deployment of new technologies over the longer term. Some congressional proposals have aimed at promoting new technology development and market penetration, though not with a stated quantitative objective. An emissions-denoted policy target may be easier than concentrations or temperature targets, given the range of climate changes that could occur with a given increase in GHG emissions. Also, the United States could not unilaterally achieve a federally set concentration or temperature target; it would require a global effort. Further, only emission limits are viewed as a practical basis for allocating responsibilities to the sources of emissions (i.e., private businesses), and for enforcing those limits. Economics-Based Approaches While many scientists, environmentalists, and other stakeholders may advocate scientifically determined policy goals, other stakeholders frequently advocate that policies should be designed to maximize economic efficiency (or to maximize economic growth measured as Gross Domestic Product, GDP). There are several economic approaches that could help define climate change policy, including cost-effectiveness analysis, cost-benefit analysis, or hedging. This section focuses on a cost-benefit approach, which seeks to maximize the economic efficiency of policy. Cost-Benefit Approach Intuitively, many people only take actions when they perceive that the benefits of the action exceed its costs, though the important benefits and costs may be qualitative, not monetary. For decisions of public policy, many economists and business stakeholders advocate that formal assessment of the costs and benefits of a proposed policy (or policy alternatives) should be performed and that the only options selected should be those wherein the benefits exceed the costs. This preference is predicated on the principle that policies should seek to be efficient, making best use of private and public resources available. Indeed, in 1981, President Ronald Reagan issued Executive Order 12291 (46 FR 13193 3 CFR, 1981). E.O. 12291 requires that regulatory objectives seek to the maximize net benefits to society, although some legislative authorities direct other considerations to be paramount (e.g., protecting the most vulnerable populations). There are limitations of formal cost-benefit analysis (CBA), however, and particularly as applied to climate change policy-making. First is the consideration that CBA addresses efficiency, but typically not other policy considerations, such as "fairness" (although some economists are testing methods to address some equity issues). Additionally, problems to applying CBA to climate change have been established by a variety of researchers: 1. Climate change decisions will be made (or not made) by many disparate people and organizations, public and private, in the context of multiple goals, constraints, and secondary effects; the sum of their decisions (and their costs and benefits) would necessarily differ from the options and valuations considered in a cost-benefit analysis. 2. Estimates of costs and of benefits may be unreliable. Several studies following completion of projects or after implementation of policy decisions have shown that prospective estimates may be very inaccurate. Decisions based on inaccurate estimates may be inefficient. Some researchers have found that retrospective evaluations of actual costs or benefits may reveal them to be very different, at least in some cases, than pre-decision projections. 3. CBA methods assume that a policy decision is "marginal," that it can be made in clearly ordered increments from some baseline level, and that the choice can be isolated from significant changes in the structure and output of the entire economy. However, some analysts contend that human-induced climate change is a "non-marginal" problem: decisions to address it or not would alter the structure, the path of growth, and even the existence of some economies. At least one study has shown that applying marginal analysis to non-marginal policy questions can produce both quantitatively and qualitatively "wrong" decisions. 4. The outcomes of CBA for choices having long-term effects can be strongly determined by the choice of "discount rates" to reflect the "time value of money"—that is, the observation that people typically would prefer to get a given amount of money today rather than a year from now. Respected economists disagree over what the appropriate discount rate should be for climate change decisions, and even whether discounting should be used at all when choices affect unborn generations. This discounting controversy remains unresolved despite decades of discourse. 5. CBA, at least as practiced, typically uses single point estimates whereas many values important in climate change analysis are uncertain—sometimes widely uncertain. Few, if any, researchers have conducted analyses in ways that adequately reflect the distributions of uncertainties and the interactions of uncertain variables in their analyses. 6. Moreover, the "average" values used frequently assume that people are neutral to risks (they equally weight higher versus lower risks), while empirical data indicate that most people seem to be "risk averse" (i.e., they would make lower-risk choices even in instances where their expected payoffs on average would be greater with the higher-risk choice). Arguably, differences among people in their aversions to particular kinds of risks in climate change policy choices—whether more attuned to risks of energy cost increases or to employment, or whether more to health and ecological stability—make it more difficult to build consensus on policy. 7. Some critics suggest that CBA does not support an appropriate decision rule. CBA assumes a "Kaldor-Hicks" rule—that the optimal public decision should make everyone in aggregate better off, even if those who are made worse off are not compensated by those made better off. Some economists have pointed out theoretical problems in applying the Kaldor-Hicks rule, for example, that it can result in inconsistent decisions. In addition, one economist notes that "social decision-making necessarily is about weighing up gains and losses and deciding on the relative importance of different individuals' gains and losses." CBA typically does not assist in making those trade-offs. Proponents point out that CBA provides one type of information—not that it is the only and exclusive criterion for public policy decisions. Economic analyses would be, at best, incomplete and likely biased because of the current state of information and methods. Many values that should be included in a rigorous CBA are unknown, and even unimagined at this stage of understanding. The direction of bias most often is posited to undercount benefits of mitigation policies, though there are reasons that omissions could overstate climate damages as well (e.g., by missing low-cost adaptations that people might make). Despite these challenges, formal CBA arguably provides one of the most complete frameworks for organizing and presenting a vast array of incommensurate impacts for decision-makers. However, CBA is unlikely in the near term to yield a simple or objective "answer" on optimal policy for decision-makers. Hedging or Insurance Policies An alternative economic approach is "hedging" or insurance, by adopting policies that would reduce the risks of losses, without certainty of what those risks are. This approach can be similar to buying homeowners' insurance even though the likelihood of fire or other losses is unknown. In this approach, policy-makers might enact some low-cost measures or measures that serve other policy goals. (Sometimes these are called "no regrets" measures.) If long-term restructuring of the energy economy might be needed in the future, hedging policies might initiate measures in that direction (such as research support for some new technologies) while further information on risks evolves. Hedging as a strategy does not provide objective guidance on the "right" level or kinds of measures. In some senses, "clean energy" development may be a primary hedging strategy, proposed by some Members of Congress. Cost-Effectiveness and Other Concepts Economics offers additional approaches, such as estimating the most efficient policy design once the objective has been established (cost-effectiveness analysis). In other words, if policy-makers agree on a policy goal, such as a limit on GHG emissions, cost-effectiveness analysis is one means to evaluate alternative policy designs to achieve the goal in the least costly way. Conversely, cost-effectiveness analysis may seek the policy design with greatest effectiveness (e.g., the lowest level of GHG concentration stabilization, or greatest risk reduction comparing GHG mitigation and adaptation to climate) for a given cost. A broader critique of using economics to recommend policies, and in favor of "muddling through" (next section), questions several of the fundamental assumptions of most current economic analysis: [T]here is a change occurring in formal theorizing in which the holy trinity—rationality, greed, and equilibrium—is being abandoned as required aspects of any model, and being replaced with a slightly broader trinity—purposeful behavior, enlightened self interest and sustainability. In essence, CBA grew from the "economics of control." It assumed that "infinitely bright economists with full knowledge of the system" could optimize the economy. More contemporary examination of the quality of information (frequently poor) and seemingly "irrational" behavior evidenced by peoples' actions has led some economists to "search for understanding a system in which the blueprints are missing, nonexistent, or so far beyond our analytic capabilities that we might as well forget about them." Incrementalism,"Muddling Through," and Adaptive Strategies Political scientist Charles Lindblom argued that neither drastic policy change nor carefully planned giant steps are usually possible in policy-making. Rather, only "small or incremental steps—no more than muddling—is ordinarily possible." He argued that "No person, committee, or research team, even with all the resources of modern electronic computation, can complete the analysis of a complex problem. Too many interacting values are at stake, too many possible alternatives, too many consequences to be traced through an uncertain future—the best we can do is achieve partial analysis." In other words, particularly in cases where decision-makers cannot agree on the objective of policy, the best that policies can achieve is making agreed incremental policy changes with ad hoc adjustments as conditions evolve and agreements arise. As a variant of "muddling through," some experts advocate an adaptive approach to climate change decision-making (both public and private). An adaptive approach entails setting an initial policy, then monitoring and evaluating progress toward the stated goal, and making adjustments as knowledge is gained and new opportunities become available. Two proponents of adaptive strategies argue: [C]limate change presents a problem of decision-making under conditions of deep uncertainty. We begin with the premise that while we know a great deal about the potential threat of climate change and the actions we might take to prevent it, we cannot now, nor are we likely for the foreseeable future [to], answer the most basic questions, such as is climate change a serious problem and how much would it cost to prevent it? We argue that in the face of this uncertainty, we should seek robust strategies. Robust strategies are ones that will work reasonably well no matter what the future holds.... [R]obust strategies for climate change are possible by means of adaptive-decision strategies, that is, strategies that evolve over time in response to observations of changes in the climate and economic systems. Viewing climate policy as an adaptive process provides an important reconfiguration of the climate-change policy problem. Several concerns about adaptive approaches may be raised. First, while an adaptive approach may achieve overall efficiencies compared to less flexible strategies, the efficiencies come at a cost of lessened certainty for investors that a policy will remain fixed (e.g., for investment on long-lived infrastructure). This can raise the risks of certain investments and add to their costs. Second, some people conclude that abating climate change would require radical technological change, and perhaps changes in social and economic structures, which cannot be achieved with incremental changes. Experts point to "path dependence" of economic structures and technological evolution, in which initial conditions set a trajectory or "path" that becomes increasingly difficult to modify as investments build on one another. "Muddling through" follows that path dependence, almost by definition. Others propose that successfully addressing climate change requires "transformational change," a change in state that is not merely an extension of the past. Also, pursuing adaptive strategies, Lempert and Schlesinger have argued that "the real measure of ... success" should not be near-term GHG reductions, but "rather the new potential for large-scale emissions reductions society has created for the years ahead." Though this point may be valid, it may be, alternatively, that expanding the potential for emissions reductions requires incentives to shift from a "business-as-usual" path that may not be provided by incrementalism. Transformational change frequently alters power relationships, and may be obstructed by a human tendency to ignore or reject information that does not conform with one's existing beliefs or prior decisions. This leaves open the question of whether muddling through would serve to maintain the status quo or to serve the "creative destruction" that "incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." The Policy Tool Box Public and political interest in addressing climate change has cycled up and down over the past three decades. Although no comprehensive or cohesive strategy exists at the federal level, many existing programs and measures (including tax incentives)—and uncertainty about what future science and policy will bring—create a context that influences private and governmental decision-making. Some in the public and 112 th Congress may seek to eliminate climate change-related programs and policies, while others may seek to modify, reorganize, or enhance them. A variety of generic policy tools may be in use already or be potentially available to address climate change concerns. This section is intended to introduce the rationales, designs, and applicability of options, to assist Members' deliberations. The order of the following policy tools is not intended to represent any order of priority: regulatory, including market-based, tools to reduce GHGs; distribution of potential revenues from GHG programs; non-regulatory tools that help markets work more efficiently; tools to stimulate technological change; options to ease the economic transition to a lower GHG economy; instruments to encourage international actions; and tools to stimulate adaptation to climate change. The following sections summarize some potentially applicable instruments in each of these categories that have been proposed or may be in use now. Many of these tools are seen as complementary, and proponents often contend that results can be achieved more efficiently with a carefully matched combination of policy tools than by wielding any one alone. Regulatory and Market Tools to Reduce Greenhouse Gases Most experts believe that the most economically efficient way to reduce GHG emissions is to put a price on emissions that reflects the costs (or risks) of those emissions to others. Putting a price on GHG emissions can be done with traditional source-by-source regulation, and/or with market mechanisms. Source-by-Source Regulations From the earliest decades of air pollution controls, emission reductions have often been achieved by setting emission performance standards on each source of pollution, or requiring that sources use a particular type of technology, such as the "best available control technology." These may be applied for sectors as a whole, or varying with individual source permits. Practice has sometimes successfully included "technology-forcing" regulation, as well, that sets future performance standards well beyond contemporaneously achievable levels. Many regulatory controls have been effective through decades of experience, though studies contend that the compliance costs might be reduced if strategies give greater priority to cost-effectiveness and flexibility. Even when U.S. regulators have been allowed by law to consider costs in setting emission regulations, they have had additional factors to consider and often have had weak information about the costs of compliance for each individual source. Also, regulations can be difficult to adjust as circumstances evolve. Although in some circumstances source-by-source regulation may be most effective and efficient, it often cannot achieve, by itself, a desired emission reduction target at the least possible cost. Market Mechanisms An approach that utilizes aspects of commodity markets can achieve, in some cases, emission reductions similar to a source-by-source regulatory approach but at lower overall cost. Though none to reduce GHG emissions have been proposed in the 112 th Congress, several bills introduced in the 111 th Congress proposed such "market mechanisms" because, for some sources, they can increase the efficiency of regulation by allowing the least costly reductions first. Two principal types of market mechanisms pertinent to GHG reductions are GHG or carbon fees, or cap-and-trade systems. The key contrast between these two mechanisms is that GHG emission fees would provide certainty about the prices paid by sources, but uncertainty concerning how much GHGs would be reduced; conversely, cap-and-trade systems provide certainty in how much GHGs would be reduced, but not regarding the prices paid by sources. Both emission fees and cap-and-trade systems potentially generate revenues—potentially in the hundreds of billions of dollars annually. Another important difference between cap-and-trade and other policy tools is that it can separate who pays for emissions reductions from where the reductions occur , as discussed below. This can allow the program design to accomplish both efficiency and equity objectives simultaneously. GHG Fees or "Carbon Taxes" Fees could be charged to a source of emissions according to its total emissions. Theoretically, a source would reduce its emissions down to the level where it is no longer cheaper to make the reductions (per ton) than to pay the tax (per ton). There could be many variations on this basic model, including charging fees only on emissions above rates designated by source types. Aside from possible tax exemptions, emission fees would not allow flexibility in who takes action or where GHG reductions would occur. A system might be designed to allow flexibility in when GHG reductions are made, though the principal flexibility would be the source's decision whether to make the reductions or pay the taxes. Many economists believe that emission fees or taxes would be the most economically efficient way to reduce emissions, though this might depend on micro-economic factors (such as availability of accurate information on response options), and it would not guarantee an overall level of effectiveness for the program. In the context of possible, broader tax reform in the 112 th Congress, some experts might argue in favor of shifting existing taxes from "goods" to "bads" like pollution, since taxes raise prices and tend to decrease demand for the taxed product or service. A number of studies have examined the implications of replacing existing taxes by GHG taxes: though not conclusive, several studies suggest that such a tax shift, depending on its structure, could have positive or negative impacts on economic growth and/or employment. (The actual results would depend on the particular size and structure of a tax shift.) One concern about pollution taxes is that they would tend to be regressive; another is that to the degree that carbon fees are effective in reducing the emissions, they also reduce the revenue base. "Cap and Trade" One type of market mechanism begins with regulations on emission sources to reduce their emissions, but then may allow flexibility in who makes the emission reduction, when the reductions are made, and/or where the emission reductions occur (outside of the regulated sources, or even internationally). In a cap-and-trade program, the regulator sets an overall cap on emissions. It must allocate responsibility for achieving the cap to individual sources, frequently termed "allowances" to emit. These may be allocated by giving away allowances and/or selling them at prices at fixed rates or set by auctions (discussed in a later section). The allocation mechanism essentially establishes who pays or potentially benefits from the cap-and-trade system. In a cap-and-trade program, the trade component allows entities to sell their unneeded emission "allowances," while emission sources that emit more than their allocation of allowances may comply by reducing their emissions and/or buying additional allowances. Emissions trading establishes a market, creating incentives to reduce emissions below required levels in order to sell the extra allowances to sources who may have higher costs of control. "Cap-and-trade is the free market based approach to complex multilateral problems like climate change," say proponents. Cap-and-trade programs allow flexibility in who makes the required emission reductions. While the allocation of allowances determines who pays to reduce emissions, trading allows the regulated sources to pay for reductions elsewhere at lower cost. Thus, cap-and-trade can address both efficiency and equity considerations. Within cap-and-trade systems are two additional types of flexibility: Emission reduction credits or offsets: Flexibility in where reductions occur—in the United States or internationally—can also minimize costs, although some questions arise about enforceability, loss of program effectiveness, and financial flows. Allowing international credits or offsets, to the degree that GHGs could be reduced reliably at lower cost in other countries, could help reduce costs of complying with any U.S. GHG requirements. Banking and borrowing: When flexibility could allow entities to save or "bank" unneeded allowances until they need them, or to "borrow" against their future allocations of allowances (with a charge for borrowing). Banking and borrowing could apply to source-by-source regulation as well as to cap-and-trade programs. Design Choices in Cap-and-Trade Programs Although there are numerous questions to resolve in designing a cap-and-trade program, such as the level at which to set the cap, which sources to cover under the cap, whether to allow offsets from non-covered sources and other countries, etc., this section discusses two: how to allocate the GHG reduction requirements, and whether to set a ceiling or floor on the prices a source must pay for any allowances it wishes to purchase. Allocating the GHG Reduction Requirements Policy makers would have to decide who would be responsible for reducing GHG emissions—this determines who pays for the reductions, not who actually makes the reductions. The first decision is what the emissions limit or performance standards may be across categories of GHG sources. Certain types of sources, by sector or size, may be excluded from GHG reduction requirements, such as in EPA's "tailoring rule," which proposes not to require GHG permits for sources that emit less than 25,000 tons of CO2 annually. Frequently, this step is among the most controversial in establishing control policy. (Alternatively, the policy-makers may not set a particular limit or standard, but require all regulated sources to buy emissions permits.) Typically, at the end of a compliance period (e.g., a year), a source must turn in to the regulating authority a number of allowances at least equal to the tons emitted in that period. The second decision is how emissions sources will get their emission allowances. The regulator may give away or sell permits to cover all or some of each source's emissions. In many systems, these permits are called "allowances" and one allowance equals a permit to emit one ton of a pollutant. In a cap-and-trade system, allowances can be given away (e.g., "grandfathered" to existing GHG sources, or given to non-source entities ), sold at a fixed price, auctioned, or a combination of these techniques. Allowances are a valuable commodity (because they can be sold). How this valuable commodity is allocated could potentially transfer billions of dollars of wealth across different groups. This transfer of wealth (from entities who need to buy allowances to entities that sell them) could be many times greater than the economic cost of the GHG reductions. How to allocate allowances is therefore an important component—and among the most controversial—in the GHG reduction debate. Giving allowances to particular groups may be a tempting way to increase the acceptability of a GHG control program, or to improve the "fairness" of the program, but it could distort incentives and reduce the efficiency of the program. One way (among others) to minimize the transfer of wealth in a GHG control program would be to sell allowances rather than to give them away. Sales, including auctions, would increase the efficiency of an overall GHG reduction. Selling the allowances at a fixed price becomes very much like an emission fee or tax program. Many past proposals would give away some allowances to both sources of emissions and other entities (e.g., states, other sectors) and would auction some allowances. "Safety Valves" and Allowance Price Floors GHG allowances under a cap-and-trade program become a market commodity; the prices of most commodities rise and fall—sometimes with great volatility—as daily, seasonal or annual conditions vary. Variance would be expected with GHG allowance prices. Prices could rise above anticipated levels if reducing GHGs turns out to be more difficult than projected, or if speculators bid up prices, or under other conditions. Some people concerned about the costs of GHG reduction programs advocate setting a ceiling on the maximum price a source might have to pay for allowances it may need to comply; some have termed this a "safety valve" on prices. If prices were to exceed a designated level for some period of time, either the regulatory authority could release additional allowances into the market through an auction, or sell them at a fixed fee. While this would limit the overall cost of the program, it would also limit the overall GHG reductions (although these could be "borrowed" from future years' caps). It also would reduce incentives for technological innovation by limiting the price rise that could occur, limiting the profit potential that could stimulate some investors to finance technological research. Some researchers note that the positive potential effects on technology innovation resulting from price volatility is one reason policy-makers might favor emissions caps over emission fees. Other stakeholders argue that, to stimulate technological advance, a floor should be set on the prices for allowances in the market (i.e., the regulator sets a "reserve price" for allowances sold at auction, or would buy allowances in the market until the prices rise to the minimum acceptable level). While constraining how little the GHG program may cost, a price floor assures investors there is a minimum value for the services their technologies could provide. Distributing the Revenues from Emission Fees or Sales If emissions are taxed, or allowances are sold to sources at flat fees or by auction, public revenues could be generated—as much as hundreds of billions of dollars per year (depending on the size of the tax or the quantity of reductions required). A key policy issue associated with taxes, sales, or auctions is what to do with the revenues. Revenues can be used to offset reductions of other taxes, sometimes called "revenue recycling" (e.g., labor taxes); rebate to sources to help defray compliance costs of covered sources (e.g., according to their production levels); fund programs (or provisions) that could reduce transition costs, such as worker retraining and relocation programs, market facilitation programs, technology development programs, tax credits, loan guarantees, etc.; provide payments to address distributional concerns (e.g., production-based rebates to energy-intensive sources; tax credits to low-income consumers); or fund programs that may have little to do with reducing GHG emissions but that garner wider support for the legislation. As discussed in a later section, how any revenues are used may help to minimize the overall costs of the GHG reductions, or, conversely, may lead to higher costs. Market Facilitation Tools Even when market mechanisms are used to help control emissions, markets do not work perfectly; complementary, typically non-regulatory, policies may help to achieve reductions at the lowest possible costs. Public or targeted information programs can help prepare people for the changes a GHG control policy may demand, and gain their support for it. Providing public information about climate change risks would likely induce some voluntary action—an approach used to promote anticipatory adaptation, for example. Information about government programs, including advanced notice of regulatory requirements, can help decision-makers to make an efficient transition to changing circumstances. Product labeling and "seals of approval" are additional informational tools used privately and by governments to facilitate efficient markets. Accurate information about risks can allow investors to make appropriate decisions. Some private initiatives, such as the Ceres Investor Network on Climate Risks, seek and disseminate information, including through corporate shareholder resolutions, about investment risks and opportunities associated with climate change. Additionally, technical assistance programs—like several existing federal voluntary programs, such as the Climate Leaders or Energy Star programs —can help consumers and businesses to make economical choices. Technical assistance programs may provide, for example, calculation tools, training, and access to information. Programs may work with equipment suppliers to commercialize products that are more efficient or emit fewer GHGs, as has occurred with, for example, Energy Star home electronics initiatives, or the Mobile Air Conditioning Climate Protection Partnership. Most experts agree that such programs work best when targeted to address specific decision-makers or imperfections in the market, and that the GHG reductions they could yield by themselves are limited. Some programs, however, may result in private savings that far exceed their federal budgetary costs (which are broadly spread across taxpayers). On the other hand, the governmental expenditures per unit of emissions reduction achieved may be much higher than regulatory programs, where more costs are borne by emissions sources. Perceived investment risks can sometimes make consumers and investors reticent to make changes or invest in new technologies. Risk-sharing policy tools can include loan guarantees, insurance, or tax incentives. Public information and education campaigns are additional tools that can support a policy's acceptability and effectiveness. Tools to Stimulate Technological Change Achieving deep GHG emission reductions from projected levels would require extraordinary changes in how energy is used and supplied over time. Moreover, the cost to reduce GHG emissions would depend critically on development and deployment of improved technologies. Multiple studies conclude that "markets are unlikely to provide proper incentives for the development of clean technologies, absent public policy." Public policies clearly have led to major technological advances in other fields (e.g., developing nuclear energy, putting humans on the moon, developing advanced weapons). Still, the quantitative link between policy tools and resulting technological advance is unpredictable. Often, policies to stimulate technological change are described as "demand-pull," or "supply-push." A third type of policy aims to improve market function, to lubricate the interface between buyers and suppliers. Specific measures in these three categories are described below. Demand-Pull : Policy tools can act on the demand for new technologies. Some types of policy tools act primarily to stimulate demand for new technologies: "Technology-forcing" regulations have effectively stimulated demand for better (and more cost-effective) technologies in the past. "Technology-forcing policies respond to the reality that the world is not static and that policy itself can create and shape the options society faces in meeting its needs." Many economists prefer price incentives to stimulate technological change, because they decentralize decision-making to consumers and suppliers, and are arguably more cost-effective. On the other hand, price incentives may not succeed in inducing transformative or radical change from existing technologies because of the lack of certainty regarding prices over the long period required for developing and commercializing new technologies. At least one study found that, in some circumstances, technology mandates may be more effective than direct financial incentives. Renewable or clean energy quotas have been enacted in many states, requiring electricity producers to generate a specified share of power with defined renewable energy or other (i.e., nuclear, hydroelectric) technologies. These kinds of quotas create demand for designated classes of technologies that may not otherwise be commercially preferred by investors (e.g., because of perceived risks or extra costs). The Clean Energy Standard (CES) is an example of demand-side, technology-forcing incentive. This option has been proposed by the Obama Administration, as well as by Senators Jeff Bingaman and Lisa Murkowski. A CES has been enacted in Indiana. Tax incentives and consumer rebates can reduce the price to purchasers of certain technologies. The Energy Policy Act of 2005 ( P.L. 109-58 ), for example, extended numerous tax credits to individuals and businesses to make investments in energy efficiency or renewable energy generation that meet certain criteria, in order to accelerate technology deployment. Supply-Push : Other policy tools primarily act on the supply of technologies—increasing incentives for technology suppliers to conduct research and development (R&D) and to commercialize more advanced technologies: Subsidies to research and develop new or improved technologies are a common tool of federal policy, including current approaches to mitigating climate change. Federal appropriations of billions of dollars have been enacted in recent years to stimulate more efficient energy technologies; renewable, nuclear, and "clean coal" technologies; and approaches like alternatives to gasoline or diesel fuel for vehicles. These subsidies can take the form of tax credits for R&D, cost-sharing grants or contracts, direct investments, loan guarantees, and others. Technology awards or prizes are sometimes offered to innovators that develop advanced technologies that meet specified criteria. Government procurement policies can drive technological development forward, by setting challenging standards for performance and guaranteeing purchase of that technology at a particular (attractive) price, or by purchasing a less-emitting technology even if it is not the lowest cost alternative. Both types of procurement policies have been used by the federal government to advance technologies that emit fewer GHGs than more conventional technologies. "Manhattan Project"-like federal research has been proposed by some experts, who argue that a focused cadre of researchers, with sufficient resources and allowed to pursue high-risk, high-payoff projects could facilitate technological "breakthroughs" that could facilitate radical change in energy systems. Some policy tools that may affect the advance of technologies could be indirect. For example, incentives to ensure a sufficient supply from universities of well-trained scientists and engineers in GHG mitigation-related fields could be a component of promoting technological advance. Supply-Demand Interface : Some policy instruments focus on lubricating the connections between suppliers and users of technologies; sometimes these are called market facilitation . They may reduce the "transaction costs" of deploying new technologies in commercial markets. Programs to improve the interface between suppliers and users (e.g., the "Energy Star" programs of the Environmental Protection Agency and the Department of Energy) became a new emphasis since the late 1980s and early 1990s. The Energy Star website claims savings in the utility bills of consumers assisted by the program of nearly $18 billion in 2010. Such programs may improve the information available on technologies and markets, make it more accessible, give it independent "third party" evaluations, improving technical capacity to choose and install technologies, and many others. More specific examples include trade conferences and missions, internet-based technology databases, publication of research including reviews of applications, "stamps of approval," etc. Most of these measures are employed already in private markets (i.e., marketing by suppliers), especially by larger firms. However, there are niches in markets where government-supported actions may improve the supply-demand interface in markets and speed deployment of new technologies as well as make technology developers better aware of potential users needs and interests. Experts have noted the ability of supply-demand interface measures to improve market efficiency, as well as their limits in reducing emissions in lieu of stronger incentives. Options to Ease the Economic Transition The U.S. economy currently depends primarily on fossil fuels, especially for electricity generation and transportation. Without factoring in the environmental, energy security, and other "external" costs, the United States has optimized its infrastructure to use the relatively inexpensive fossil fuels. A transition to alternatives or to low-emission technologies, if faster than the natural rate of capital turnover, could incur costs. Several policy mechanisms can help to ease the transition of the current economy to one optimized around low-GHG emissions: timing the total required GHG reductions to coincide with normal retirements of equipment and infrastructure and when new investments may be made; trading, banking, and borrowing of allowances allow sources to manage the timing of their reductions at least cost; market facilitation tools, described above, can help sources and consumers make optimal decisions, including information campaigns that help sources anticipate the regulatory regime; investment in appropriate infrastructure (important also for state, local, and private entities) that enables deployment of emerging technologies; and regulatory and permitting regimes that are adequately prepared for new technologies in new locations (e.g., in permitting carbon capture and storage technologies, or resolving "solar rights" issues). In addition, the private sector is concerned about the possible international competitiveness and trade impacts of GHG reductions in the United States. Some policy tools that could be applied, although some could encounter potential challenges under the World Trade Organization (WTO) rules, include border tax adjustments that would raise the prices of imports from countries without GHG controls comparable to those of the United States; "international reserve" allowances that importers of certain goods must purchase (raising the cost of imports) if the country of origin does not apply GHG controls comparable to those of the United States; giving, over some period, allowances or revenues from sales of allowances to affected industries in order to facilitate adjustment; in the process of crafting domestic policies, negotiating with potentially affected WTO Members to seek ways to avoid imposing restrictive import measures; working within the WTO to change or clarify rules to permit the imposition of import restrictions by countries adopting trade-vulnerable GHG control requirements; and working multilaterally to have GHG emission controls applied equitably to sources internationally (see discussion below) and to avoid WTO challenges. The design of competitiveness-oriented policy tools would require caution to avoid challenge under WTO as unfair trade practices. International Policy Tools Because GHG emissions from virtually all countries add to global atmospheric concentrations, the effectiveness of policies to address climate change will depend on the collaboration of all major countries, especially the largest emitters. Some of the large emitters, such as the nations of the European Union, already have committed to reducing their GHG emissions below year 1990 levels and have proposed further reductions beyond the Kyoto Protocol's current commitment period that ends in 2012. The United States, China and other large developing country emitters have offered GHG targets, but are not obligated to reduce their GHG, and the position of Russia beyond 2012 remains a question. A country, if it wished to promote global GHG emission reductions, could exercise a number of relevant policy tools, unilaterally or in cooperation (including legal treaties) with other nations: leadership and relationship-building; strategic policy leverage (including quid pro quo); capacity building and other technical assistance; financial assistance; agreement on standards for international investment; and contributions of research and technological developments. There are additional options, and a multitude of variants in designing each of these policy tools. Tools to Stimulate Adaptation to Climate Change Computer modeling suggests that, even if GHG emissions were stopped today, historical emissions would lead to another 1 o C (1.8 o F) of warming by 2050. Interest has grown in recent years in improving understanding of the potential impacts of climate variability and change, and in stimulating effective adaptation to minimize future losses and take advantage of opportunities. Policy tools to promote efficient adaptation could include, among other options: research to improve characterization of future climate change, natural variability, and the potential implications for different sectors and ecosystems; public information, both broad and targeted to specific populations, including access to robust characterization of future climate conditions and associated risks; programs to develop practical tools to assist decision-makers to understand the implications of climate change for their areas of operation (e.g., water management, infrastructure engineering, disease vector prediction, etc.); financial or regulatory incentives to reduce risks (e.g., to discourage construction in vulnerable flood plains; to encourage insurers to include climate change risks in their premium schedules; etc.); improved emergency planning to reduce risks and respond to extreme weather events (e.g., droughts, tornadoes, etc.); and acquisition of key assets, such as easements in coastal zones or lands along wildlife migratory routes, that may be valuable for long-term adaptation. Policy tools to encourage private and public sector adaptations, like the research to support them, are relatively undeveloped compared to work on GHG mitigation.

Congress has, over the past three decades, authorized and funded federal programs to improve understanding of climate changes and their implications. Climate changes have potentially large economic and ecological consequences, both positive and negative, which depend on the rapidity, size, and predictability of change. Some of the impacts of past change are evident in shifting agricultural productivity, forest insect infestations and fires, shifts in water supply, record-breaking summer high temperatures, and coastal erosion and inundation. People and natural systems respond to climate changes regardless of whether the government responds. Over time, the consequences of climate change for the United States and the globe will be influenced by choices made or left to others by the U.S. Congress. Different factors contribute to climate change, their contributions depending on the time periods and geographic locations under examination. Current scientific evidence best supports rising atmospheric concentrations of "greenhouse gases" (GHG) (particularly carbon dioxide, methane, nitrous oxides) and other air pollutants as having driven the majority of global average temperature increase since the late 1970s. The increase in concentrations is due almost entirely to GHG emissions from human activities. Hence, the policy debate has focused on whether and how to abate GHG emissions from human-related activities. Locally, human-related air pollution, irrigation, the built environment, land use change, and depletion of ozone in the stratosphere may be more important but have small overall effect on global average temperature. Policy proposals take different approaches to setting goals or managing climate change-related risks. This report describes four strategies for setting climate change policies: (1) research and wait-and-see, (2) science-based goal setting, (3) economics-based policies, and (4) incrementalism or adaptive management. Each may take into account the concerns, values, and skepticisms of some constituencies, but each also has limitations. It is unclear whether any single conceptual approach could cover all elements of the policy debate, though hybrid approaches may help to build political consensus over whether and how much policy intervention is appropriate. If climate change merits federal action, a variety of generic policy tools may be available (some in use already) to achieve policy goals: regulatory, including market-based, tools to reduce GHGs; distribution of potential revenues from GHG programs; non-regulatory tools that help markets work more efficiently; tools to stimulate technological change; options to ease the economic transition to a lower GHG economy; instruments to encourage international actions; and tools to stimulate adaptation to climate change. Analysts have elucidated the potential usefulness and limitations of each option. Many experts have concluded that, to achieve a given policy goal, strategies using complementary policy tools can increase cost-effectiveness, alleviate burdens on particular constituencies, and address additional concerns of policy-makers. This report seeks to support Congress as it debates and modifies the mix of federal programs that may influence the climate or adaptation to its changes.

Introduction Reforming or limiting itemized tax deductions for individuals has gained the interest of policymakers as one way to increase federal tax revenue, increase the share of taxes paid by higher-income tax filers, simplify the tax code, or reduce incentives that might lead to inefficient economic behavior. However, limits on deductions, in the views of some, would have adverse economic effects or changes in the distributional burden of the federal income tax code. Discussions about itemized tax deduction reform are informed by analysis of tax filer data. This report analyzes the most recently available public data from the Internal Revenue Service's (IRS's) Statistics of Income (SOI) to provide an overview of who claims itemized deductions, what they claim them for, and the amount in deductions claimed. In addition, the revenue loss associated with several of the larger deductions is presented using data from the Joint Committee on Taxation's (JCT's) tax expenditure estimates. This report concludes with a brief discussion of the implications of various policy options to reform or limit itemized deductions. More in-depth discussion on options for reforming itemized tax deductions, as a whole or individually, can be found in other CRS reports. An Overview of Itemized Tax Deductions Individual income tax filers have the option to claim either a standard deduction or the sum of their itemized deductions on the federal income tax. The standard deduction is a fixed amount, based on filing status, available to all taxpayers. Alternatively, tax filers may claim itemized deductions . Tax filers who itemize must report each item separately on their tax returns and be able to provide documentation in the event of an IRS audit. Whichever deduction a tax filer claims—standard or itemized—the deduction amount is subtracted from adjusted gross income (AGI) to determine taxable income. AGI is the broad measure of income under the federal income tax and is the income measurement before itemized deductions and personal exemptions are taken into account. Generally, only individuals with aggregate itemized deductions greater than the standard deduction would find it worthwhile to itemize. The tax benefit of choosing to itemize is the amount that their itemized deductions exceed the standard deduction multiplied by their top marginal income tax rate. Some itemized deductions can only be claimed if they meet or exceed minimum threshold amounts (also known as a floor) to simplify tax administration and compliance. Floors usually come in the form of a limit based on a percentage of AGI. For example, eligible extraordinary medical and dental expenses must amount to at least 10% of AGI for most tax filers to claim an itemized deduction; total expenses less than this floor are not eligible for an itemized deduction. In addition, some itemized deductions are subject to a cap (also known as a ceiling) in benefits or eligibility. Caps are meant to reduce the extent that tax provisions can distort economic behavior, limit revenue losses, or reduce the availability of the deduction to higher-income tax filers. For example, the itemized deduction for home mortgage interest can only be claimed for the value of interest payments made on the first $1 million of mortgage debt. Analysis of Tax Data This section of the report uses publicly available tax data from the IRS to provide a profile of itemizers and some insight into trends among various itemized deduction provisions. Itemized deductions are often grouped together in broader discussions of tax policy, in part because they are grouped together on the tax Form 1040. But, itemized deductions exist for a variety of reasons and are designed in ways such that they target (or exclude) certain types of tax filers. Analysis of data on these deductions can inform these discussions over reforming one or more itemized deduction provisions. Specifically, the data analysis in this report intends to identify who claims itemized deductions, for how much, and for which provisions. This analysis might be relevant to the 115 th Congress, as there has been growing congressional interest in reforming or limiting itemized tax deductions for individuals. Some see reforming itemized tax deductions as one way to increase federal tax revenue (and possibly contribute to deficit reduction), increase the share of taxes paid by higher-income tax filers, simplify the tax code, or reduce incentives that might lead to inefficient economic behavior. Who Claims Itemized Tax Deductions? In 2014, 30% of all tax filers chose to itemize their deductions rather than claim the standard deduction. Of this 30% of tax filers, a greater share of higher-income individuals chose to itemize their deductions compared with lower-income individuals. Table 1 shows the share of tax filers who chose to itemize their deductions and the average sum of those deductions in 2014 by AGI. Higher-income tax filers chose to itemize their deductions more often than lower-income tax filers in 2014. As shown in Table 1 , the share of tax filers who chose to itemize in income ranges above $200,000 remained virtually the same (over 90%), although the average sum of itemized deductions claimed increases substantially as income rises. For taxpayers with an AGI greater than $200,000, the share that itemized ranged from 91% to 93% and the average sum of itemized deductions claimed per itemizer ranged from $43,131 to $424,864. In contrast, 77% of tax filers with an AGI between $100,000 and $200,000 chose to itemize their deductions in 2014, with an average of $25,598 in deductions claimed. Five percent of tax filers with an AGI less than $20,000 chose to itemize their deductions in 2014, with an average of $15,857 in deductions claimed. Figure 1 shows the distribution, by AGI, of total itemizers and total itemized deduction claimed in 2014. Although higher-income tax filers both tended to itemize at higher rates and claim a larger average total of itemized deductions, the majority of itemizers (56.2%) had incomes less than $100,000, and 86.8% of itemizers had an AGI less than $200,000. Compared with the distribution of itemizers, the distribution of total itemized deduction claim amounts was more even across income ranges. As shown in Figure 1 , a majority (63.6%) of total itemized deduction claims (amounts, in dollars) were made by itemizers with an AGI greater than $100,000. Although tax filers with an AGI more than $1 million comprised 0.8% of itemizers, they claimed 13.1% of all itemized tax deductions in 2014. Similarly, tax filers with an AGI between $500,000 and $1 million accounted for 1.8% of itemizers, but they claimed 5.3% of all itemized deductions. Tax filers with an AGI between $50,000 and $100,000 accounted for 33.6% of all itemizers, but they claimed 23.5% of all itemized deductions. Analysis of Selected Deductions Another way to analyze tax data on itemized deductions is to look at specific deductions. Specific deductions tend to benefit different types of itemizers based on their income. In addition to differences in the income of the itemizer, the variation in itemized deduction claims can also be explained, in part, by the structure of certain provisions (e.g., floors or ceilings that are designed to limit claims). Tax filers in different income ranges tended to claim specific itemized deductions in different frequencies. Table 2 shows the average amount claimed in 2014 for selected deductions and the share of total tax filers who itemized in each income class that claimed a particular deduction. Tax filers in higher-income ranges claimed deductions for charitable gifts, state and local income taxes, and real estate property taxes at higher rates than tax filers in lower-income ranges. For example, the deduction for charitable gifts was claimed by 37% of tax filers with an AGI between $50,000 and $100,000; 68% of tax filers with an AGI between $100,000 and $200,000; and more than 86% of tax filers in each of the income ranges over $200,000. Fewer tax filers in the highest income group (with an AGI greater than $1 million) than in the $100,000-$1 million income groups claimed the home mortgage interest deduction, possibly due to a greater ability for some individuals to pay for home purchases with cash (i.e., they did not have a mortgage). On the other hand, higher-income individuals might have preferred taking a mortgage out on their house, rather than paying in cash, if they believed that their investments would yield a higher rate of return than the cost of the interest on the mortgage. Few tax filers, in general, claimed the deduction for extraordinary medical and dental expenses —particularly at the highest income ranges . The 10% of AGI floor required for most tax filers to claim the deduction in 2014 limited the amount of taxpayers that could be eligible for this provision. Average tax deduction values indicate which provisions had the largest effects in reducing different tax filers' taxable incomes. The mortgage interest deduction was, on average, the largest single deduction, by amount, claimed by tax filers with an AGI less than $500,000 (aside from the medical expenses deduction). In contrast, the deduction for state and local income taxes was the largest average deduction amount claimed for any deduction by tax filers with an AGI greater than $500,000 (aside from the infrequent instance where a tax filer claimed the itemized deduction for extraordinary medical expenses). The average deduction for charitable gifts also increases sharply for tax filers with an AGI of $1 million or above. The average amount of the charitable gift deduction claimed by tax filers with an AGI between $500,000 and $1 million was $18,615. In contrast, the average amount of the charitable gift deduction for tax filers with an AGI greater than $1 million was $172,529 in 2014. Figure 2 shows the how the distribution of various specific deductions as a share of all itemized deductions varies across income classes. These data illustrate several trends. The home mortgage interest deduction comprised the largest share of total itemized deductions for itemizers with an AGI between $20,000 and $200,000. The deduction for state and local income taxes comprised the largest share of total itemized deductions for itemizers with an AGI greater than $200,000. The deductions for state and local income taxes and charitable contributions composed a larger share of total deductions claimed as income rise. Table 3 shows the amounts claimed for certain itemized deductions as a share of the total income of itemizers. Itemized deduction claims are high when measured as a share of income for lower-income itemizers (although, as noted in Table 1 , tax filers with lower income choose to itemize at relatively lower rates). Total itemized deduction claims as a share of income decline as income increases. Across all itemizers, deductions claims amounted to 18.9% of AGI. In terms of specific deductions, total claims for the deduction for home mortgage interest comprised the largest share of income among itemizers with less than $200,000 in AGI. For itemizers with an AGI greater than $200,000, the claims for state and local income taxes comprised the largest single deduction as measured as a share of income. Which Itemized Deductions Contribute Most to Revenue Loss? Some itemized deductions are classified as tax expenditures, or losses in federal tax revenue. Table 4 shows the Joint Committee on Taxation (JCT) estimates for the top four itemized deductions that are expected, under current law, to contribute most to annual tax expenditures in FY2018. Tax expenditures are defined under the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ) as "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." The four itemized deductions that are projected to contribute most to tax expenditures in FY2018 are estimated to account for 17.8% ($241.2 billion) of the approximately $1.36 trillion in net individual tax expenditures. As shown in Table 4 , the deduction for state and local income or sales taxes is estimated to be the itemized deduction with the largest tax expenditure estimate in FY2018, accounting for 5.5% ($74.1 billion) of all individual tax expenditures in FY2018. The deduction for state and local income or sales taxes is also the fifth-largest individual tax expenditure overall in FY2018. The deduction for home mortgage interest is estimated to account for 5.3% ($72.1 billion) of FY2018 tax expenditures, followed by charitable gifts (4.3%) and real estate taxes (2.7%). Policy Implications Congress might consider policies further limiting itemized deductions. Some view these limits as one way to increase federal revenue, increase the progressive structure of the federal income tax code, simplify the tax code, or reduce economic distortions in the tax code. When a tax filer loses the ability to take deductions, then their taxable income increases (absent other behavioral changes). Others seek to limit itemized deductions to increase progressivity in the tax code, where tax filers with higher incomes pay a larger share of their income in taxes than those with less income. Arguments against broad limits to itemized deductions vary. The economic effects of limiting itemized tax deductions might be undesirable for some. Those who are willing to accept the economic consequences of limits on itemized tax deductions might argue for reform of individual provisions, rather than broader limits, because the rationale for itemized deductions varies. For example, some might find the deduction for charitable contributions desirable but not the deduction for state and local income taxes. Others argue that higher-income tax filers already provide most of the revenue collected through the individual federal income tax, and might oppose further efforts to increase the progressivity of the federal income tax code. Some proposals to reform or limit itemized deductions include a flat, dollar-value cap or percentage-of-income cap on total deductions; a limit on the tax rate at which deductions can be valued; converting deductions into credits; and various others. Although this report does not assess these policies in depth, it provides insights from the data analysis on itemized tax deductions that might be useful for informing the debate concerning reform options. First, efforts to target limits on itemized tax deductions toward higher-income tax filers are restricted in the amount of revenue that can be raised. Some have suggested a fixed dollar amount cap as one possible way to target revenue raised from primarily higher-income households. However, to avoid increasing the taxable income of most households, the cap on total deductions would need to be set high enough such that it would not be lower than the average deduction values for those in the middle or lower portion of the income distribution. For example, Table 1 suggests that a cap of $25,000 would affect the average itemizer with an AGI less than $200,000. However, higher caps could have more limited ability to raise revenue. Even though those at the top of the income range have high average itemized deduction claim totals, data from Table 1 indicate that 87% of itemizers have an AGI less than $200,000 (or 97% have less than $500,000 in AGI), and Figure 1 indicates that these tax filers account for 65% of itemized deductions claimed (or 82% for itemizers with less than $500,000 in AGI). Second, the form of a limit on itemized deductions might affect which deductions a tax filer might claim. If a tax filer potentially has deductions that exceed a flat-dollar value cap, then the tax filer must choose which deductions to claim. Table 2 provides some estimates of which deductions may "fill" up a taxpayer's cap, if that cap is based on a fixed amount, whereas Table 3 provides estimates under a limit in the form of a share of AGI. A reduction in the tax benefit derived from activities eligible for tax deduction can affect tax filer behavior. Deductible activities that are more easily adjustable in the short run (e.g., charitable giving) could be reduced after enactment of a limit on deductions in favor of activities that are more difficult to adjust or plan for in the short run (e.g., state and local income or sales taxes, or extraordinary medical expenses). Over time, tax filers might adjust their behavior to accommodate for limits in itemized deductions (e.g., renting a residence might be more preferable for some, if they can no longer deduct mortgage interest). However, a tax filer might still engage in particular activities for other reasons (although possibly to a lesser extent) even without a tax benefit. Figure 2 shows what share of a tax filer's itemized deductions is composed of individual itemized deductions. In contrast, limits that are not tied to fixed amounts could be structured in a way that does not cause a trade-off among tax-deductible activities. For example, these limits could be capped based on a share of the tax filer's income. Although these limits would be less likely to cause a trade-off between tax-deductible activities, they may reduce the tax-beneficial value of these activities. By reducing the value of those activities (in terms of tax liability), a tax filer might choose to claim a smaller deduction related to a certain activity (based on the behavioral response for each activity). Third, the extent to which a limit on itemized deductions increases revenue depends on its structure. Limits on itemized deductions increase the amount of income of itemizers that is subject to taxation (and also potentially tax more of that income under a higher marginal income tax bracket), thereby increasing revenue. Certain combinations of deduction limits may shift some tax filers to claim the standard deduction instead of itemizing. In this case, the revenue increase by limiting itemized deduction would be partially offset by more tax filers claiming the standard deduction.

Reforming or limiting itemized tax deductions for individuals has gained the interest of policymakers as one way to increase federal tax revenue, increase the share of taxes paid by higher-income tax filers, simplify the tax code, or reduce incentives that might lead to inefficient economic behavior. However, limits on deductions could cause adverse economic effects or changes in the distributional burden of the federal income tax code. This report is intended to identify who claims itemized deductions, for how much, and for which provisions. This report analyzes data to inform the policy debate about reforming itemized tax deductions for individuals. In 2014, 30% of all tax filers chose to itemize their deductions rather than claim the standard deduction. In addition, the data indicate that both the share of tax filers who itemized their deductions and the amount claimed by each tax filer increased as adjusted gross income (AGI) increases. AGI is the basic measure of income under the federal income tax and is the income measurement before itemized deductions and personal exemptions are taken into account. Although higher-income tax filers were more likely to itemize their deductions and claim a larger amount of itemized deductions than lower-income tax filers, the majority of itemizers (56.2%) had an AGI less than $100,000, and 86.8% of itemizers had an AGI less than $200,000. Tax filers in different income ranges tended to claim different itemized deductions in different frequencies. In 2014, tax filers in higher income ranges claimed deductions for charitable gifts, state and local income taxes, and real estate taxes at higher rates than tax filers in lower income ranges. For example, the deduction for charitable gifts was claimed by 37% of itemizing tax filers with an AGI between $50,000 and $100,000, whereas it was claimed by 68% to 87% of itemizing tax filers with an AGI above $100,000. Deductions for state and local income taxes and the deduction for charitable gifts comprised a larger share of itemized deductions as income rose. The four largest itemized deductions are estimated to account for 17.8% ($241.2 billion) of the approximately $1.4 trillion in tax expenditures in FY2018. These deductions were for state and local income or sales taxes, home mortgage interest, charitable gifts, and real estate taxes. These findings have several implications for reforming or limiting itemized tax deductions. First, efforts to target itemized tax deduction limits on the highest income class analyzed in this report (+$1 million in AGI) are limited in the amount of revenue that can be raised. Although tax filers with an AGI greater than $1 million claimed a larger average amount of deductions ($424,864), 87% of itemizers had an AGI less than $200,000 (or 97% have less than $500,000 in AGI) and they accounted for 65% of itemized deductions claimed (or 82% for itemizers with less than $500,000 in AGI). Second, the structure of a limit on itemized deductions could affect which deductions a tax filer might claim. A limit based on a percentage reduction in the overall tax benefits of itemized deductions would not likely change the relative choice of deduction claims. However, limits using a flat-dollar amount likely would alter deduction claims and possibly tax filer behavior. A tax filer who has deductions that exceed a flat-dollar value cap must choose which deductions to claim. Even if a tax filer chooses not to claim a particular deduction because of the dollar cap, the tax filer might still engage in the activity for other reasons (although possibly to a lesser extent). Third, the structure of a limit on itemized deductions also has an effect on its capacity to raise revenue. Limiting deductions might raise the taxable income of some individuals, and tax a higher share of their income at a higher marginal tax rate. However, certain combinations of deduction limits may shift some tax filers to claim the standard deduction instead of itemizing. In this case, the revenue increase by limiting itemized deduction would be partially offset by more tax filers claiming the standard deduction.

Introduction Wetlands, with a variety of physical characteristics, are found throughout the country. They are known in different regions as swamps, marshes, fens, potholes, playa lakes, or bogs. Although these places can differ greatly, they all have distinctive plant and animal assemblages because of the wetness of the soil. Some wetland areas may be continuously inundated by water, while other areas may not be flooded at all. In coastal areas, flooding may occur daily as tides rise and fall. Prior to the mid-1980s, federal laws and policies to protect wetlands were generally limited to providing habitat for migratory waterfowl, especially ducks and geese. Some laws encouraged destruction of wetland areas, including selected provisions in the federal tax code, public works legislation, and farm programs. Since the mid-1980s, the values of wetlands have been recognized in different ways in numerous national policies, and federal laws either encourage wetland protection, or prohibit or do not support their destruction. These laws, however, do not add up to a fully consistent or comprehensive national approach. The central federal regulatory program, found in Section 404 of the Clean Water Act, requires permits for the discharge of dredged or fill materials into many but not all wetland areas. However, other activities that may adversely affect wetlands do not require permits, and some places that scientists define as wetlands are exempt from this permit program because of physical characteristics or the type of activity that takes place. One agricultural program, swampbuster, is a disincentive program that indirectly protects wetlands by making farmers who drain wetlands ineligible for federal farm program benefits; those who do not receive these benefits (62% of all farmers received no direct payments from the farm subsidy program in 2007) have no reason to observe the requirements of this program. Numerous other acquisition, protection, and restoration programs complete the current federal effort. Although numerous wetland protection bills have been introduced in recent Congresses, the most significant new wetlands legislation to be enacted has been in farm bills. Congress also has reauthorized several wetlands programs, mostly setting higher appropriations ceilings, without making significant shifts in policy. The George W. Bush Administration endorsed wetland protection in legislation, such as the farm bill and the North American Wetlands Conservation Act reauthorization, and at events, such as Earth Day presentations. The Bush Administration also issued rules on mitigation policies. In 2015 the Obama Administration promulgated controversial changes to regulatory program jurisdiction (see discussion below). Congress has provided a forum in numerous hearings where conflicting interests in wetland issues have been debated. These debates encompass disparate scientific and programmatic questions and conflicting views of the role of government where private property is involved. Broadly speaking, the conflicts are between: Environmental interests and wetland protection advocates who have been pressing for greater wetlands protection as multiple values have been more widely recognized, by improving coordination and consistency among agencies and levels of governments, and strengthened programs; and Others, including landowners, farmers, and small businessmen, who counter that protection efforts have gone too far, by aggressively regulating privately owned wet areas that provide few wetland values. They have been especially critical of the U.S. Army Corps of Engineers (Corps) and the U.S. Environmental Protection Agency (EPA), asserting that they administer the Section 404 program in an overzealous and inflexible manner. Recent wetland legislative activity in Congress centered broadly on two issues. One was on wetlands conservation provisions in the farm bill. Provisions enacted in the 2014 farm bill ( P.L. 113-79 ) repealed the wetlands reserve program, but it created a new conservation easement program, which continues voluntary efforts to protect and restore wetlands. The law also reauthorized the Conservation Reserve Program (CRP), the largest federal, private-land retirement program, but reduced the acreage enrollment cap by 25%. CRP compensates landowners who voluntarily remove land from agricultural production for the benefit of soil and water quality and wildlife habitat. The second major area of recent legislative interest has been proposals addressing the scope of geographic jurisdiction of wetlands regulations under the Clean Water Act. This interest arises because federal courts have played a key role in interpreting and clarifying the limits of federal jurisdiction to regulate activities that affect "waters of the United States," including wetlands, especially since a 2001 Supreme Court ruling in the so-called SWANCC decision and another in 2006 in Rapanos v s . United States . For several Congresses, legislation intended to reverse the SWANCC and Rapanos rulings was introduced but not enacted. More recently, legislation that instead would halt or redirect Obama Administration rules to re-define "waters of the United States" has been introduced, including numerous bills in the 114 th Congress. Wetlands: Science and Information Scientific questions about wetlands, with answers that can be important to policymakers, include how to define wetlands; how to catalogue the rate and pattern of wetland declines and losses as well as restorations and increases; and how to assess the importance of wetland changes to broader ecosystems. Wetlands science has made considerable strides in developing a fuller and more sophisticated knowledge about many aspects of wetlands in the more than two decades since protecting wetlands became a general policy goal in federal law and program administration. There are two topics where scientific information and wetland protection policies remain inconsistent: should all regulated wetlands be treated equally; and if all scientifically defined wetlands are not covered by the federal regulatory program, what subset should be covered, and how should such decisions be made? While discussion of either question has major science elements, both are primarily addressed in the section below about the Clean Water Act Section 404 program. What Is a Wetland? Scientists generally agree that the presence of a wetland can be determined by a combination of soils, plants, and hydrology. The only definition of wetlands in law, in the swampbuster provisions of farm legislation ( P.L. 99-198 ) and in the Emergency Wetlands Resources Act of 1986 ( P.L. 99-645 ), lists those three components. This definition does not include more specific criteria, such as exactly what conditions must be present and for how long, thus leaving interpretation to scientists and regulators on a case-by-case basis. Controversies are exacerbated when many sites that have those three components and are identified as wetlands by experts, either may have wetland characteristics only some portion of the time, or may not look like what many people visualize as wetlands. Also, many of these sites have been directly or indirectly modified by human activities that diminish their appearance (and their ability to perform wetland functions). Wetlands currently subject to federal regulation are a large subset of all places that members of the scientific community would call a wetland. These regulated wetlands, under the Section 404 program discussed below, are currently identified using technical criteria in a wetland delineation manual issued by the Corps in 1987. This manual was prepared jointly and is used by all federal agencies to carry out their responsibilities under this program (the Corps, EPA, Fish and Wildlife Service [FWS], and the National Marine Fisheries Service [NMFS]). It provides guidance and field-level consistency for the agencies that have roles in wetland regulatory protection. (A second and slightly different manual, agreed to by the Corps and the Natural Resources Conservation Service [NRCS], is used for delineating wetlands on agricultural lands.) While the agencies try to improve the objectivity and consistency of wetland identification and delineation, judgment continues to play a role and can lead to site-specific controversies. Cases discussed below (see " Section 404 Judicial Proceedings: SWANCC and Rapanos ") center on whether wetlands should be included or exempted from the regulatory program in certain circumstances, such as the physical setting. What Functional Values Are Provided by Wetlands? Functional values, both ecological and economic, at each wetland depend on its location, size, and relationship to adjacent land and water areas. Many of these values have been recognized only recently. Historically, many federal programs encouraged wetlands to be drained or altered because they were seen as having little value as wetlands (for example, flood protection programs of the Corps and U.S. Department of Agriculture (USDA) have modified or eliminated many floodplain wetlands through alterations of the hydraulic/hydrologic regime). Wetland values can include habitat for aquatic birds and other animals and plants, including numerous threatened and endangered species; production of fish and shellfish; water storage, including mitigating the effects of floods and droughts; water purification; recreation; timber production; food production; education and research; and open space and aesthetic values. Usually wetlands provide some combination of these values; single wetlands rarely provide all of these values. The composite value typically declines when wetlands are altered. In addition, the effects of alteration often extend well beyond the immediate area, because wetlands are usually part of a larger water system. For example, conversion of wetlands to urban uses has increased flood damages; this value has received considerable attention as the costs of natural disaster costs mounted since the 1990s. How Fast Are Wetlands Disappearing, and How Many Acres Are Left? What Is Their Condition? A number of reports document changes in wetland acres. The U.S. Fish and Wildlife Service (FWS) periodically surveys national net trends in wetland acreage using the National Wetlands Inventory (NWI). It has estimated that when European settlers first arrived, wetland acreage in the area that would become the 48 states was more than 220 million acres, or about 5% of the total land area. According to its most recent report of national trends, issued in 2011, total wetland acreage in 2009 was estimated to be 110.1 million acres. Until recently, NWI data had shown small annual gains overall in wetland acreage. However, the 2009 total was a slight decline in acreage over the previous five years (62,300 acres), or about 13,800 acres lost per year, reflecting a combination of some losses and some gains in acres and types of wetlands across the country. FWS also has published reports on wetland status and trends in several individual regions and states, such as Florida, Texas, Delaware, South Carolina, and Alaska. Of particular interest to scientists and natural resource managers are coastal wetlands, which provide important ecosystems services, because they serve as buffers to protect coastal areas from storm damage and sea level rise, while providing habitat for fish, shellfish, and wildlife that are commercially and recreationally important. Coastal watersheds, where these wetlands are located, are affected by population growth more than non-coastal areas, since 52% of the total U.S. population lives in counties that drain to coastal watersheds, although these counties are less than 20% of U.S. land area, excluding Alaska. Coastal wetlands are vulnerable to direct and indirect effects of residential and commercial development, pollutant discharges, and other human activities. A 2013 report by the FWS and National Oceanic and Atmospheric Administration (NOAA) found that in 2009 there were an estimated 41.1 million acres of wetlands in the coastal watersheds of the United States, representing 37.3% of total wetland area in the lower 48 states. The report also found that U.S. coastal wetlands are vanishing at a rate of more than 80,000 acres per year, about six times greater than the estimated rate of wetland loss for the entire United States. The increased loss, measured between 2004 and 2009, was attributed to severe weather in the Gulf of Mexico and urban and rural development in other areas, and the reported loss was 25% greater than the annual loss rate found in a previous report covering the years 1998 to 2004. The largest loss, according to the report, was in the Gulf of Mexico region, where 257,150 acres of coastal wetlands disappeared due to erosion and/or inundation. Throughout the Gulf region, saltwater wetlands have been adversely affected by the cumulative effect of oil and gas development that increased their vulnerability to intense storms. Over the last decade, working with states and tribes, EPA has conducted a series of national aquatic resource assessments, to gather information on the ecological condition of the nation's waters. A 2016 report under this effort evaluated the ecological condition of tidal and non-tidal wetlands. It found that nearly half of wetland area (48%) is in good condition, 32% is in poor condition, and the remaining 20% is in fair condition. Plant presence, abundance, and trait information are used to assess biological condition of wetlands, and EPA reported that less than half of wetland areas nationally have healthy plant communities. Physical disturbances to wetlands and surrounding habitat, such as surface hardening and vegetation removal or loss, are the most widespread problems, EPA said. In 2002, the George W. Bush Administration endorsed the concept of "no-net-loss" of wetlands—a goal declared by President George H. W. Bush in 1988 and also embraced by President Clinton to balance wetlands losses and gains in the short term and achieve net gains in the long term. On Earth Day 2004, President Bush announced a new national goal, moving beyond no-net-loss to achieve an overall increase of wetlands. The goal was to create, improve, and protect at least 3 million wetland acres over the next five years in order to increase overall wetland acres and quality. (By comparison, the Clinton Administration in 1998 announced policies intended to achieve overall wetland increases of 200,000 acres per year by 2005.) The Bush strategy also called for better tracking of wetland programs and enhanced local and private sector collaboration. In April 2008, the Bush Administration issued a report saying that more than 3.6 million acres of wetlands had been restored, protected, or improved as part of the President's program to create, improve and protect wetlands, and that the number was expected to climb to 4.5 million acres by the original date set by that program—Earth Day 2009. The report documented gains, but not offsetting loses. It summarized accomplishments for each federal wetland conservation program. Environmental groups criticized the report as presenting an incomplete picture, because it failed to mention wetlands lost to agriculture and development. Numerous shifts in federal policies since 1985 (and changes in economic conditions as well) strongly influence wetland loss patterns, but the composite effects remain unmeasured beyond these raw numbers. There usually is a large time lag between the announcement and implementation of changes in policy, and collection and release of data that measure how these changes affect loss rates. Also, it is often very difficult to distinguish the role that policy changes play from other factors, such as agricultural markets, development pressures, and land markets. Further, these data only measure acres. This may have been appropriate two or three decades ago when scientists knew less about how to measure the specific functions and values found in wetlands. By providing data limited to number of acres, these data provide few insights into changes in their quality, as measured by the values they provide, which is often determined by factors such as where a wetland is located in a watershed, and what are the surrounding land uses. Scientists caution that there are a number of questions about the qualitative and ecological integrity of existing wetlands. The wetlands trends data reported by FWS in 2011 show increases in certain types of freshwater wetlands since 2004, particularly freshwater ponds constructed to replace lost wetlands. However, FWS noted that there is no clear scientific consensus about the functional equivalency of replacement wetlands. Wetlands and Climate Change As described above, coastal wetlands provide critical services such as absorbing energy from coastal storms, preserving shorelines, protecting human populations and infrastructure, absorbing pollutants, and serving as critical habitat for migratory species. Many scientists believe that these resources and services will be threatened as sea-level rise associated with a changing climate inundates wetlands. Due in part to their limited capacity for adaptation, wetlands have been considered among the ecosystems most vulnerable to a changing climate. Changes in climatic conditions that affect water conditions (e.g., wetter, drier, more saline) are predicted to have substantial impact on species that use wetlands and on ecosystem services provided by wetlands, or make efforts to reestablish wetlands more challenging. In 2010, a group of international scientists published results of research modeling efforts to identify conditions under which coastal wetlands could survive rising sea level. Using a rapid sea-level rise scenario, the scientists estimated that most coastal wetlands worldwide will experience inundation that leads to rapid and irreversible conversion of marshland into unvegetated, subtidal surfaces and will disappear near the end of the 21 st century. Under moderate and slow sea-level rise scenarios, some coastal wetlands would be vulnerable to inundation, depending on amounts of sediment present: larger amounts of sediment would enable the wetland to adapt and modify naturally and thus be more likely to survive sea-level rise. Coastal wetlands also serve as a "sink" for absorbing carbon dioxide (CO 2 ), the most common greenhouse gas (GHG) that is associated with climate change. Scientists recognize that tidal wetlands hold large amounts of carbon, some within standing plant biomass, but most within deep organic-bearing soils. Carbon that is stored in soils has been built up over millennia and reflects pools of CO 2 that have been transferred from the atmosphere and sequestered within roots and other organic material. However, the loss of wetland areas, for example through inundation and erosion, eliminates its ongoing sequestration capacity, and draining wetlands for development releases within a few decades carbon that took centuries to accumulate. A 2011 World Bank report concluded that drainage and degradation of coastal wetlands has become a major cause of carbon dioxide emissions that contribute to climate change, large enough globally that carbon dioxide emissions from drained coastal wetlands should be included in carbon accounting and emission inventories, and in policy frameworks to reduce emissions. Some policymakers concerned with mitigating climate change have begun to consider whether it is possible to halt the release of carbon from converted or eroded wetlands and reverse carbon losses through wetland restoration. Further, some are considering whether the ecosystem benefits of wetlands, from a carbon sequestration standpoint, can be quantified in financial terms to enable use of wetlands restoration and management as potential generators of GHG offsets in the context of climate change policy. Selected Federal Wetlands Programs Federal program issues include the administration of programs to protect, restore, or mitigate wetland resources (especially the Clean Water Act Section 404 program); relationships between agricultural and regulatory programs; whether all wetlands should be treated the same in federal programs, and which wetlands should be subject to regulation; and whether protecting wetlands by acres is an effective proxy for protecting wetlands based on the functions they perform and the values they provide. In addition, private property questions are raised, because almost three-quarters of the remaining wetlands are located on private lands. Some property owners believe that they should be compensated when federal programs limit how they can use their land and for decisions that arguably diminish the value of the land. The Clean Water Act Section 404 Program The principal federal program that provides regulatory protection for wetlands is found in Section 404 of the Clean Water Act (CWA). Its intent is to protect water and adjacent wetland areas from adverse environmental effects due to discharges of dredged or fill material. Enacted in 1972, Section 404 requires landowners or developers to obtain permits from the Corps of Engineers to carry out activities involving disposal of dredged or fill materials into waters of the United States, including wetlands. The Corps has long had regulatory jurisdiction over dredging and filling, starting with the River and Harbor Act of 1899. The Corps and EPA share responsibility for administering the Section 404 program. Other federal agencies, including NRCS, FWS, and NMFS, also have roles in this process. In the 1970s, legal decisions in key cases led the Corps to revise this program to incorporate broad jurisdictional definitions in terms of both regulated waters and adjacent wetlands. Section 404 was last amended in 1977. This judicial/regulatory/administrative evolution of the Section 404 program has generally pleased those who view it as a critical tool in wetland protection, but dismayed others who would prefer more limited Corps jurisdiction or who see the expanded regulatory program as intruding on private land-use decisions and treating wetlands of widely varying value similarly. Underlying this debate is the more general question of whether Section 404 is the best approach to federal wetland protection. Some wetland protection advocates have proposed that it be replaced or greatly altered. First, they point out that it governs only the discharge of dredged or fill material, while not regulating other acts that drain, flood, or otherwise reduce functional values. Second, because of exemptions provided in 1977 amendments to Section 404, major categories of activities are not required to obtain permits. These include normal, ongoing farming, ranching, and silvicultural (forestry) activities. Further, permits generally are not required for activities that drain wetlands (only for those that fill wetlands), which excludes a large number of actions with potential to alter wetlands. Third, in the view of protection advocates, the multiple values that wetlands can provide (e.g., fish and wildlife habitat, flood control) are not effectively recognized through a statutory approach based principally on water quality, despite the broad objectives of the Clean Water Act. The Permitting Process The Corps' regulatory process involves both general permits for actions by private landowners that are similar in nature and will likely have a minor effect on wetlands, and individual permits for more significant actions. According to the Corps, it evaluates more than 85,000 permit requests annually. Of those, more than 95% are authorized under a general permit, which can apply regionally or nationwide, and is essentially a permit by rule, meaning the proposed activity is presumed to have a minor impact, individually and cumulatively. They authorize landowners to proceed without having to obtain individual permits in advance. More than one-half of the general permits require pre-notification or prior approval by the Corps. Nationwide permits are a key means by which the Corps minimizes the burden of its regulatory program. A nationwide permit is a form of general permit that authorizes a category of activities throughout the nation and is valid only if the conditions applicable to the permit are met. They are issued for periods of no longer than five years. According to Corps data, in FY2015, nationwide and other general permits that required Corps approval entailed average processing time of 59 days, in contrast with standard individual permits, which, on average, took 291 days of processing and evaluation, once an application was completed. The current nationwide permit program has few strong supporters, for differing reasons. Developers say that it is too complex and burdened with arbitrary restrictions. Environmentalists say that it does not adequately protect aquatic resources. At issue is whether the program has become so complex and expansive that it cannot either protect aquatic resources or provide for a fair regulatory system, which are its dual objectives. Less than 5% of all permits are required to go through the more detailed evaluation for a standard individual permit, which typically involves complex proposals or sensitive environmental issues. Regulatory procedures on individual permits allow for interagency review and public comment, a coordination process that can generate delays and an uncertain outcome, especially for environmentally controversial projects. EPA is the only federal agency having veto power over a proposed Corps permit; EPA has used its veto authority 13 times in the 40-plus years since the program began. However, critics have charged that implied threats of delay by the FWS and others practically amount to the same thing. Reforms during the Reagan, George H. W. Bush, and Clinton Administrations streamlined certain of these procedures, with the intent of speeding up and clarifying the Corps' full regulatory program, but concerns continue over both process and program goals. Controversy also surrounded revised regulations issued by EPA and the Corps in 2002, which redefine two key terms in the 404 program: "fill material" and "discharge of fill material." These definitions are important, because material defined as "fill" is regulated and permitted under Section 404 procedures, while other waste discharges are regulated under more stringent CWA rules and procedures. The agencies said that the revisions were intended to clarify certain confusion in their joint administration of the program due to previous differences in how the two agencies defined those terms. However, environmental groups contended that the changes allow for less restrictive and inadequate regulation of certain disposal activities, including disposal of coal mining waste, which could be harmful to aquatic life in streams. Legislation to reverse the agencies' action by clarifying in the law that fill material cannot be composed of waste has been introduced regularly since the 107 th Congress, including H.R. 6411 in the 114 th Congress. As previously described, three criteria—hydrology, soil type, and plants—are used in making wetlands delineations under several environmental laws and programs, including Section 404 permitting. Scientists generally agree that each of the three parameters must be met to identify an area as a wetland. Because growth of plants in wetland areas typically is contingent on the presence of hydric soils and the availability of sufficient water, the vegetation parameter often is determinative of whether an area qualifies as a wetland or not. In 2012, the Corps revised the National Wetlands Plant List (NWPL), which is used by federal and state agencies for determining whether a particular area contains a prevalence of hydrophytic (i.e., wetland) vegetation. This was the first major revision of the plant list since its publication in 1988 and was intended to improve the accuracy of the overall list. The updated list contains 8,200 plant species, an increase of 1,472 species, or 22%, primarily as a result of new taxonomic interpretations. The Corps said it did not expect major changes to wetland delineations as a result of the updated list, but some commenters contend that the new list is likely to cause more areas to qualify as wetlands. Section 404 authorizes states to assume many of the Corps' permitting responsibilities. Two states have done this: Michigan (in 1984) and New Jersey (in 1992). Others reasons cited for not joining these two states include the complex process of assumption, the anticipated cost of running a program, and the continued involvement of federal agencies because of statutory limits on waters that states could regulate. Efforts continue to encourage more states to assume program responsibility. If a state or tribe is considering assuming such responsibilities, among the first questions that needs to be answered is for which waters will the state or tribe assume permitting responsibility and which waters will the Corps retain permitting authority. States have raised concerns that Section 404 and its implementing regulations lack sufficient clarity to enable states and tribes to estimate the extent of waters for which they could assume permitting responsibility and thus estimate the associated implementation costs. In 2015 EPA convened an advisory committee, consisting of states, tribes, industry, environmentalists, and others, to provide advice and recommendations on how the EPA can best clarify which waters a state or tribe may assume permitting responsibility. The committee is expected to issue a report in 2017. Should All Wetlands Be Treated Equally? Under the Section 404 program, there is a perception that all wetlands are treated equally, regardless of size, functions, or values. In reality, this is not the case, because the Corps' general permits do provide accelerated regulatory decisions for many activities that affect wetlands. Further, a number of types of activities are fully exempt from 404 permit requirements as a result of statutory provisions enacted in 1977 (including ongoing farming, ranching, and forestry activities, as specified in Section 404(f)) and regulatory exemptions (including for prior converted croplands, which are wetlands that were drained, dredged, filled, leveled, or otherwise manipulated before December 23, 1985, to make production of an agricultural commodity possible). However, this perception has led critics to focus on situations where a wetland has little apparent value, but the landowner's development proposal is not approved, or the landowner is penalized for altering a wetland without a federal permit. Critics believe that one possible solution may be to have a tiered approach for regulating wetlands. Legislation introduced in past Congresses proposed to establish multiple tiers (typically three)—from highly valuable wetlands that should receive the greatest protection to the least valuable wetlands where alterations might usually be allowed. Some states (New York, for example) use such an approach for state-regulated wetlands. Three questions arise: (1) What are the implications of implementing a classification program? (2) How clearly can a line separating each wetland category be defined? (3) Are there regions where wetlands should be treated differently? Regarding classification, even many wetland protection advocates acknowledge that there are some situations where a wetland designation with total protection is not appropriate. But they fear that classification for different degrees of protection could be a first step toward a major erosion in overall wetland protection. Also, these advocates would probably like to see almost all wetlands presumed to be in the highest protection category unless experts can prove an area should receive a lesser level of protection, while critics who view protection efforts as excessive would seek the reverse. In response to these concerns, Corps and EPA officials note that existing guidance and regulations already provide substantial flexibility to implement current programs, allowing, for example, less vigorous permit review to small projects with minor environmental impacts. Some types of wetlands are already treated differently—for example, playas and prairie potholes, which have somewhat different definitions under swampbuster (discussed below). However, this differential treatment contributes to questions about federal regulatory consistency on private property. Locating the boundary line of a wetland can be controversial when the line encompasses areas that do not meet the image held by many. Controversy would likely grow if a tiered approach required that lines segment wetland areas. On the other hand, a consistent application of an agreed-on definition might lead to fewer disputes and result in more timely decisions. Some states have far more wetlands than others. Different treatment has been proposed for Alaska, because about one-third of the state is designated as wetlands, yet a very small portion has been converted. In the past, legislative proposals have been made to exempt that state from the Section 404 program until 1% of its wetlands have been lost. Section 404 Judicial Proceedings: SWANCC and Rapanos The Section 404 program has been the focus of numerous lawsuits, most of which have sought to narrow the geographic scope of the regulatory program. SWANCC An issue of long-standing controversy is whether isolated waters are properly within the jurisdiction of Section 404. Isolated waters (those that lack a permanent surface outlet to downstream waters) that are not physically adjacent to navigable surface waters often appear to provide few of the values for which wetlands are protected, even if they meet the technical definition of a wetland. In January 2001, the Supreme Court ruled on the question of whether the CWA provides the Corps and EPA with authority over isolated waters and wetlands. The Court's 5-4 ruling in Solid Waste Agency of Northern Cook County (SWANCC) v s . U.S. Army Corps of Engineers (531 U.S. 159 (2001)) held that the denial of a Section 404 permit for disposal on isolated wetlands solely on the basis that migratory birds use the site exceeds the authority provided in the CWA. The full extent of retraction of the regulatory program resulting from this decision remains unclear, even more than a dozen years after the ruling. Environmentalists believe that the Court misinterpreted congressional intent on the matter, while industry and landowner groups welcomed the ruling. Policy implications of how much the decision restricts federal regulation depend on how broadly or narrowly the opinion is applied, and, since the 2001 Court decision, other federal courts have issued a number of rulings that have reached varying conclusions. Some federal courts have interpreted SWANCC narrowly, thus limiting its effect on current permit rules, while a few read the decision more broadly. Attorneys for industry and developers say that the courts will remain the primary battleground for CWA jurisdiction questions, so long as neither the Administration nor Congress takes steps to define jurisdiction. The government's view on the key question of the scope of CWA jurisdiction in light of SWANCC and other court rulings came in a legal memorandum issued jointly by EPA and the Corps in 2003. It provided a legal interpretation essentially based on a narrow reading of the Court's decision, thus allowing federal regulation of some isolated waters to continue (in cases where factors other than the presence of migratory birds may exist, thus allowing for assertion of federal jurisdiction), but it called for more review by higher levels in the agencies in such cases. Administration press releases said that the guidance demonstrates the government's commitment to "no-net-loss" wetlands policy. However, it was apparent that the issues remained under discussion, because at the same time, the Administration issued an advance notice of proposed rulemaking (ANPRM) seeking comment on how to define waters that are under the regulatory program's jurisdiction. The ANPRM did not actually propose rule changes, but it indicated possible ways that CWA rules might be modified to further limit federal jurisdiction, building on SWANCC and some of the subsequent legal decisions. The government received more than 133,000 comments on the ANPRM, most of them negative, according to EPA and the Corps. Environmentalists and many states opposed changing any rules, saying that the law and previous court rulings call for the broadest possible interpretation of the CWA (and narrow interpretation of SWANCC ), but developers sought changes to clarify interpretation of the SWANCC ruling. In December 2003, EPA and the Corps announced that the Administration would not pursue rule changes concerning federal regulatory jurisdiction over isolated wetlands. The EPA Administrator said that the Administration wanted to avoid a contentious and lengthy rulemaking debate over the issue. Nonetheless, interest groups on all sides have been critical of confusion in implementing the 2003 guidance, which constitutes the main tool for interpreting the reach of the SWANCC decision. Environmentalists remain concerned about diminished protection resulting from the guidance, while developers said that without a new rule, confusing and contradictory interpretations of wetland rules likely will continue. In that vein, a Government Accountability Office (GAO) report concluded that Corps districts differ in how they interpret and apply federal rules when determining which waters and wetlands are subject to federal jurisdiction, documenting enough differences that the Corps undertook a comprehensive survey of its district office practices to help promote greater consistency. Concerns over inconsistent or confusing regulation of wetlands also drew congressional interest. Rapanos-Carabell Federal courts continue to have a key role in interpreting and clarifying the SWANCC decision. In February 2006, the Supreme Court heard arguments in two cases brought by landowners ( Rapanos v s . United States ; Carabell v s . U.S. Army Corps of Engineers ) seeking to narrow the scope of the CWA permit program as it applies to development of wetlands. The issue in both cases had to do with the reach of the CWA to cover "waters" that were not navigable waters, in the traditional sense, but were connected somehow to navigable waters or "adjacent" to those waters. (The act requires a federal permit to discharge dredged or fill materials into "navigable waters.") Many legal and other observers hoped that the Court's ruling in these cases would bring greater clarity about the scope of federal regulatory jurisdiction. The Court's ruling was issued on June 19, 2006 ( Rapanos et al., v s . United States , 547 U.S. 715 (2006)). In a 5-4 decision, a plurality of the Court, led by Justice Scalia, held that the lower court had applied an incorrect standard to determine whether the wetlands at issue are covered by the CWA. Justice Kennedy joined this plurality to vacate the lower court decisions and remand the cases for further consideration, but he took different positions on most of the substantive issues raised by the cases, as did four other dissenting Justices. Legal observers suggested that the implications of the ruling (both short-term and long-term) are far from clear. Because the several opinions written by the Justices did not draw a clear line regarding what wetlands and other waters are subject to federal jurisdiction, one result has been more case-by-case determinations and continuing litigation. In 2008, EPA and the Corps issued guidance to enable their field staffs to make CWA jurisdictional determinations in light of the decision. According to the nonbinding guidance, the agencies would assert regulatory jurisdiction over certain waters, such as traditional navigable waters and adjacent wetlands. Jurisdiction over others, such as non-navigable tributaries that do not typically flow year-round and wetlands adjacent to such tributaries, would be determined on a case-by-case basis, to determine if the waters in question have a significant nexus with a traditional navigable water. The guidance details how the agencies should evaluate whether there is a significant nexus. The guidance was not intended to increase or decrease CWA jurisdiction, and it did not supersede or nullify the 2003 guidance memorandum, discussed above, which addressed jurisdiction over isolated wetlands in light of SWANCC . The guidance said that waters are jurisdictional if they satisfy either the plurality or Kennedy tests in Rapanos . The 2008 guidance also provided detail for determining whether a wetland is adjacent to a traditional navigable water and whether a tributary of a navigable water is subject to the act—key issues raised by the Rapanos decision. In 2011, the Obama Administration weighed into the CWA jurisdiction debate as EPA and the Corps proposed new joint agency guidance to clarify regulatory jurisdiction over U.S. waters and wetlands and to replace the agencies' 2008 guidance. Like the existing guidance, the proposed revisions would adopt the Kennedy-test-or-plurality-test view of interpreting Rapanos . However, the agencies believed that a wider evaluation of jurisdiction is possible than the existing guidance suggests, stating, "after careful review of these opinions, the agencies concluded that previous guidance did not make full use of the authority provided by the CWA to include waters within the scope of the Act, as interpreted by the Court." The 2011 proposed guidance quickly generated substantial controversy. Some critics argued that the guidance represented over-reaching by the agencies, beyond authority provided by Congress. Others faulted the continued reliance on federal guidance, which is not binding and lacks the force of law, yet can have significant impact on regulated entities. For various reasons, the 2011 draft guidance was not finalized, and in 2013, EPA and the Corps announced that the document had been withdrawn from interagency review and also announced that revised regulations to define "waters of the United States" were being developed. In March 2014, the agencies released a proposed rule that was intended to clarify CWA jurisdiction, but the proposal was extremely controversial. Groups representing property owners, land developers, and the agriculture sector contended that it was a massive federal overreach beyond the agencies' statutory authority. Most state and local officials are supportive of clarifying the extent of CWA-regulated waters, but some were concerned that the rule could impose costs on states and localities as their own actions (e.g., transportation or public infrastructure projects) become subject to new requirements. Most environmental advocacy groups welcomed the intent of the proposal to more clearly define U.S. waters that are subject to CWA protections, but beyond that general support, some favored an even stronger rule. 2015 Revised Rule On May 27, 2015, EPA and the Corps issued a final rule revising their regulations that define the scope of waters protected under the CWA. The revised rule became effective on August 28, 2015, 60 days after publication in the Federal Register . The rule was immediately challenged in federal courts by multiple stakeholders, as described below, and in October 2015, a nationwide stay of the rule was issued while legal proceedings play out. The 2015 revised rule retains much of the structure of the agencies' existing definition of "waters of the United States." It focuses particularly on clarifying the regulatory status of surface waters located in isolated places in a landscape and streams that flow only part of the year, along with nearby wetlands—the types of waters with ambiguous jurisdictional status following the Supreme Court's rulings. Like the 2003 and 2008 guidance documents and the 2014 proposal, it identifies categories of waters that are and are not jurisdictional, as well as categories of waters and wetlands that require a case-specific evaluation. The agencies' intention was to clarify questions of CWA jurisdiction, in view of the Supreme Court's rulings and consistent with the agencies' scientific and technical expertise. Much of the controversy since the Court's rulings has centered on the many instances that have required applicants for CWA permits to seek a time-consuming case-specific evaluation to determine if CWA jurisdiction applies to their activity, due to uncertainty over the geographic scope of the act. In the rule, the Corps and EPA intended to clarify jurisdictional questions by clearly articulating categories of waters that are and are not protected by the CWA and thus limiting the types of waters that still require case-specific analysis. However, critical response to the proposal from industry, agriculture, many states, and some local governments was that the rule was vague and ambiguous and could be interpreted to enlarge the regulatory jurisdiction of the CWA beyond what the statute and the courts allow. Officials of the Corps and EPA vigorously defended the proposed rule. But they acknowledged that it raised questions that required clarification in the final rule. The 2015 final rule does reflect a number of changes from the proposal, especially to provide more bright line boundaries and simplify definitions that identify waters that are protected under the CWA. The agencies' intention was to clarify the rules and make jurisdictional determinations more predictable, less ambiguous, and more timely. While some stakeholders believe that the agencies largely succeeded in that objective, others believe that they did not. Legal challenges to the 2015 rule were filed in multiple federal courts soon after it was announced. These lawsuits, filed by industry groups, more than half of the states, and several environmental groups (nearly 90 plaintiffs in all), will test whether the agencies' interpretation of CWA jurisdiction is consistent with the Supreme Court's rulings and whether the rule complies with substantive and procedural requirements of the CWA and other laws. Because of uncertainty about the correct judicial venue for challenging the rule, petitions for review were filed both in federal district courts and appellate courts. The petitions for review in courts of appeals were consolidated in the U.S. Court of Appeals for the Sixth Circuit. On October 9, 2015, a three-judge panel of the Sixth Circuit placed a nationwide stay on the rule, pending further developments. In June 2016, this court set the initial briefing schedule in the litigation; the court's schedule likely would lead to oral arguments in February 2017 or later. Other legal complexities remain, however, including continuing district court cases over the rule in other circuits and decisions on the same issue in appeals before other federal appellate courts. As a result of the Sixth Circuit's rulings and ongoing judicial review of the regulation, the Corps and EPA are again making CWA jurisdictional determinations based on the 2008 guidance, as they did before promulgation of the 2015 rule. Congressional Response Legislation to reverse the SWANCC and Rapanos decisions was introduced on several occasions since the 107 th Congress. In the 111 th Congress, the Senate Environment and Public Works Committee approved S. 787 —the first such proposal to advance from a congressional committee. Companion House legislation was introduced in the 111 th Congress ( H.R. 5088 ). There was no further legislative action on either bill. Legislation that instead would narrow the definition of "waters of the United States" also was introduced. Stakeholders with different perspectives seemingly agree on one point—that Congress must clarify the important issues left unsettled by the Supreme Court's 2001 and 2006 rulings and by the Corps/EPA guidance and rule—but they disagree on what that would entail. Environmental advocates argue that legislation is needed to "reaffirm" what Congress intended when the CWA was enacted in 1972 and what EPA and the Corps have subsequently been practicing until the two Supreme Court rulings, in terms of CWA jurisdiction. But critics questioned the constitutionality of legislation that was proposed and asserted that it would expand federal authority, thus likely increasing confusion, rather than settling it. Indeed, many developer and other groups that have been critical of EPA and the Corps favor greater restrictions on waters and wetlands that are considered to be "jurisdictional" for CWA regulatory purposes. EPA's and the Corps' efforts to develop revised Rapanos guidance and revised regulations have been controversial and received congressional attention. Legislative provisions to prohibit the agencies from funding activities related to the 2011 draft guidance and the "waters of the United States" rule were included in appropriations bills since the 112 th Congress, but none of these appropriations restrictions was enacted. Congressional interest continued to be strong in the 114 th Congress. In February 2015, the Senate Environment and Public Works Committee and the House Transportation and Infrastructure Committee held a joint hearing on impacts of the 2014 proposed rule on state and local governments, hearing from public and EPA and Corps witnesses. Hearings also have been held by other congressional committees. As well, a number of bills were introduced, most of them intended either to prohibit the agencies from finalizing the 2014 proposed rule or to detail procedures for a new rulemaking to replace the 2015 rule. The House passed legislation to require EPA and the Corps to start a new rulemaking ( H.R. 1732 ). Related legislation was approved by a Senate committee ( S. 1140 ), but the Senate failed to advance that bill. The Senate and House passed a resolution of disapproval under the Congressional Review Act ( S.J.Res. 22 ), which President Obama vetoed. Agriculture and Wetlands National surveys more than two decades ago indicated that agricultural activities had been responsible for about 80% of wetland loss in the preceding decades, making this topic a focus for policymakers seeking to protect the remaining wetlands. Congress responded by creating wetland conservation programs in farm legislation starting in 1985. Conservation programs in the farm bill use both incentives and disincentives to encourage landowners to protect and restore wetlands. For example, the Conservation Reserve Program's wetland program uses incentives to protect wetlands, while swampbuster uses disincentives. Members of the farm community have expressed a wide range of views about wetland protection, from strong opposition to strong support. These views are frequently framed in the context of two general concerns about wetland protection efforts. First, as a philosophical matter, some object to federal regulation of private lands, regardless of the societal values those lands might provide. Second, many farmers want certainty and predictability about the land they farm to limit their financial risk. Therefore, if wetlands are located on farm property, they want assurances that the boundary line delineating wetlands will remain where located for as long as possible. Swampbuster Swampbuster, enacted in 1985, uses disincentives rather than regulations to protect wetlands on agricultural lands. It removes a farmer's eligibility from all government price and income support programs for activities such as draining, dredging, filling, leveling or otherwise altering a wetland. Producers who plant a program crop on a wetland converted to agricultural use after December 23, 1985, or who convert wetlands, making agricultural commodity production possible, after November 28, 1990, are ineligible for certain USDA program benefits. Swampbuster has been controversial with farmers concerned about redefining an appropriate federal role in wetland protection on agricultural lands, and with wetland protection advocates concerned about inadequate enforcement. Since 1995, the NRCS has made wetland determinations only in response to requests because of uncertainty over whether changes in regulation or law would modify boundaries that have already been delineated. Swampbuster amendments in 1996 ( P.L. 104-127 ) granted producers greater flexibility by making changes, such as exempting swampbuster penalties when wetlands are voluntarily restored; providing that prior converted wetlands are not to be considered "abandoned" if they remain in agricultural use; and granting good-faith exemptions. They also encourage mitigation, established a mitigation banking pilot program, and repealed required consultation with the FWS. In 2014 Congress enacted legislation to renew the farm bill ( P.L. 113-79 ), including limited modifications to the swampbuster program. The enacted bill adds crop insurance premium subsides as an ineligible benefit, if found to be out of compliance. The wetlands compliance provision of the farm bill includes a number of exempt lands, such as wetlands created by irrigation delivery systems. The 2014 farm bill amendments extend the list of exemptions for compliance violators, allowing additional time for producers to remedy or mitigate the wetland conversion before losing crop insurance premium subsidies. Other Agricultural Wetlands Programs Several USDA conservation programs provide federal payments to private agricultural landowners for voluntary changes in land use or management to achieve environmental benefits, including wetlands protection. The Wetland Reserve Program (WRP), enacted in 1990, provided landowners with payments for placing easements on farmed wetlands. It provided long-term technical and financial assistance to landowners with the opportunity to protect, restore, and enhance wetlands on their property, and to establish wildlife practices and protection. Strong farmer interest led Congress to raise the WRP enrollment ceiling in both the 2002 and 2008 farm bills. The 2008 legislation authorized a Wetlands Reserve Enhancement Program, allowing USDA to enter into agreements with states in order to leverage federal funds for wetlands protection and enhancement. Farm bill legislation enacted in 2014 ( P.L. 113-79 ) modified agriculture conservation programs in several respects. The legislation repealed the WRP and two other easement programs and created a new Agricultural Conservation Easement Program (ACEP). The new program retains wetlands reserve easements similar to WRP to protect and restore wetlands, along with agricultural land easements for the other repealed programs. Program participants agree to restore and maintain wetlands according to an approved wetland reserve easement plan, while in return, USDA provides technical and finance assistance for wetland restoration. Landowners are compensated for the wetland reserve easement based on the fair market value of the land and the length of the easement or contract. The farm bill also includes the Environmental Quality Incentives Program (EQIP), which may have incidental protection benefits for wetlands. For example, EQIP supports the installation or implementation of structural and management practices, and the 2008 farm bill expanded the program to include practices that enhance wetlands. The 2014 farm bill reauthorized the financial and technical assistance elements of EQIP and also incorporated into EQIP a previously separate program, the Wildlife Habitat Incentives Program (WHIP), which provides assistance to landowners for development of wetland wildlife and other types of wildlife habitat. As amended, the farm bill now requires that 5% of total EQIP payments benefit wildlife habitat. Finally, some programs could less directly help protect wetlands, such as the Conservation Stewardship Program, which provides payments to maintain and improve existing conservation practices on agricultural lands and to adopt additional conservation activities. Building on programs expressly authorized in the farm bill, USDA administers several conservation programs that it established administratively. One is the Wetland Restoration, Non-Floodplain Initiative to allow enrollment of up to 250,000 acres of large wetland complexes and playa lakes located outside the 100-year floodplain in the CRP. CRP, the largest federal, private-land retirement program in the United States, allows producers to enter into 10- to 15-year contracts to install certain conservation practices. As of July 2014, there were 245,000 acres enrolled in the Wetland Restoration, Non-Floodplain Initiative. USDA also established a Wetland Restoration Initiative to enroll wetlands located in the 100-year floodplain in the CRP. As of July 2014, a total of 265,000 acres were enrolled. Participants in these programs receive incentive payments equal to 25% of the cost to help pay for restoring the hydrology of the site, as well as rental payments and cost-sharing assistance to install eligible conservation practices. Agricultural Wetlands and the Section 404 Program The CWA Section 404 program applies to qualified wetlands in all locations, including agricultural lands. But the Corps and EPA exempt "prior converted lands" (wetlands modified for agricultural purposes before 1985) from Section 404 permit requirements under a memorandum of agreement (MOA) by rule, and since 1977 the CWA has exempted "normal farming activities" from Section 404. The Supreme Court's SWANCC decision exempted certain isolated wetlands from Corps jurisdiction; NRCS estimated that about 8 million acres in agricultural locations might be exempted by this decision. While these exemptions and the MOA displease some protection advocates, they probably dampened some of the criticism from farming interests over federal regulation of private lands, at least for a while. On the other hand, the prospect that Congress might enact legislation to reverse the Court's 2001 and 2006 rulings, discussed above, particularly alarmed farm groups, who fear that changes in law or regulations could negatively affect their activities. Because of differences between the CWA and farm bill on the jurisdictional status of certain wetlands (e.g., isolated wetlands may be regulated differently by federal agencies), in 2005 the Corps and NRCS signed a memorandum of understanding and issued joint guidance clarifying circumstances where wetlands delineation made by one agency can be accepted for determining the jurisdiction of the other agency. Recently, agriculture industry groups have been among the most vocal critics of the EPA-Army Corps "waters of the United States" rule, discussed above, out of concern that the rule would bring agricultural lands and activities under Clean Water Act jurisdiction. Other Federal Protection Efforts Many federal agencies have been active in wetland improvement efforts in recent years. In particular, the Fish and Wildlife Service (FWS) has been promoting the success of its Partners for Fish and Wildlife program, which Congress reauthorized through FY2011 in 2006 ( P.L. 109-294 ). Through voluntary agreements, the Partners program provides technical assistance and cost-share incentives directly to landowners for wetland restoration projects on private lands. FWS also administers the National Coastal Wetlands Conservation Grant Program, established by Title III of P.L. 101-646 , Coastal Wetlands Planning, Protection and Restoration Act of 1990. Under this program, federal grants, matched by contributions from states and localities, as well as from private landowners and conservation groups, are used to acquire, restore, or enhance coastal wetlands and adjacent uplands to provide long-term conservation benefits to fish, wildlife, and their habitats. The federal government generally provides 50% of the total costs of a project, but the federal share can be increased to 75% if the state maintains a fund for acquiring coastal wetlands. Since 1992, about $183 million in grants have been awarded to 25 coastal states and one U.S. territory for projects involving 250,000 acres of coastal wetland ecosystems. Other programs also restore and protect domestic and international wetlands. One of these derives from the North American Wetlands Conservation Act, reauthorized in P.L. 111-149 with an appropriations ceiling of $75 million annually. This act, also administered by FWS, provides matching grants to organizations and individuals who have developed partnerships to carry out wetlands conservation projects in the United States, Canada, and Mexico for the benefit of wetlands-associated migratory birds and other wildlife. Grants consist of standard grants, which support projects in all three countries, and small grants, which support similar activities but at a smaller scale and for fewer dollars. Both are competitive grants programs and require that grant requests be matched by partner contributions at no less than a 1-to-1 ratio. According to the FWS, from September 1990 through March 2014, approximately 5,000 partners in 2,421 projects have received nearly $1.3 billion in grants. They have contributed another $2.7 billion in matching funds to affect 27.5 million acres of habitat. Under the Convention on Wetlands of International Importance, more commonly known as the Ramsar Convention, the United States is one of 169 nations that have agreed to slow the rate of wetlands loss by designating wetland sites of international importance. These nations have designated 2,247 sites, totaling 531 million acres, since the convention was adopted in 1971. The United States has designated 38 sites pursuant to the convention, encompassing 4.6 million acres. Private Property Rights and Landowner Compensation An estimated 74% of all remaining wetlands in the conterminous states are on private lands. Questions of federal regulation of private property stem from the argument that landowners should be compensated when a "taking" occurs and alternative uses are prohibited or restrictions on use are imposed to protect wetland values. The U.S. Constitution provides that property owners shall be compensated if private property is "taken" by government action. The courts generally have found that compensation is not required unless all reasonable uses are precluded. Many individuals or companies purchase land with the expectation that they can alter it. If that ability is denied, they contend, then the land is greatly reduced in value. Many argue that a taking should be recognized when a site is designated as a wetland. Congress has explored these wetlands property rights issues on several occasions. An example is a 2001 hearing by the House Transportation and Infrastructure Committee, Subcommittee on Water Resources and the Environment. Recent Congresses considered, but did not enact, property rights protection proposals. State Protection Efforts In addition to federal programs and activities, wetlands in the United States are regulated and protected through a variety of state and local laws and regulations, as well as through initiatives and actions of nongovernmental organizations, schools and universities, and private citizens. The role of states in wetland protection is especially important, as noted in a study by the Environmental Law Institute. States have long held the right and the responsibility to provide stewardship over their resources, and state agency staff typically have a well-versed understanding of the "lay of the land," in terms of both topography and state priorities, policies, and practices. Finally, in light of recent uncertainty over federal jurisdiction of wetlands and limited federal resources for wetland protection, the role of states in conserving wetlands may be more important now than ever before. States use a variety of programs and tools to protect and manage wetlands, including regulation and mitigation, wetland water quality standards, monitoring and assessment, voluntary restoration, tax incentives, coordination among state and federal agencies, and public/private partnerships. Programs vary substantially from state to state and often derive their authorities from more than one statute and/or regulation. As a result, different programs may be administered by different state agencies. In addition, programs may change from year to year. Every state regulates, to some degree, activities that affect wetlands, but two-thirds of the states lack regulatory programs that comprehensively regulate wetlands. Many states rely solely or primarily on authority in CWA Section 401, under which states may review any activity that requires a federal permit or license to determine its effect on the state's water quality standards. Section 401 gives states the authority to approve, condition, or deny the federal permit—including a Section 404 permit—or license based on their review. In areas where there is no Section 404 permit requirement, and therefore no opportunity for review under Section 401, some states also require a state permit for activities that affect aquatic resources: 23 states have authority to issue permits for dredge and fill activities in wetlands and other waters of the state, such as geographically isolated wetlands (although as described previously, only New Jersey and Michigan have been delegated 404 permitting authority). As is the case with the federal regulatory program under CWA Section 404, an important consideration is how a state determines which waters fall within its regulatory jurisdiction. States' definitions of their waters are typically much broader than the federal definition of "waters of the United States," meaning that states may exert jurisdiction over waters within their boundaries that are not covered by the CWA. State definitions often include phrases such as "all surface waters." They also may exclude certain waters, such as private lakes or ponds. Groundwater is not included in the federal regulatory definition, but most states include groundwater in their regulatory programs. All 50 states include wetlands in either or both their statutory and regulatory definitions of state waters—32 make this inclusion explicit, and 18 define waters more generally, including wetlands implicitly. The inclusion of wetlands in a state's definition of state waters does not give automatic protection to these waters; the state must also have some form of complementary regulatory authority, such as to issue permits. Other findings of the ELI report include the following. The majority of states have adopted legislation, policies, and/or guidelines for mitigating impacts to aquatic resources that are permitted in their states. Mitigation provisions range from general requirements to specific replacement ratios, site preferences, and mitigation options such as purchasing credits from a mitigation bank (also see " Wetland Restoration and Mitigation "). One-third of states report having a wetland-specific monitoring and/or assessment program or monitoring wetlands as part of a larger state monitoring program. Nearly one-half of the states operate a formal program for partnering with private landowners on restoration or conservation, and a majority of states report that they conduct outreach or provide technical assistance to private landowners. Ninety percent of states have one or more agencies that carry out education and outreach activities related to wetlands. The Louisiana Experience Much of the attention to reversing wetland loss has focused on Louisiana, where an estimated 80% of the total loss of U.S. coastal wetlands has occurred and where about 40% of U.S. coastal wetlands that remain in the lower 48 states are located (coastal wetlands are about 5% of all U.S. wetlands). Changes to Louisiana's coastal area result from a combination of natural environmental processes (erosion, saltwater intrusion into fresh systems, sea level rise) and human-related activities, according to the U.S. Geological Survey (USGS). Wetland loss has occurred naturally for centuries, but until recently, land losses have been counterbalanced by various natural wetland-building processes. USGS estimates that, since 1932, coastal Louisiana has experienced a net change in land area of approximately 1,883 square miles—an area the size of Delaware. Land loss rates on the Louisiana coast have slowed from an average of more than 30 square miles per year between 1956 and 1978, to an estimated 11.8 square miles per year from 1985 to 2004. When the hurricanes of 2005 and 2008 are factored in, the trend increased the amount of land loss to 16.6 square miles from 1985 to 2010. According to USGS, if this loss were to occur at a constant rate, it would equal losing more than a football field every hour. As a result of wetlands loss, the natural flow of Mississippi River and floodwaters to feed sediment to the marshes has been reduced. Saltwater has invaded the brackish estuaries, destroying vegetation and areas that are needed for fish, shellfish, and wildlife. In response to these losses, Congress authorized a task force, led by the Corps, to prepare a list of coastal wetland restoration projects in the state, and also provided funding to plan and carry out restoration projects in this and other coastal states under the Coastal Wetlands Planning, Protection and Restoration Act of 1990, also known as the Breaux Act. The projects range from reintroduction of freshwater and diversion of sediment to construction of shoreline barriers and planting of vegetation. In total, the estimated total cost to complete all 147 approved projects is $1.78 billion. In a 2007 report, GAO reported that it is impossible to determine the collective success of restoring coastal wetlands in Louisiana, because of an inadequate approach to monitoring. GAO had reviewed the Breaux Act program to identify the types of projects that have been designed and lessons that have been learned from 74 projects that have been completed so far. Others, including the National Oceanic and Atmospheric Administration, disagreed with GAO's findings, observing that long-term data being provided through ongoing project monitoring are intended to yield insight into qualitative and quantitative project performance. In the wake of hurricanes Katrina and Rita in 2005, multiple legislative proposals were introduced to fund additional restoration projects already planned by the U.S. Army Corps of Engineers and to explore other opportunities that would restore and stabilize wetlands in southern Louisiana. Before the hurricanes, Congress was considering legislation that would have provided about $2 billion to the restoration effort. Since the 2005 hurricanes, more expansive options costing up to $14 billion that were proposed in the 1998 report Coast 2050 have also been considered. The Gulf of Mexico Energy Security Act, legislation that authorizes additional revenues to states adjacent to offshore oil and gas production activities, was passed during the final days of the 109 th Congress. One of the purposes for which these revenues can be spent is wetland restoration, and the availability of these funds may affect the amount and scale of wetland restoration activity in the central Gulf Coast. Concern for Louisiana's coastal wetlands was heightened by the oil spill following the April 2010 explosion of BP's drilling rig, the Deepwater Horizon, in the Gulf of Mexico. Although efforts focused on preventing oil from reaching coastal shorelines, some oil escaped capture and was pushed by wind and tides toward land. The degrees of impacts of oil on wetland vegetation are variable and complex and can be both acute and chronic, ranging from short-term disruption of plant functioning to mortality. The primary acute damage to the marshes is that plants, which hold the soil in place and stabilize shoreline, suffocate and die, especially if multiple coatings of oil occur. Once vegetation dies, the soil collapses. Then the soil becomes flooded, and plants cannot regrow. If plants cannot reestablish, soil erosion is accelerated, giving rise to even more flooding and further wetland loss. If oil penetrates into the sediments, roots are continuously exposed to oil, with chronic toxicity making production of new shoots problematic. Consequently, plant recovery is diminished, and eventually land loss occurs. In addition to direct impacts on plants, oil that reaches wetlands also affects animals that use wetlands during their life cycle, especially benthic organisms that reside in the sediments and are a foundation of the food chain. Public and private efforts were taken to protect the wetlands from oil that moved through Gulf waters towards coastal areas, but scientists remained concerned that high tides and wind could push oil into the marshes, and that the grasses and other vegetation that provide habitat for fish and wildlife would likely be destroyed. Wetland plants can be affected both by oil that floats over the surface of the marsh and by oil that has been incorporated into sediment. While oil was still flowing from the Deepwater Horizon site, cleanup of marshes was limited to triage of heavily oiled marshes and wetlands, because experts were concerned that greater harm than good could be done to the sensitive environmental ecosystems. The well was capped, and oil stopped flowing from the well site in mid-July 2010. Experts say that spill response efforts succeeded in keeping large amounts of oil from reaching coastal marshes. Nevertheless, oil remains in the Gulf environment, and potential for re-oiling of coastal areas, for example as a result of storms, will remain a concern for some time. A recent federal report observes that Louisiana's Coast 2050 is a comprehensive plan to protect and restore the state's coastal wetlands, but that other Gulf of Mexico states are only beginning similar planning processes for restoration of the damage caused by the Deepwater Horizon spill. Wetland Restoration and Mitigation Mitigation has become an important cornerstone of the Section 404 program in recent years. A 1990 MOA signed by the agencies with principal regulatory responsibilities (EPA and the Corps) outlines a sequence of three steps leading to mitigation: first, activities in wetlands should be avoided when possible; second, when they cannot be avoided, impacts should be minimized; and third, where minimum impacts are still unacceptable, mitigation is appropriate. Therefore, to compensate for such impacts, mitigation may be required as a condition of a Section 404 permit. Compensatory mitigation is typically accomplished through one of three ways: a mitigation bank, in-lieu fee program, or permittee-responsible mitigation. Federal wetland policies during the past 30 years have increasingly emphasized restoration of wetland areas. Much of this restoration occurs as part of efforts to mitigate the loss of wetlands at other sites. The mitigation concept has broad appeal, but implementation has left a conflicting record. Examination of this record, presented in a 2001 report from the National Research Council, found it to be wanting. The NRC report said that mitigation projects called for in permits affecting wetlands were not meeting the federal government's "no net loss" policy goal for wetlands function. Likewise, a 2001 GAO report criticized the ability of the Corps to track the impact of projects under its current mitigation program that allows in-lieu-fee mitigation projects in exchange for issuing permits allowing wetlands development. Both scientists and policymakers debate whether it is possible to restore or create wetlands with ecological and other functions equivalent to or better than those of natural wetlands that have been lost over time. Results so far seem to vary, depending on the type of wetland and the level of commitment to monitoring and maintenance. Some wetland protection advocates are critical of mitigation, which they view as justifying destruction of wetlands. They believe that the Section 404 permit program should be an inducement to avoid damaging wetland areas. These critics also contend that adverse impacts on wetland values are often not fully mitigated and that mitigation measures, even if well-designed, are not adequately monitored or maintained. Supporters of current efforts counter that they generally work as envisioned, but little data exist to support this view. Questions about implementation of the 1990 MOA and controversies over the feasibility of compensating for wetland losses further complicate the wetland protection debate. In response to criticism in the NRC and GAO reports on mitigation, in 2001, the Corps issued new guidance to strengthen the standards on compensating for wetlands lost to development. But the guidance was criticized by environmental groups and some Members of Congress for weakening rather than strengthening mitigation requirements and for the Corps' failure to consult with other federal agencies. In 2002, the Corps and EPA released an action plan including 17 items that both agencies believed would improve the effectiveness of wetlands restoration efforts. In Section 314 of the 2004 National Defense Authorization Act (NDAA, P.L. 108-136 ), Congress directed the Army Corps to develop regulations, consistent with CWA Section 404, that establish equivalent standards and criteria for mitigation banks, in-lieu fee programs, and permittee-responsible mitigation. In 2008, in response to the NRC and GAO reports and the NDAA directive, the Corps and EPA promulgated a mitigation rule to replace the 1990 MOA with clearer requirements on what will be considered a successful project to compensate for wetlands lost to activities like construction, mining, and agriculture. The rule sets performance standards and criteria for three types of wetlands mitigation: mitigation banks, in-lieu programs, and permittee-responsible compensatory mitigation. It sets standards to mitigate the loss of wetlands and associated aquatic resources and is intended to improve the planning, implementation, and management of compensatory mitigation projects designed to restore aquatic resources that are affected by activities that disturb a half-acre or more of wetlands. It also is designed to help ensure no net loss of wetlands by addressing key recommendations raised in the 2001 NRC report. Under the rule, all compensation projects must have mitigation plans that include 12 fundamental components, such as objectives, site selection criteria, a mitigation work plan, and a maintenance plan. Mitigation banks are believed to be the most reliable form of compensatory mitigation, because the mitigation is undertaken before an activity that would affect aquatic resources is permitted, and thus are the preferred option under the 2008 rule. In 2015, the Corps and EPA completed a retrospective review of the 2008 rule. Among its main findings was that, as a result of the rule, impacts to wetlands and waters covered by the CWA are avoided and minimized as much as possible. It also found that there has been an increased focus on stream mitigation since the rule's release and that the use of mitigation banking and ILF programs to meet compensatory mitigation requirements has reduced permitting times, while permit processing times for projects that utilize permittee-responsible mitigation have been increasing. For Corps-permitted authorizations between 2010 and 2014 that required compensatory mitigation, 41% of projects used mitigation bank credits, 11% used in-lieu fee program credits, and 48% did permittee-responsible mitigation. Numerous public and private banks have been established. In a study of mitigation, the Environmental Law Institute determined that as of 2005, there were 330 active banks. More recent data paint a larger picture. According to the Army Corps, as of September 2016, there are 1,521 approved and active mitigation banks and in-lieu fee programs. For permit applicants, obtaining compensatory mitigation credits for a planned project can be a challenge, and concerns about a mitigation bank program with available credits not being located sufficiently close to a project site are not unknown, as are concerns about the established price of credits. Mitigation banks are economics-driven, that is, if bankers do not see a potential market or potential development that will need credits and do not see a potential profit opportunity, banks will not be established. The market for mitigation bank credits depends upon the demand for credits, which, in turn, depends upon mandates for compensatory mitigation for unavoidable losses to aquatic resources. Potential bankers face market and regulatory risks. A sponsor's decision to establish a bank is likely influenced by many factors, including cost and demand. Under the 2008 rule, the Corps does not determine the price of compensatory mitigation credits, which is solely determined by the sponsor of the mitigation bank or ILF program. Congress has repeatedly endorsed mitigation through legislation. Provisions in several laws, such as the farm bill and the 1998 Transportation Equity Act (TEA-21), endorse the mitigation banking concept. In 2003, Congress enacted wetlands mitigation provisions as part of the FY2004 Department of Defense (DOD) authorization act ( P.L. 108-136 ). Section 314 of that act directed DOD to make payments to wetland mitigation banking programs in instances where military construction projects would result or could result in destruction of or impacts to wetlands. Further, the Water Resources Development Act (WRDA) of 2007 ( P.L. 110-114 ) identified mitigation banking as the preferred mechanism for offsetting unavoidable wetland impacts associated with Corps civil works projects.

Recent Congresses have considered numerous policy topics that involve wetlands. Many reflect issues of long-standing interest, such as applying federal regulations on private lands, wetland loss rates, and restoration and creation accomplishments. The issue receiving the greatest attention recently has been determining which wetlands should be included and excluded from requirements of the Clean Water Act (CWA), especially the Section 404 permit program that regulates waste discharges affecting wetlands, which is administered by the Army Corps of Engineers and the Environmental Protection Agency (EPA). As a result of Supreme Court rulings in 2001 and 2006 that narrowed federal regulatory jurisdiction over certain isolated wetlands, the jurisdictional reach of the permit program has also been narrowed. In 2015, EPA and the Army Corps promulgated a rule to define the scope of waters protected by the CWA. The rule revises the existing administrative definition of "waters of the United States" consistent with the Supreme Court's rulings and consistent with science concerning the interconnectedness of tributaries, wetlands, and other waters and the effects of these connections on the chemical, physical, and biological integrity of downstream waters. The rule has been controversial with groups and many Members of Congress who contend that it would vastly increase federal assertion of jurisdiction that triggers CWA regulatory requirements. Wetland protection efforts continue to engender controversy over issues of science and policy. Topics include the rate and pattern of loss, whether all wetlands should be protected in a single fashion, the effectiveness of the current suite of laws in protecting them, and the fact that 75% of remaining U.S. wetlands are located on private lands. Many public and private efforts have sought to mitigate damage to wetlands and to protect them through acquisition, restoration, enhancement, and creation, particularly coastal wetlands. While recent data indicate success in some restoration efforts, leading to increases in some types of wetlands in some locations, many scientists question if restored or created wetlands provide equivalent replacement for natural wetlands that contribute multiple environmental services and values. One reason for controversies about wetlands is that they occur in a wide variety of physical forms, and the numerous values they provide, such as wildlife habitat, also vary widely. In addition, the total wetland acreage in the lower 48 states is estimated to have declined from more than 220 million acres three centuries ago to 110.1 million acres in 2009. The national policy goal of no net loss, endorsed by Administrations for the past two decades, had been reached by 2004, according to the Fish and Wildlife Service, as the rate of loss had been more than offset by net gains through expanded restoration efforts authorized in multiple laws. However, more recent data show wetlands losses of nearly 14,000 acres per year. Many protection advocates say that gains do not necessarily account for the changes in quality of the remaining wetlands, and many also view federal protection efforts as inadequate or uncoordinated. Others, who advocate the rights of property owners and development interests, characterize these efforts as too intrusive. Numerous state and local wetland programs add to the complexity of the protection effort.

Introduction On January 15, 2013, the Environmental Protection Agency (EPA) published a final rule in the Federal Register to strengthen the National Ambient Air Quality Standard (NAAQS) for particulate matter (PM) . The standards, set pursuant to the Clean Air Act (CAA), address potential health e ffects (including chronic respiratory disease and premature mortality) associated with short- and long-term exposure to particulate matter. The CAA, enacted in 1970 and amended in 1990, requires EPA to set minimum NAAQS standards for pollutants anticipated to endanger public health and welfare, and where their presence in ambient air results from numerous and diverse mobile or stationary sources. EPA has identified six "criteria air pollutants" under this authority: ozone ("smog"), particulate material ("soot"), sulfur dioxides, nitrogen oxides, carbon monoxide, and lead. The law also requires EPA to evaluate each NAAQS every five years to determine whether it is adequately protective of human health and the environment, based on the most recent science. The EPA Administrator signed the final rule revising the PM NAAQS on December 14, 2012. EPA's most recent review and process generated controversy and national debate among a variety of stakeholders including industry groups, health and environmental advocacy groups, and states, as well as oversight in Congress. EPA reportedly received and considered more than 230,000 written comments in determining the final PM standard. Similar controversy and debate transpired during the previous changes leading up to the PM NAAQS promulgated October 2006, and those established in 1997. As published, January 2013 final PM NAAQS rule was the culmination of EPA's statutorily required review of the NAAQS under the CAA based on studies available through mid-2009 and recommendations of EPA staff and a scientific advisory panel (Clean Air Scientific Advisory Committee, or CASAC) established by the CAA. The agency initiated the statutorily required periodic review not long after the 2006 promulgation of the PM NAAQS. EPA staff reassessed scientific studies considered in setting the 2006 PM NAAQS revisions, reviewed and analyzed extensive subsequent research, and considered public comments and recommendations of the CASAC. EPA has already initiated the next five-year review of the PM NAAQS. Based on the scientific evidence and comments considered, EPA Administrator Lisa P. Jackson signed the final rule that would change the current standard primarily by lowering the annual health-based ("primary") standard for fine particles smaller than 2.5 microns (PM 2.5 ). In the final rule, the "secondary" standards that provide protection against "welfare" (nonhealth) effects, such as ecological effects and material deterioration, are identical to the primary standards, the same as in 2006. The final rule relies on the existing secondary 24-hour standard to protect against visibility impairment, and did not adopt a separate standard included among options in the June 2012 proposal. Also, as proposed, the final rule did not modify the standards for inhalable "coarse" particles larger than 2.5 but smaller than 10 microns (PM 10 ). Some stakeholders in the agricultural community and some Members maintained a particular interest in EPA's consideration of the PM 10 standards and potential impacts that revising the NAAQS may impose on the agricultural operations. In its Regulatory Impact Analysis (RIA) accompanying the final rule assessing the costs and benefits of proposed revisions to the PM NAAQS, EPA estimated that tightening the PM 2.5 annual standard would add further health benefits beyond those anticipated with the promulgation of the 2006 PM NAAQS. Others have suggested that potential health benefits of tightening the PM NAAQS might be higher than EPA's estimates. On the other hand, tighter standards could impose additional compliance requirements on communities, states, industry, and others, at what some stakeholders and Members contend will be a substantial economic cost. EPA expects that requirements and emission reductions associated with existing and recently promulgated federal regulations under the CAA will allay impacts of complying with the revised PM standards, and anticipates that virtually all counties will meet the standards as promulgated in 2020. On January 15, 2015, EPA published its classification of 14 areas as "Moderate" nonattainment for the revised 2013 primary annual PM 2.5 standard. The areas include 38 counties or portions of counties in six states—California, Idaho, Indiana, Kentucky, Ohio, and Pennsylvania. EPA also deferred the designation period for 11 other areas (including 2 entire states and all but 3 counties of another) by up to one year, and designated all other areas as "unclassifiable" or as "unclassifiable/attainment." On April 7, 2015, EPA published amendments to the final designations for the 2013 PM 2.5 NAAQS that were published on January 15, 2015. The changes to area designations were the result of air quality data for 2014 recently submitted by affected states. The final area designations as amended and published in the April 7, 2015, Federal Register encompass 20 counties or portions of counties (nine areas) in four states as nonattainment only for the 2013 revised annual PM 2.5 standard. EPA also designated five areas in Georgia (including two adjacent counties in Alabama and South Carolina) as unclassifiable. The effective date of April 15, 2015 (90 days from the date of publication) based on the January 15, 2015, final designation rule remained unchanged. CAA section 188(c)(1) of Subpart 4 requires Moderate areas achieve attainment as expeditiously as practicable, but no later than the end of the sixth year after the effective date of final designation as nonattainment. For a more detailed discussion of the designation of nonattainment areas for the 2013 PM 2.5 NAAQS see CRS Report R43953, 2013 National Ambient Air Quality Standard (NAAQS) for Fine Particulate Matter (PM2.5): Designating Nonattainment Areas . Several recent and pending EPA regulations implementing the various pollution control statutes enacted by Congress garnered vigorous oversight during the 112 th Congress. Members expressed concerns in hearings, through bipartisan letters commenting on proposed regulations, and through introduced legislation that would delay, limit, or prevent certain EPA actions. Particular attention was focused on EPA's implementation of the CAA. Because of health and cost implications, NAAQS decisions historically have been the source of significant concern to some in Congress. The evolution and development of the PM NAAQS, in particular, has been the subject of extensive oversight. During the 112 th Congress, some Members expressed concerns in hearings, letters to the Administrator, and proposed legislation in anticipation of potential changes to the PM NAAQS, and the January 2013 final rule is expected to generate further oversight. Some Members and industry stakeholders had urged EPA to delay the final rule, while conversely, others, including some states and various environmental and public health advocacy groups, urged timely completion of a tighter standard. Changes to the NAAQS historically have triggered litigation alleging the standards are too stringent or not stringent enough, and often resulted in delays in implementation. This CRS report summarizes EPA's January 15, 2013, final and June 2012 proposed changes to the PM NAAQS and includes comparisons with previous (1997 and 2006) promulgated and proposed standards. Key actions leading up to the agency's determination, and potential issues and concerns associated with changing the PM 2.5 annual standard, are also highlighted. Background Particulate matter is one of six "criteria pollutants" for which EPA has promulgated NAAQS under the CAA. The others are ozone ("smog"), nitrogen oxides (NO x ), sulfur oxides (SO x , or, specifically, SO 2 ), carbon monoxide (CO), and lead (Pb). PM 2.5 can be emitted directly from vehicles, smokestacks, and fires but can also form in reactions in the atmosphere from gaseous precursors, including sulfur oxides, nitrogen oxides, and volatile organics occurring naturally or as emissions typically associated with gasoline and diesel engine exhaust, and from utility and other industrial processes. PM 10 (or coarse PM) is an indicator used in the NAAQS to provide protection from slightly larger (in the range of 2.5 to 10 microns or thoracic "coarse" particles), but still inhalable particles that penetrate into the trachea, bronchi, and deep lungs. These particles are often associated with dust from paved and unpaved roads, construction and demolition operations (including mining), and sometimes with certain industrial processes and agriculture operations, as well as biomass burning. Establishing NAAQS does not directly limit emissions; rather, it represents the EPA Administrator's formal judgment regarding the concentration of a pollutant in ambient air that will protect public health with an " adequate margin of safety ." Under Sections 108-109 of the CAA, Congress mandated that EPA set national ambient (outdoor) air quality standards for pollutants whose emissions "may reasonably be anticipated to endanger public health (primary standards) or welfare (secondary standards)" and "the presence of which in the ambient air results from numerous or diverse mobile or stationary sources." The process for setting and revising NAAQS consists of the statutory steps incorporated in the CAA over a series of amendments. Several other steps have also been added by EPA, by executive orders, and by subsequent regulatory reform enactments by Congress. Section 109(d)(1)) of the CAA requires EPA to review the criteria that serve as the basis for the NAAQS for each covered pollutant every five years, to either reaffirm or modify previously established NAAQS. Prior to the January 2013 revisions, EPA has revised the PM NAAQS three times, in 1987, 1997, and October 2006, to ensure that the standards continue to provide adequate protection for public health and welfare. A February 24, 2009, decision by the U.S. Court of Appeals for the District of Columbia Circuit had remanded elements of EPA's decisions as promulgated in October 2006, in particular the decision not to tighten the primary annual NAAQS for PM 2.5 , to the agency for further consideration but did not vacate the revised standard nor set a specific timeline. The decision was in response to petitions filed in the D.C. Circuit by 13 states, industry, agriculture, business, and environmental and public health advocacy groups, challenging certain aspects of EPA's revisions for both PM 2.5 and PM 10 . The D.C. Circuit granted the petitions in part with regard to the PM 2.5 annual standard and the secondary standards for PM 2.5 and PM 10 (including visibility impairment), denying other challenges. Concerned with delays in EPA's schedule for proposing revisions to the 2006 PM NAAQS, the American Lung Association and the National Parks Conservation Association, and nine states separately filed petitions with the D.C. Circuit in November 2011 urging the court to order EPA's immediate compliance with the February 2009 remand. Subsequently, in February 2012 the two organizations sued EPA in the D.C. Circuit for failing to fulfill their statutory duty to review the October 2006 PM NAAQS within five years, and a coalition of 11 states filed a similar suit with the U.S. District Court Southern District of New York. In response, the D.C. Circuit initially directed EPA to sign a proposed rule concerning its decision regarding revisions to the PM NAAQS by June 7, 2012, and following a motion filed by the agency, amended the deadline to June 14, 2012. As part of a September 4, 2012, consent decree, EPA agreed to finalize revisions to the PM NAAQS by December 14, 2012. Promulgation of a revised NAAQS, such as the PM NAAQS, initiates a series of statutorily required actions, ultimately culminating in issuance of permits pursuant to state regulations in a State Implementation Plan (SIP). The first step is designation of attainment and nonattainment areas, based on the accumulated results of ambient air monitoring and modeling data. States first propose to designate certain geographic areas (e.g., counties) as either "attainment" or "nonattainment," depending on whether the data indicate the concentrations of pollutants will be below or above the NAAQS. After extensive dialogue with state officials, EPA either approves the proposed attainment and nonattainment areas, or sends back to states proposed revisions. EPA and states generally come to an agreement about the area designations. Following this designation, approved by EPA, states then develop a SIP, which consists essentially of state regulations to be implemented by states that would affect the state emissions inventory, and therefore the expected or modeled concentrations of air pollutants. After approval of the SIP as being adequate to control air pollution and reduce the ambient air pollutant concentrations in designated nonattainment areas, the states then issue permits (new or modified) for facilities whose emissions affect the air in designated nonattainment areas. EPA's January 2013 Final Changes to the PM NAAQS EPA's 1997 revisions to the PM NAAQS revised the standards focused on particles smaller than 10 microns (PM 10 or coarse particles) established in 1987, and introduced standards for "fine" particles smaller than 2.5 microns (PM 2.5 ) for the first time. The primary (health protection) PM NAAQS as revised in 2006 include an annual and a daily (24-hour) limit for PM 2.5 , but only a daily limit for PM 10 . To attain the PM 2.5 annual standard, the three-year average of the weighted annual arithmetic mean PM 2.5 concentration at each monitor within an area must not exceed the maximum limit set by the agency. The 24-hour standards are a concentration-based percentile form, indicating the percent of the time that a monitoring station can exceed the standard. For instance, a 98 th percentile 24-hour standard indicates that a monitoring station can exceed the standard 2% of the time during the year. For PM 2.5 and PM 10 , the secondary NAAQS, which are set at a level "requisite to protect the public welfare," are the same as the primary standards. In the final rule published by EPA on January 15, 2013, the PM 2.5 and PM 10 standards and other implementation changes are as follows: Primary (Public Health) PM Standards PM 2.5 : EPA revised the annual standard, which currently is 15 micrograms per cubic meter (µg/m 3 ), by setting a new limit of 12 µg/m 3 (the proposal included an optional limit of 13 µg/m 3 and solicited comment for 11 µg/m 3 ); compliance with the "annual" standard is determined by whether the three-year average of its annual average PM 2.5 concentration (at each monitoring site in the area) is less than or equal to 12 µg/m 3 ; as proposed, EPA retained the daily (24-hour) standard at 35 µg/m 3 based on the current three-year average of the 98 th percentile of 24-hour PM 2.5 concentrations as established in 2006. PM 10 : As proposed, EPA retained the current daily standard of no more than one exceedance of concentrations of 150 µg/m 3 per year on average over three years; there is no current annual standard for PM 10 (the previous annual maximum concentration standard of 50 µg/m 3 was eliminated by EPA in 2006). Secondary (Welfare) PM Standards PM 2.5 and PM 10 : As proposed, secondary (welfare) NAAQS are the same as the primary standards, the same correlations as the 2006 PM NAAQS, with the exception of visibility impairment associated with PM 2.5 . PM 2.5 Visibility Impairment: The final rule did not add a distinct secondary standard as proposed, defined in terms of a PM 2.5 visibility index based on speciated PM 2.5 mass concentrations and relative humidity data to calculate light extinction on a deciview (dv) scale similar to the current Regional Haze Program. Specifically, the proposal would have set a 24-hour averaging time of 30 or 28 deciviews (dv) based on a 90 th percentile form over three years. EPA also sought comment on alternative levels (down to 25 dv) and averaging times (e.g., 4 hours). Based on public comment and further analysis of air quality monitoring data, EPA concluded that the current secondary standard would provide visibility protection greater than or equal to 30 dv. Implementation Changes Monitoring: 41 As proposed, updates several aspects of monitoring regulations including requiring relocating a small number of PM 2.5 monitors to be collocated with measurements of other criteria pollutants (e.g., nitrogen dioxide (NO 2 ) and carbon monoxide (CO)) near-roadway monitoring so as to ensure these monitors are at one location in each urban area with a population of 1 million or more, and to be phased in starting with the largest areas (2.5 million or more populations) by January 1, 2015, and extended to the remainder of areas by January 1, 2017. Includes the use data from existing Chemical Speciation Network or the EPA/National Park Service IMPROVE monitoring network to determine whether an area meets the proposed secondary visibility index standard for PM 2.5 . No changes to PM 10 monitoring. Air Quality Index (AQI): As proposed, updates the AQI (EPA's color-coded tool for informing the public about air quality and associated measures for reducing risks of exposure) for PM 2.5 by changing the upper end range for "Good" category (an index value of 50) on the overall scale (0 to 500 based on conversion of PM 2.5 concentrations) to the level of the revised annual PM 2.5 standard (12 µg/m 3 ). Also as proposed, EPA is setting the 100 value of the index scale ("Moderate") at the level of the current 24-hour PM 2.5 standard, which is 35 µg/m, 3 and the AQI of 150 ("Unhealthy Sensitive Groups") at 55 µg/m 3 . The current upper ends for the "Hazardous" (500), "Unhealthy" (200) and "Very Unhealthy" (300) AQIs are retained. Prevention of Significant Deterioration (PSD): EPA revised the PSD permitting program (rules) with respect to the revised PM NAAQS so as not to "unreasonably delay" pending permits and establish a "grandfather" provision for permit applications if: the permitting agency deems an application complete by December 14, 2012; or public notice for a draft permit or preliminary determination has been published (for public comment) no later than the effective date of revised PM NAAQS (60 days after January 15, 2013, publication in the Federal Register ). This provision would not apply to NAAQS for other criteria pollutants and permits not meeting these criteria would have to demonstrate compliance with the revised standards once they are finalized. Comparison of the January 2013 Revised PM2.5 Standards with Previous Promulgated and Proposed Alternative PM Standards The final PM 2.5 daily standard established in 2006 was among the less stringent within the range of alternative levels recommended by EPA staff, and the annual standard is not as stringent as the standard recommended by the CASAC. The decision to retain the annual PM 2.5 standard was also less than recommended. Table 1 below shows the January 2013 revised PM 2.5 annual standard in comparison to the June 2012 proposed options and to the annual and daily standards for 1997 and 2006 promulgated standards, and alternative levels recommended prior to the 2006 final revisions. Review Process Leading Up to the January 2013 Revised PM NAAQS The CAA as enacted includes specific requirements for a multistage process to ensure the scientific integrity under which NAAQS are set, laying the groundwork for the Administrator's determination of the standard, and the procedural process for promulgating the standard. Primary NAAQS, as described in Section 109(b)(1), were to be "ambient air quality standards the attainment and maintenance of which in the judgment of the Administrator, based on such criteria and allowing an adequate margin of safety, are requisite to protect the public health." Based on this premise, the CAA specifies the criterion to be used by the Administrator in deciding on the final standard, including preparation of a "criteria document" that summarizes scientific information assessed. The act also requires the establishment and role of an independent advisory committee (CASAC) to review EPA's supporting scientific documents, and the timeline for completing specific actions. EPA administratively added the preparation of a "staff paper" that summarizes the criteria document and lays out policy options. This EPA document typically serves as the basis for CASAC review and comment. EPA revised certain aspects (not including reinstating the closure letter) of the CASAC review process most recently in May 2009. In addition, Executive Order 12866 requires a Regulatory Impact Analysis (RIA), although the economic impact analysis is essentially only for informational purposes and cannot be directly considered as part of the decision in determining the NAAQS. Beginning June 2007 with its general call for information, EPA initiated the current PM NAAQS review, which culminated in assessments of the scientific research and risk analyses, and ultimately the April 2011 publication of the staff's final Policy Assessment for the Review of the Particulate Matter National Ambient Air Quality Standards (or PM Policy Assessment) . The staff paper presented the staff conclusions and recommendations on the elements of the PM standard based on evaluation of the policy implications of the scientific evidence contained in the criteria document and the results of quantitative analyses (e.g., air quality analyses, human health risk assessments, and visibility analyses) of that evidence. Table B-1 in Appendix B provides a chronological listing of EPA's supporting documents leading up to the June 2012 proposed PM NAAQS. Supplemental to public comments solicited in the Federal Register , the CASAC reviewed EPA's drafts and final documents supporting the science and policy behind the Administrator's decisions in the June 2012 PM NAAQS proposal. The CASAC conducted meetings and consultations, and submitted written overviews, providing their views of the validity and completeness of the agency's assessments and findings, and recommending improvements. CASAC's final product, its review of EPA's second external review draft of the "PM Policy Assessment," was completed June 2010. Table B-2 in Appendix B provides a chronological summary of CASAC consultations and reviews of the supporting documents for the June 2012 proposal. The April 2011 EPA policy assessment ("staff paper") concluded, and the CASAC panel concurred in its final recommendations, that the scientific evidence supported modifying the PM 2.5 primary standard and considering options for revising the secondary standard for reducing visibility impairment associated with PM. Recognizing certain limitations of the data, the policy assessment included a range of alternatives for consideration by the Administrator for modifying the current PM NAAQS. These recommendations were the core basis for the June 2012 proposal and the Administrator's final decision to revise the PM NAAQS, taking into account other factors including public comments received in response to the June 2012 proposal. The EPA staff paper included possible modifications to strengthen certain aspects of the PM 10 standard. However, staff and CASAC placed considerable emphasis on continuing uncertainties and lack of sufficient data to initiate relevant quantitative risk assessment to support such modifications to the standard. As presented in the June 2012 Federal Register notice, the Administrator provisionally concluded that the growing evidence continued to support the appropriateness of the existing primary 24-hour PM 10 standard's protection of short-term health effects, and proposed to retain the existing PM 10 standard. A perennial issue in conducting NAAQS reviews is whether the agency is basing its decisions on those studies that reflect the latest science, and that the scientific basis is rigorous and unbiased. In reviewing thousands of studies, the agency staff ultimately needs to establish a cutoff date, or be faced with the need for a continuous review. The current review was based on studies completed by mid-2009, but in the June 29, 2012, Federal Register notice EPA indicated that it is aware that a number of new scientific studies on the health effects of PM have been published since the mid-2009 cutoff date for inclusion in the Integrated Science Assessment. As in the last PM NAAQS review, the EPA intends to conduct a provisional review and assessment of any significant new studies published since the close of the Integrated Science Assessment, including studies that may be submitted during the public comment period on this proposed rule in order to ensure that, before making a final decision, the Administrator is fully aware of the new science that has developed since 2009. In this provisional assessment, the EPA will examine these new studies in light of the literature evaluated in the Integrated Science Assessment. This provisional assessment and a summary of the key conclusions will be placed in the rulemaking docket. Publication of the proposed PM NAAQS rule in the Federal Register on June 29, 2012, started a nine-week public comment period that ran through August 31, 2012. EPA also held two public hearings for the proposal on July 17, 2012, in Philadelphia, PA, and July 19, 2012, in Sacramento, CA. EPA's final determinations for revising the PM NAAQS published on January 15, 2013, were based on information provided in the two public hearings, the more than 230,000 written public comments received, and EPA's consideration of and analysis in response to this information. EPA also revised its Regulatory Impact Analysis (RIA), in large part in response to comments received. Implementing the Revised PM2.5 NAAQS Promulgation of NAAQS sets in motion a process under which the states and EPA first identify geographic nonattainment areas, those areas failing to comply with the NAAQS based on monitoring and analysis of relevant air quality data. The CAA is specific with regard to the timelines for determining areas in noncompliance, submission of plans for achieving (or maintaining) compliance, and when noncompliant areas must achieve the established or revised NAAQS. Typically, within three years of issuance of a NAAQS, states are required to submit "infrastructure" plans demonstrating that they have the basic air quality management components necessary to implement the NAAQS. Following states' proposed and EPA's final designations of attainment and nonattainment areas, states (and tribes if they choose to do so) must submit their plans (State Implementation Plans, or SIPs) for how they will achieve and/or maintain attainment of the standards. These often include new or amended state regulations and new or modified permitting requirements. If new, or revised, SIPs for attainment establish or revise a transportation-related emissions allowance ("budget"), or add or delete transportation control measures, they will trigger "conformity" determinations. Transportation conformity is required by the CAA, Section 176(c) (42 U.S.C. 7506(c)), to prohibit federal funding and approval for highway and transit projects unless they are consistent with ("conform to") the air quality goals established by a SIP, and will not cause new air quality violations, worsen existing violations, or delay timely attainment of the national ambient air quality standards. Areas designated nonattainment, as well as those designated unclassifiable or unclassifiable/attainment for the NAAQS, are also subject to new source review (NSR) requirements. Enacted as part of the 1977 CAA Amendments and modified in the 1990 CAA Amendments, NSR is designed to ensure that newly constructed facilities, or substantially modified existing facilities, do not result in violation of applicable air quality standards. NSR provisions outline permitting requirements both for construction of new major pollution sources and for modifications to existing major pollution sources. The specific NSR requirements for affected sources depend on whether the sources are subject to "Prevention of Significant Deterioration" (PSD) or nonattainment provisions. As discussed earlier (see " EPA's January 2013 Final Changes to the PM NAAQS "), the January 2013 final PM NAAQS includes revisions to the PSD permitting program (rules) with respect to the revised PM NAAQS so as not to "unreasonably delay" pending permits and establish a "grandfather" provision for permit applications if a draft permit or preliminary determination has been issued for public comment by the date the revised PM NAAQS go into effect. In addition to the CAA requirement for states to submit implementation plans, EPA acts to control NAAQS pollutants through national regulatory programs. These may be in the form of regulations of products and activities that might emit the pollutants (particularly fuels and combustion engines, such as automobiles and trucks) and in the form of emission standards for new stationary sources (e.g., utilities, refineries). Often these national regulations reflect aspects of state rules previously issued by various states. EPA anticipates that recent CAA rules, including rules to reduce pollution from power plants, clean diesel rules for vehicles, and rules to reduce pollution from stationary diesel engines, would help states meet the revised PM NAAQS. Nonattainment Area Designation Process The process of designating nonattainment areas is intended as a cooperative federal-state-tribal process in which states and tribes provide initial designation recommendations to EPA for consideration. In Section 107(d)(1)(A) (42 U.S.C. 7407), the statute states that the governor of each state shall submit a list to EPA of all areas in the state, "designating as ... nonattainment, any area that does not meet ( or that contributes to ambient air quality in a nearby area that does not meet ) an air quality standard" (emphasis added). Areas are identified as "attainment/unclassifiable" when they meet the standard or when the data are insufficient for determining compliance with the NAAQS. Following state and tribal recommended designation submissions, the EPA Administrator has discretion to make modifications, including to the area boundaries. As required by statute (Section 107(d)1(B)(ii)), the agency must notify the states and tribes regarding any modifications, allowing them sufficient opportunity to demonstrate why a proposed modification is inappropriate, but the final determination rests with EPA. Measuring and analyzing air quality to determine where NAAQS are not being met is a key step in determining an area's designation. Attainment or nonattainment designations are made primarily on the basis of three years of federally referenced monitoring data. EPA began developing methods for monitoring fine particles at the time the PM 2.5 NAAQS were being finalized in 1997, and operation of the network of monitors for PM 2.5 was phased in from 1999 through 2000. The network of monitors and their locations have been modified over time. Most recently, in a separate action in conjunction with the October 2006 publication of the revised particulates NAAQS, EPA amended its national air quality monitoring requirements, including those for monitoring particle pollution. The amended monitoring requirements were intended to help federal, state, and local air quality agencies by adopting improvements in monitoring technology. Additional modifications to the PM NAAQS monitoring network were included in the final January 2013 rule, as discussed earlier in this report. In addition to air emission and air quality data, EPA considers a number of other relevant factors when designating nonattainment areas, and recommends that states apply these factors in their determinations in conjunction with other technical guidance. Examples of these factors include population density and degree of urbanization (including commercial development), growth rates, traffic and commuting patterns, weather and transport patterns, and geography/topography. States and tribes may submit additional information on factors they believe are relevant for EPA to consider. Nonattainment areas include those counties where pollutant concentrations exceed the standard as well as those that contribute to exceedance of the standard in adjoining counties. Entire metropolitan areas tend to be designated nonattainment, even if only one county in the area has readings worse than the standard. In addition to identifying whether monitored violations are occurring, states' or tribes' boundary recommendations for an area are to also show that violations are not occurring in those portions of the recommended area that have been excluded, and that they do not contain emission sources that contribute to the observed violations. January 2013 Final Revised PM2.5 Annual NAAQS: Area Designations68 The January 2013 final rule revising the PM 2.5 annual standard, as expected, resulted in an increased number of areas (typically defined by counties or portions of counties) designated nonattainment. Similar to the revisions to the PM 2.5 daily (24-hour) standard in 2006, the January 2013 revised concentrations for the PM 2.5 annual standard were expected to affect primarily areas currently in nonattainment for the 2006 standards, but also included counties that have not been previously designated as nonattainment. EPA did not require new nonattainment designations for the PM 2.5 24-hour standard or the PM 10 primary NAAQS since the standards were not changed in the January 2013 final rule. Section 107(d)(1) of the CAA requires states to submit area designation recommendations no later than one year following the promulgation of a NAAQS standard. For the 2013 PM NAAQS, state recommendations were due by December 13, 2013. The CAA requires EPA to make its final area designations within one year of the state and tribal recommendations. EPA is required to notify states and tribes of its intended modifications to their recommendations 120 days prior to promulgating final designations. EPA responded to the states with its proposed modifications to their area designation recommendations for the 2013 PM 2.5 NAAQS for the annual standard in letters on or about August 19, 2014. As per the CAA, states were provided the opportunity to submit additional relevant information to demonstrate why EPA's modifications to the states' recommendations are inappropriate prior to the agency's final designations. EPA's final area designations as amended and published in the April 2015 Federal Register encompass 20 counties or portions of counties (nine areas) in four states—California, Idaho, Ohio, and Pennsylvania—as nonattainment only for the 2013 revised annual PM 2.5 standard. The remaining nearly 3,000 counties in the United States were classified as unclassified or unclassified/nonattainment for the 2013 revised annual standard. Comparatively, EPA's final designations for nonattainment of the 2006 and 1997 PM 2.5 NAAQS (those areas with or contributing to air quality levels exceeding the annual and 24-hour PM 2.5 standards or both) included all or part of 242 counties in 28 states and the District of Columbia. Counties included in EPA's amended final nonattainment area designations for the 2013 PM 2.5 NAAQS are indicated in the map in Figure 1 . The April 2015 modified designations supersede EPA's January 15, 2015, final area designations that classified 14 areas as nonattainment for the revised 2013 primary annual PM 2.5 standard. The areas included 38 counties or portions of counties in six states—California, Idaho, Indiana, Kentucky, Ohio, and Pennsylvania. EPA also had deferred the designation period for 11 other areas composed of 2 entire states (Florida and Tennessee, excluding 3 counties), and 24 counties in three states (Alabama, Georgia, and South Carolina) by up to one year. In accordance with a January 4, 2014, decision by the Circuit Court of the District of Columbia, EPA classified all nonattainment areas as "Moderate" under section 188(a) of Subpart 4 of Title I of the CAA as specified in its April 2013 area designation guidance for states. EPA may reclassify as "Serious" those nonattainment areas that EPA determines cannot practicably attain the PM 2.5 NAAQS by the applicable attainment date, or if the agency determines that any area has not in fact attained the PM 2.5 NAAQS after each area's applicable attainment date has passed. EPA had previously implemented the PM 2.5 NAAQS, including nonattainment determinations for the 1997 and 2006 revisions, under the general implementation provisions in Subpart 1 of Part D of Title I of the act. However, in the January 4, 2013 decision, the Circuit Court of the District of Columbia determined that EPA had erred in implementing the PM 2.5 NAAQS under Subpart 1, and required the Agency to implement the PM 2.5 NAAQS under Subpart 4. Based on EPA's April 7, 201,5 amended final designations for the 2013 PM 2.5 annual standard, two counties (or portions) of the 20 counties are designated nonattainment for PM 2.5 for the first time, but the majority of the counties overlap with EPA's final nonattainment designations for the 2006 and 1997 PM 2.5 annual and/or 24-hour standards. Of the remaining 18 counties designated as nonattainment for the 2013 revised annual PM 2.5 standard, two have not been previously designated for the annual standard but were designated as nonattainment for the 24-hour standard, and the remaining 16 counties have been previously designated as nonattainment only for the annual standard or for the annual and the 24-hour PM 2.5 standards. The 2006 revisions to the PM NAAQS tightening the 24-hour standard, which are currently being implemented, primarily affected urban areas. EPA final designations published on November 13, 2009, for the 2006 PM NAAQS included 31 areas in 18 states, comprising 120 counties (89 counties and portions of 31 additional counties) for nonattainment of the revised 2006 24-hour PM 2.5 standard. The designations, based on 2006 through 2008 air quality monitoring data, included a few counties that were designated nonattainment for PM 2.5 for the first time, but the majority of the counties identified overlapped with EPA's final nonattainment designations for the 1997 PM 2.5 NAAQS. It is important to note that most of the 1997 PM 2.5 nonattainment areas were only exceeding the annual standard; thus, tightening the 24-hour standard resulted in an increased number of areas being designated nonattainment based on exceedances of both the 24 - hour and the annual standard. The majority of the roughly 3,000 counties throughout the United States (including tribal lands) were designated attainment/unclassifiable, and are not required to impose additional emission control measures to reduce PM 2.5 . State Implementation Plans (SIPs) Under the CAA, EPA sets the nationwide standard for criteria pollutants, and EPA and states are responsible for placing limits on emissions that contribute to criteria pollution and for regulating entities emitting criteria pollutants. Areas designated as attainment/unclassifiable will not have to take steps to improve air quality, but under the statute they must take steps to prevent air quality from deteriorating to unhealthy levels. For those areas designated nonattainment, state, local, and tribal governments must outline detailed control requirements in plans demonstrating how they will meet the 2013 PM 2.5 annual standard. These plans are defined as State Implementation Plans, and referred to as SIPs (TIPs for tribal implementation plans). As discussed previously in this CRS report, all initial nonattainment area designations for the 2013 PM 2.5 annual standard will be classified by EPA as Moderate as provided under Subpart 4 of Part D of Title I of the CAA (section 188(a)), not under the general implementation provisions in Subpart 1 of the act. For the most part, the Subpart 4 SIP requirements for areas classified as Moderate are comparable to those of Subpart 1. However, under Subpart 4 states have 18 months from the date of EPA's final designations to submit SIPs. Implementing the PM 2.5 NAAQS under Subpart 1 required submission of SIPs three years from the date of EPA's final designations. The EPA Moderate nonattainment designations for the 2013 PM 2.5 NAAQS will be effective 90 days after publication in the Federal Register ; thus EPA anticipates that states will need to submit their plans by fall of 2016. Under Subpart 4, EPA may reclassify as "Serious" any nonattainment area that the agency determines cannot practicably attain the PM 2.5 NAAQS by the applicable attainment date or those areas classified as Moderate that do not attain the PM 2.5 NAAQS after their applicable attainment date has passed. Subpart 4 introduces additional statutory SIP planning requirements for areas classified as "Serious." These additional requirements must be reflected in the states' initial SIP submissions. Subpart 4 requires states to achieve attainment for Moderate areas as expeditiously as practicable, but no later than six years after designation; Serious areas must achieve attainment no later than 10 years from designation as nonattainment. Under the general provisions in Subpart 1, which has no classifications, attainment must be achieved no later than five years from the effective designation date. Both Subpart 4 and Subpart 1 included provisions for extensions. National Regulations EPA anticipates that in many cases, stationary and mobile source controls and additional reductions currently being adopted to attain the 2006 PM 2.5 standards in conjunction with expected emission reductions from implementing national regulations and strategies will help states meet the proposed standards. These national actions EPA referenced include the Cross-State Air Pollution Rule (CSAPR); Mercury and Air Toxics Standards (MATS); Light-Duty Vehicle Tier 2 Rule; Heavy Duty Diesel Rule; Clean Air Nonroad Diesel Rule; Regional Haze Regulations and Guidelines for Best Available Retrofit Technology Determinations; NOx Emission Standard for New Commercial Aircraft Engines; Emissions Standards for Locomotives and Marine Compression-Ignition Engines; Control of Emissions from Nonroad Spark Ignition Engines and Equipment; Category 3 Oceangoing Vessels; Reciprocating Internal Combustion Engines (RICE) National Emissions Standards for Hazardous Air Pollutants (NESHAPS); and New Source Performance Standards and Emissions Guidelines for Hospital/Medical/Infectious Waste Incinerators Final Rule Amendments. Stakeholders and some Members of Congress are skeptical about EPA's expectations with respect to the corollary benefits associated with some of these regulations, and raise concerns about pending efforts to delay some of the more recent programs and historical delays of others. Of particular concern are the Cross-State Air Pollution Rule ("Cross-State Rule," or CSAPR), which was to have gone into effect in 2012 but was stayed in December 2011, then vacated on August 21, 2012, by the D.C. Circuit Court of Appeals, and the Mercury and Air Toxics Standards (MATS), which EPA itself has stayed with regard to new plants, pending reconsideration. On October 5, 2012, the U.S. Department of Justice filed a petition seeking en banc rehearing of the D.C. Circuit's August 21, 2012, decision regarding the CSAPR. The D.C. Circuit denied requests for both a panel and the en banc rehearing on January 24, 2013. To date, EPA has not made a decision regarding its response to the Court's denial for a rehearing. Other rules remanded or reconsidered include the hazardous air pollutant ("MACT") standards for boilers and cement kilns. EPA has delayed implementation of the boiler MACT rules for more than a year and a half while considering changes to the requirements. The agency has also extended the compliance deadline for the cement kiln MACT by two years. Potential Impacts of More Stringent PM Standards The impacts of the revising PM NAAQS can be both potentially far-reaching and indirect. As discussed earlier in this report, the NAAQS by itself does not compel any specific direct pollution control measures. Rather it starts a process that could result in significant required investments by emitting sources in control measures. In addition to these costs, the eventual result is projected by EPA to be potentially significant health benefits. Estimates of health and welfare risk reductions and costs associated with control strategies for areas potentially not in compliance provide some insights into potential impacts of the June 2012 proposed and January 2013 final revisions to the PM NAAQS. The Clean Air Act requires that NAAQS be set solely on the basis of public health and welfare protection, while costs and feasibility are generally taken into account in implementation of the NAAQS (a process that is primarily a state responsibility). As discussed previously, in setting and revising the NAAQS, the CAA directs the EPA Administrator to protect public health with an adequate margin of safety . This language has been interpreted, both by the agency and by the courts, as requiring standards be based on a review of the health impacts, without consideration of the costs, technological feasibility, or other nonhealth criteria. Nevertheless, coinciding with the PM NAAQS final rule released on December 14, 2012, and proposed rule in the June 29, 2012, Federal Register , EPA released regulatory impact analyses (RIA) assessing the costs and benefits of setting the standard at the proposed and other alternative levels, to meet its obligations under Executive Order 12866 and in compliance with guidance from the White House Office of Management and Budget. EPA emphasized that the RIA is for informational purposes and that decisions regarding revisions to the PM NAAQS are not based on consideration of the analyses in the RIA in any way. In addition, the expected costs are more difficult to predict than for many other regulations because the ultimate pollution control requirements, which are the primary costs, will depend on a variety of factors, such as state regulatory decisions and the results of monitoring and modeling analysis of designated areas that are not fully knowable at this time. In part in response to comments received and considered following the June 2012 proposal, EPA revised its RIA for the final rule. Table 2 below presents a range of EPA's estimated economic costs, monetized benefits, and net benefits (subtracting total costs from the monetized benefits) associated with achieving the revised PM 2.5 standards in the final rule published in January 2013, and other alternatives considered as presented in EPA's revised RIA. As shown in Table 2 , EPA estimated that the monetized benefits associated with the January 2013 final revised PM 2.5 annual standard of 12 µg/m 3 would range $4.0 billion to $9.1 billion per year in 2020 (2010 $), compared to annual costs ranging from $53.0 million to $350.0 million. EPA also noted that a full accounting of benefits would include additional environmental and societal benefits that were not quantified in the analysis. The basis for the benefits calculations is health and welfare impacts attributable to reductions in ambient concentration of PM 2.5 resulting from a reasonable, but "speculative," array of known state implementation emission control strategies selected by EPA for purposes of analysis. The analysis does not model the specific actions that each state will undertake or emerging technologies in implementing the alternative PM 2.5 NAAQS. EPA notes that reductions in annual premature deaths represent a substantial proportion of total monetized benefits (over 90%). EPA estimated total costs under partial and full attainment of several alternative PM standards. The engineering costs generally include the costs of purchasing, installing, and operating the referenced control technologies. The technologies and control strategies selected for analysis are illustrative of one way in which nonattainment areas could meet a revised standard. EPA anticipates that in actual SIPS, state and local governments will consider programs that are best suited for local conditions as there are various options for potential control programs that would bring areas into attainment with alternative standards. EPA includes a detailed discussion of the limitations and uncertainties associated with the benefits assumptions and analyses. While recognizing the need to adequately protect against potential health concerns associated with PM, some Members and stakeholders are apprehensive that EPA has underestimated potential costs and are concerned with the potential monetary consequences associated given the current economic environment. In particular, some stakeholders question the validity of EPA's reliance on the associated impacts of other national regulations in reducing the potential burdens. Critics are concerned that this results in underestimating the number of areas (counties) likely to be affected in terms of their ability to attain the proposed alternative PM NAAQS and the expected associated costs of necessary measures that will be required in the form of SIPs. Reaction to the Revised PM NAAQS Prior to EPA's June 2012 proposed rule to revise the PM NAAQS, stakeholders were providing evidence and arguments in letters, press releases, at public hearings and other forums for their preferred recommendations, and EPA received numerous comments during various stages of development of the criteria and policy documents. In general, business and industry opposed more stringent standards particularly in light of the current national and global economic environment; and public health and environmental advocacy groups advocated support for more stringent standards based on the continuing evidence of health effects from ongoing scientific research. As mentioned earlier, several states petitioned EPA, and subsequently filed suit in the D.C. Circuit Court urging timely completion of EPA's review of the PM NAAQS in response to the February 2009 remand. Other state air quality regulators recognized the need to ensure adequate health protection from PM, but expressed concerns about the impacts of more stringent PM NAAQS on already strained state budgets. Proponents of more stringent standards generally stress that the PM 2.5 standards should be at least as stringent as the more stringent combined daily and annual levels recommended in the 2006 EPA staff paper, and those recommended by the CASAC; scientific evidence of adverse health effects is more compelling than when the standards were revised in 2006; more stringent standards ensure continued progress toward protection of public health with an adequate margin of safety as required by the CAA; and welfare effects, particularly visibility, should be enhanced. Critics of more stringent PM NAAQS stress that more stringent (and in some cases the existing) standards are not justified by the scientific evidence; the proposal does not take into account studies completed since the 2009 cutoff; requiring the same level of stringency for all fine particles without distinguishing sources is unfounded; costs and adverse impacts on regions and sectors of the economy are excessive; EPA has potentially overstated the expected benefits and underestimated expected costs; revising the standards could impede implementation of the existing (2006) PM NAAQS and the process of bringing areas into compliance, given the current status of this process; the benefits (and costs) associated with implementation of the 2006 PM NAAQS, as well as compliance with other relatively recent EPA air quality regulations that are being implemented, have not yet been realized; and revisions to PM NAAQS are unnecessary as shown by EPA's trends data that annual and 24-hour measured PM national concentrations have declined 24% and 28% respectively from 2001 to 2010. Congressional Activity Not long after EPA's release of its PM NAAQS proposal, the House Committee on Energy and Commerce Subcommittee on Energy and Power held a hearing on June 28, 2012, on the potential impacts of tightening the PM 2.5 NAAQS. The focus of the debate was the regulatory costs and burdens associated with the implementation of the revised standards, and potential impacts on economic growth, employment and consumers. Just prior to EPA's release of the June 2012 proposal, several Members urged the Administrator to include retaining the current (as of 2006) PM 2.5 standard as an option for consideration in the agency's proposal. In November 2012, some Members urged EPA to consider delaying the final rule, while conversely, others, along with some state attorneys general, supported timely completion of the agency's review. As mentioned earlier in this report, also in November 2012, some Members recommended EPA reconsider its calculations of costs and benefits supporting the proposed rule. Also, although the January 15, 2013, final rule did not modify the standards for inhalable "coarse" particles larger than 2.5 but smaller than 10 microns (PM 10 ), nor were modifications proposed in June 2012, some Members maintained a particular interest in EPA's consideration of the PM 10 standards. During the second session of the 111 th and during the first session of the 112 th Congress, some Members raised concerns in letters to the EPA Administrator and during oversight hearings about EPA's staff draft reports and CASAC recommendations regarding changes to the PM NAAQS leading up to the June 2012 proposal. Some Members expressed their concerns of potential impacts that the options for changing PM NAAQS standards could have on industry and on agricultural operations. In letters to the EPA Administrator, several Members also communicated their particular concerns with the agency's consideration of stricter standards for coarse particulates (PM 10 ), including apprehensions of how changes may affect the agricultural community. Additionally, during the 112 th Congress, the House-passed Farm Dust Regulation Prevention Act of 2011 ( H.R. 1633 ) would have prohibited EPA from proposing, finalizing, implementing, or enforcing any regulation revising primary or secondary NAAQS applicable to PM "... with an aerodynamic diameter greater than 2.5 micrometers ..." for one year. Further, the House-passed bill would have amended the CAA to exempt "nuisance dust" from the act and would have excluded nuisance dust from references in the act to particulate matter "... except with respect to geographic areas where such dust is not regulated under state, tribal, or local law.... " Nuisance dust was defined in the bill as particulate matter that (1) is generated primarily from natural sources, unpaved roads, agricultural activities, earth moving, or other activities typically conducted in rural areas; (2) consists primarily of soil, other natural or biological materials, windblown dust, or some combination thereof; (3) is not emitted directly into the ambient air from combustion, such as exhaust from combustion engines and emissions from stationary combustion processes; (4) is not comprised of residuals from the combustion of coal; and (5) does not include radioactive particulate matter produced from uranium mining or processing. A general provision included in FY2012 House-reported EPA appropriations language ( H.R. 2584 , Title IV, and §454) would have restricted the use of FY2012 appropriations "to modify the national primary ambient air quality standard or the national secondary ambient air quality standard applicable to coarse particulate matter (generally referred to as "PM 10 ")." No comparable provision was retained in the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), enacted December 23, 2011, which ultimately included EPA's FY2012 appropriation. NAAQS decisions have often been a source of significant concern to many in Congress. The evolution and development of the PM (and ozone) NAAQS, in particular, have been the subject of extensive oversight. For example, following promulgations of the 1997 NAAQS Congress held 28 days of hearings on the EPA rule. Congress enacted legislation specifying deadlines for implementation of the 1997 standard, funding for monitoring and research of potential health effects, and the coordination of the PM (and ozone) standard with other air quality regulations. During the 109 th Congress, hearings were held regarding implementation and review of the PM NAAQS leading up to promulgations of the 2006 PM NAAQS. Because of the potential impacts PM NAAQS could have on both public health and the economy, EPA's final rule published on January 15, 2013, modifying these standards generated mixed reactions from some Members, and the issue will likely be of continued interest in the 114 th Congress, as will EPA's next five-year review of the PM NAAQS, which the agency commenced at the beginning of December 2014. Conclusions EPA's changes to the PM NAAQS in its final rule published on January 15, 2013, following completion of its statutorily required review, have continued to garner attention and conflicting concerns among a diverse array of stakeholders, and in Congress. As evidenced by the history of the PM NAAQS, the level of scrutiny and oversight could increase in the coming months. Because both the health and economic consequences of particulate matter standards are potentially significant, the PM NAAQS are likely to remain a prominent issue in the 113 th Congress. EPA asserts that its review and analyses of scientific evidence showed that revising the PM NAAQS could potentially result in fewer adverse health effects for the general population and particularly sensitive populations such as children, asthmatics, and the elderly, as well as improved welfare effects. Nonetheless, concerns remain with regard to the potential associated costs. In its assessment of the impacts of revising the PM NAAQS, EPA expected that relatively few additional areas (counties) would be in nonattainment and require more stringent pollution controls to achieve compliance. Industry, some Members, and some state representatives remained concerned that the January 2013 revised PM NAAQS would result in more areas than anticipated by EPA being classified as nonattainment and needing to implement new controls on particulate matter. Further, they are concerned that stricter standards may mean more costs for the transportation and industrial sectors, including utilities, refineries, and the trucking industry, affected by particulate matter controls. Others stress that related ongoing control efforts from prior and recently promulgated actions are expected to reduce the potential number of nonattainment areas, or at least facilitate compliance. EPA's review and establishment of the 1997 PM NAAQS was the subject of litigation and challenges, including a Supreme Court decision in 2001. EPA's 1997 promulgation of standards for both coarse and fine particulate matter prompted critics to charge EPA with over-regulation and spurred environmental groups to claim that EPA had not gone far enough. Not only was the science behind the PM NAAQS challenged, but EPA was also accused of unconstitutional behavior. More than 100 plaintiffs sued to overturn the standard. Although EPA's decision to issue the standards was upheld unanimously by the Supreme Court, for the most part, stakeholders on both sides of the issue continued to advocate their recommendations for more stringent and less stringent PM standard. Several states and industry, agriculture, business, and environmental and public health advocacy groups petitioned the U.S. Court of Appeals for the District of Columbia Circuit, challenging certain aspects of EPA's revisions of the PM NAAQS as promulgated December 2006. A February 24, 2009, decision by the D.C. Circuit granted the petitions in part, denying other challenges, and remanded the standards to EPA for further consideration. The court did not specifically vacate the 2006 PM NAAQS and implementation is currently underway. EPA received considerable (more than 230,000 written) comments in response to the June 2012 proposal. Concerned stakeholders may return to the courts or initiate challenges in response to the final standards published on January 15, 2013, thus potentially furthering delays in designating nonattainment areas, and states' development and implementation of SIPs. Chronological Summary of Key Milestones Subsequent to the January 2013 PM NAAQS Final Rule As part of the D.C. Circuit's decision and a related Consent Agreement, EPA agreed to issue final revised PM NAAQS by December 14, 2012. The timeline presented in Table A-1 below reflects the most recent projected milestone dates subsequent to the January 15, 2013, publication of the final rule revising the PM NAAQS. These milestones are driven primarily by statutory requirements under the CAA, and are based on milestones identified in the June 29, 2012, Federal Register and EPA fact sheets accompanying the agency's proposed and final regulatory actions. The CAA does not specify a timeframe with regard to when states must meet secondary PM standards; relevant milestones are determined by EPA and states through the implementation planning process. Supporting EPA Scientific and Policy Documents, and CASAC Review Comparison of Potential Nonattainment Areas for the January 2013 Final Revised PM 2.5 Annual Standard with the Final Designations for the 2006 and 1997 PM 2.5 NAAQS The nonattainment designations presented in this appendix are as predicted by EPA at the time of the release of the final PM NAAQS rule on December 14, 2012. For details regarding EPA's initial final designations for the 2013 PM NAAQS revisions published January 15, 2015, and the subsequent April 7, 2015, modified designations, see CRS Report R43953, 2013 National Ambient Air Quality Standard (NAAQS) for Fine Particulate Matter (PM2.5): Designating Nonattainment Areas , by [author name scrubbed]. Based on anticipated reductions associated with several other existing national air pollution control regulations and programs (see discussion in " National Regulations " section), EPA had predicted that seven counties in California would be the only areas unable to meet the new PM 2.5 primary standard by 2020. Additionally, for illustrative purposes, EPA identified 66 counties with monitors that showed concentrations of PM 2.5 that would exceed the revised limit of the primary annual standard of 12 µg/m 3 based on 2009-2011 air quality monitoring data. According to EPA, 47 of these counties were determined nonattainment areas previously for PM 2.5 NAAQS based on earlier monitoring data available at the time and other factors considered. The map in Figure C-1 below depicts the potential nonattainment areas (counties) as identified by EPA for the revised PM 2.5 annual standards based solely on the 2009-2011 air quality monitoring. The areas are depicted in the map for illustration purposes as a rough approximation of the potential areas that may be designated nonattainment, as they do not take into account other factors generally considered in making final designation determinations. The specific counties based on the 2009-2011 monitoring data are shown in Table C-1 , which also shows the overlap of those nonattainment areas for the existing (2006) PM 2.5 annual and/or daily (24-hour) standards, and indicates those areas not previously designated nonattainment. EPA predicted that data from future monitoring, 2011-2013, will possibly show continued decline in levels of PM and their precursors, resulting in fewer nonattainment areas than shown by the 66 counties approximated.

On January 15, 2013, the Environmental Protection Agency (EPA) published a final rule revising the National Ambient Air Quality Standard (NAAQS) for particulate matter (PM). The revised air quality standards were completed pursuant to the Clean Air Act (CAA) and, in part, in response to a court order and consent agreement. Based on its review of scientific studies available since the agency's previous review in 2006, EPA determined that evidence continued to show associations between particulates in ambient air and numerous significant health problems, including aggravated asthma, chronic bronchitis, nonfatal heart attacks, and premature death. Populations shown to be most at risk include children, older adults, and those with heart and lung disease, and those of lower socioeconomic status. EPA's review of and revisions to the PM NAAQS have generated considerable debate and oversight in Congress. The January 2013 revisions change the existing (2006) annual health-based ("primary") standard for "fine" particulate matter 2.5 micrometers or less in diameter (or PM2.5), lowering the allowable average concentration of PM2.5 in the air from the current level of 15 micrograms per cubic meter (µg/m3) to a limit of 12 µg/m3. The annual PM2.5 NAAQS is set so as to address human health effects from chronic exposures to the pollutants. The existing "24-hour primary standard" for PM2.5 that was reduced from 65 µg/m3 to 35 µg/m3 in 2006 was retained, as was the existing standard for larger, but still inhalable, "coarse" particles less than 10 micrometers in diameter, or PM10. As it did in 2006, EPA set "secondary" standards that provide protection against "welfare" (nonhealth) effects, such as ecological effects and material deterioration, identical to the primary standards. EPA revised the Regulatory Impact Analysis (RIA) accompanying its June 2012 proposed rule in part in response to comments received regarding the agency's cost and benefit estimates. In its December 2012 RIA, EPA estimated that the potential "quantifiable" health benefits (2010 $) associated with attaining the PM standard would range from $4.0 billion to $9.1 billion, and costs (2010 $) would range from $53.0 million to $353.0 million. Some stakeholders and some Members continue to express concerns that cost impacts would be more significant than those estimated by EPA for those areas out of compliance with the new standards. EPA's revisions to the PM NAAQS do not directly regulate emissions from specific sources, or compel installation of any pollution control equipment or measures, but indirectly could affect operations at industrial facilities and other sources throughout the United States. Revising PM NAAQS starts a process that includes a determination of areas in each state that exceed the standard and must, therefore, reduce pollutant concentrations to achieve it. Following determinations of these "nonattainment" areas based on multiple years of monitoring data and other factors, state and local governments must develop (or revise) State Implementation Plans (SIPs) outlining measures to attain the standard. These include promulgation of new regulations by states, and the issuance of revised air permits. The process typically takes several years. On January 15, 2015, EPA published its classification of 14 areas as "Moderate" nonattainment for the revised 2013 primary annual PM2.5 standard. EPA subsequently published amended designations on April 7, 2015. EPA's April 2015 modifications to the final area designations for the 2013 PM NAAQS resulted in nine areas consisting of 20 counties in four states designated as nonattainment. All but two of the 20 counties have been previously designated as nonattainment for the 2006 and/or the 1997 PM2.5 NAAQS. For a Moderate area, CAA Section 188(c)(1) of Subpart 4 establishes an attainment deadline of as expeditiously as practicable but no later than the end of the sixth calendar year after designation as nonattainment.

Introduction The New Starts program provides federal funds to public transportation agencies on a largely competitive basis for the construction of new fixed guideway transit systems and the expansion of existing systems (49 U.S.C. §5309). In federal law, "fixed guideway" is defined as "a public transportation facility: using and occupying a separate right-of-way for the exclusive use of public transportation; using rail; using a fixed catenary system; for a passenger ferry system; or for a bus rapid transit system" (49 U.S.C. §5302(7)). Bus rapid transit (BRT) is distinguished from regular bus transit by high-frequency service at widely spaced stops and a combination of various elements that might include transit stations, level-platform boarding, separate right-of-way, traffic signal priority, and special branding. It should be noted that public transportation, as defined in federal law, does not include transportation by school bus, intercity bus, or intercity passenger rail (Amtrak). Most New Starts funding has been provided to transit rail systems for subway/elevated rail (heavy rail), light rail, or commuter rail projects. With federal support, a number of cities, such as Charlotte, Denver, Minneapolis, and Salt Lake City, have opened entirely new rail systems, and many other cities have added to existing systems. Two current extension projects supported by New Starts funding are the Second Avenue subway in New York City and the Dulles Airport Corridor Metrorail extension in northern Virginia. Rail transit route-mileage almost doubled between 1985 and 2009, with light rail mileage almost quadrupling, commuter rail mileage doubling, and subway mileage growing by 25%. Transit rail systems now provide about 44% of public transit trips (up from 31% in 1985), with most of the rest, about 51%, provided by bus. BRT systems have proliferated over the past few years, partly with the help of New Starts funding. BRT has particularly benefited from a category of less costly New Starts projects known as Small Starts. The New Starts program is one element of the federal public transportation program that is administered by the Federal Transit Administration (FTA) within the Department of Transportation. In July 2012, the New Starts program was reauthorized through FY2014 as part of the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ). The program underwent several significant changes in MAP-21. This background report explains how the New Starts program is structured under MAP-21. It begins by discussing program funding and concludes with a legislative history. Funding The New Starts program is one of six major funding programs administered by FTA, accounting for about 18% of FTA's budget ( Figure 1 ). Unlike FTA's other major programs, funding for New Starts comes from the general fund of the U.S. Treasury, not the mass transit account of the highway trust fund. Moreover, the New Starts program provides discretionary funding whereas the other major programs provide funding by formula. New Starts funding averaged about $1.5 billion per year in the period from FY2004 to FY2008. Since FY2009 New Starts funding has tended to be greater than this, but more variable ( Figure 2 ). The regular appropriation in FY2009 was supplemented with $750 million from the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). Rescission of New Starts budget authority affected FY2009 and FY2010 funding; the FY2010 rescission of $280 million approximately matches funding for the Access to the Region's Core (ARC) tunnel project, which was cancelled by New Jersey in October 2010. The cancellation of ARC likely contributed to the reduction of funding in FY2011. For FY2012, Congress decided to fund bus rapid transit projects recommended by FTA for New Starts funding from the discretionary Bus and Bus Facilities program instead. The Senate Appropriations Committee report noted: "these projects are eligible for funding from Bus and Bus Facilities, and this shift will make it possible for the Committee to better support the rail transit projects in the Capital Investment Grants [New Starts] program." Prior to the passage of MAP-21, bus program funding was discretionary, but heavily earmarked. In MAP-21, the Bus and Bus Facilities program is about half its previous size and funding is distributed by formula. The majority of federal funding for New Starts and Small Starts projects has come through the New Starts program, but such projects may also be supported by other federal programs, such as the FTA's Urbanized Area Formula program and the Federal Highway Administration's (FHWA's) Congestion Mitigation and Air Quality Improvement (CMAQ) program. Funding amounts from these other programs tend to be relatively small. In an analysis of New Starts and Small Starts projects from October 2004 through June 2012, the Government Accountability Office (GAO) found that almost 92% of federal funding for New Starts projects came from the New Starts program, 5% from FHWA flex funding (such as CMAQ), 1% from other FTA programs, and 2% from other federal sources. In Small Start projects, 80% came from the New Starts program, 14% from FHWA flex funds, and 7% from other FTA programs. Whatever the funding source, the maximum federal share of a New Starts project is 80%. Every year since FY2002, however, the Senate Appropriations Committee has included in its report a directive to FTA not to sign any grant agreements for New Starts projects (though not Small Starts projects) with more than a 60% federal share. Projects approved for New Starts funding typically have had less than a 60% federal share, often much less. MAP-21, however, establishes an exception to these limitations for up to three BRT projects per fiscal year; these are required to have a federal share of at least 80% (49 U.S.C. §5309(l)(8)). Consistent with the law, GAO found that the federal government paid 45% of the cost of New Starts projects, on average, with local sources paying 48% and state sources 7%. The average federal share in Small Starts projects, by contrast, was 67%, with 24% from local sources and 9% from state sources. The vast majority of state and local contributions come from public funds raised by taxes, bonds, and tolls. Only about 4% of the local funding of New Starts projects came from private investment or public-private partnerships, according to GAO. Program Characteristics Types of Eligible Projects MAP-21 made substantial changes to the New Starts program, including project eligibility. New Starts program funds now may be used for substantial investments in existing fixed guideway lines that increase the capacity of a corridor by at least 10%. These types of projects are termed "core capacity improvement projects." MAP-21 also authorizes the evaluation and funding of a program of interrelated projects. Since the enactment of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA; P.L. 109-59 ) in 2005, the New Starts program has distinguished between projects costing less than $250 million and seeking $75 million or less in New Starts funding, known as Small Starts, and projects above these thresholds, known as New Starts. Beginning in FY2007, SAFETEA reserved $200 million per year of the overall New Starts program authorization for Small Starts. While the distinction between Small Starts and New Starts remains, MAP-21 does not specifically reserve funding for Small Starts projects. As discussed in more detail below, however, Small Starts projects do pass through a simpler approval process. As enacted in MAP-21, there are three types of projects eligible for New Starts funding: Fixed Guideway Capital Projects , involving construction of an operable segment of a new fixed guideway system or an extension of an existing system, including BRT projects in which the majority of the project operates in a separated right-of-way dedicated to public transportation during peak periods. Small Starts Projects , defined as a new fixed guideway project or a corridor-based BRT which costs less than $250 million and receives less than $75 million of federal assistance. A corridor-based BRT is required to emulate rail service, but the buses do not need to run most of the way in a separated right-of-way dedicated to public transportation use. C ore C apacity P rojects , involving expansion of an existing fixed guideway corridor to increase capacity by 10% or more. These types of projects, aimed at eliminating what are sometimes called core capacity constraints, might include expanding stations to handle more cars, upgrading electrical systems to allow longer trains, and upgrading signaling systems to allow more trains per hour. These projects may also be combined in a Program of Interrelated Projects , which is defined as the simultaneous development of two or more fixed guideway or core capacity projects. New Starts Funding Process Federal funding for major New Starts projects is typically committed in a Full Funding Grant Agreement (FFGA), usually a multi-year agreement between the federal government and a transit agency. An FFGA establishes the terms and conditions for federal financial participation, including the maximum amount of federal funding being committed. To obtain an FFGA a project must pass through an approval process specified in law ( Figure 3 ). MAP-21 simplifies the New Starts process by reducing the number of major stages from four to three. The new stages are termed project development, engineering, and construction. To enter the project development phase, the applicant now needs only to apply to FTA and initiate the review process required by the National Environmental Policy Act of 1969 (NEPA; P.L. 91-190). The bill eliminates the duplicative alternatives analysis previously required to be conducted separately from the alternatives analysis required by NEPA. In general, alternatives analysis is an evaluation of different solutions to a transportation problem in a specific area or corridor and the choice of locally preferred alternative (49 C.F.R. §611.5; 40 C.F.R. §1502.14). Along with the NEPA work during project development, the project sponsor must develop the information needed by FTA to review the project's justification and local financial commitment. Generally, the applicant has two years to complete project development, although an extension can be granted in certain circumstances. MAP-21 requires FTA to use an expedited process to review a sponsor's technical capacity if it has successfully completed a fixed guideway or core capacity project in the recent past. MAP-21 also provides authority to advance projects more quickly using special warrants for projects of which the federal share is $100 million or less or 50% or less of the total project cost. According to FTA, special warrants are "ways in which projects may qualify for automatic ratings on the project justification criteria," thus not requiring further detailed analysis. In a rulemaking FTA provided this cost-effectiveness example: if there is a certain level of transit ridership in the corridor today, and the proposed project falls within total cost and cost per mile parameters defined by FTA, then it would be ''warranted'' by FTA as cost-effective, it would receive an automatic medium rating on the cost-effectiveness criterion, and the project sponsor would not need to undertake or submit the results of certain analyses. FTA permits a project to enter into the engineering phase once the NEPA process is concluded, the project is selected as the locally preferred alternative, the project is adopted into the metropolitan plan, and the project is justified on its merits, including an acceptable degree of local financial commitment. If the project is a core capacity project it also has to be in a corridor that is over capacity or is projected to be at or over capacity within the next five years. There are additional requirements for interrelated projects: the projects must be logically connected; when evaluated as a whole, they must meet the requirements of the New Starts program; and there must be a project implementation plan showing that construction of each project will start in a reasonable time frame. The engineering phase is when the preparation of final construction plans and cost estimates are made, and may also include right-of-way acquisition and utility relocation. After engineering work is completed, FTA determines whether to sign an FFGA allowing the project to enter construction. FTA retains some oversight of a project as it is constructed to ensure compliance with the terms of the FFGA. Moreover, FTA must request the funding that is to be provided under the terms of the FFGA for each approved project from Congress each fiscal year. In some cases, FTA may assure a project sponsor of its intention to obligate funds for a project through what is known as a Letter of Intent (49 U.S.C. §5309(k)(1)). FTA may also obligate some of the funding expected to be provided in an FFGA through an Early Systems Work Agreement (49 U.S.C. §5309(k)(3)). Although not a guarantee of full funding, an Early Systems Work Agreement provides funding so that work can begin before an FFGA is awarded. Several of the changes made to the New Starts process under MAP-21 address the criticism that it has taken too long to develop and deliver projects. Along these lines, MAP-21 also creates a pilot program, limited to three projects, for expediting New Starts project delivery. Small Starts For Small Starts projects, those requesting $75 million or less in federal assistance and costing $250 million or less in total, there are just two phases, project development and construction. As with New Starts, entry into project development only requires the project sponsor to apply to FTA and initiate the NEPA process. Consequently, for Small Starts there is only one formal decision for FTA and that is whether to award funding and, hence, move the project into construction. Funding for a successful Small Starts project is provided in a single grant, if possible, or in an expedited grant agreement which provides a multi-year commitment similar to an FFGA. Unlike SAFETEA, which reserved $200 million of the overall program authorization for Small Starts, MAP-21 does not reserve funds for Small Starts projects in FY2013 and FY2014. This may change the mix of New Starts and Small Starts projects that are funded, particularly because the newly permitted grants for core capacity projects could reduce the amount of funding available for other projects. Core capacity projects are unlike all existing New Starts and Small Starts projects because, by definition, they are located in cities and corridors that already have fixed guideway service. It remains to be seen, however, how many core capacity projects will be submitted for New Starts funding, and the relative cost of these applications. Project Rating In determining whether to approve a project's move from one step to the next in the New Starts process, FTA computes an overall project rating by averaging the summary ratings of the project justification criteria and local financial commitment criteria. In order to advance from project development to engineering and from engineering to construction, a project must achieve an overall rating of at least medium on a five-point scale (low, medium-low, medium, medium-high, high). The project justification criteria for New Starts projects are enumerated in MAP-21. Some of the specific measures are defined in a rulemaking which began before enactment of MAP-21 and further detailed in proposed policy guidance. Other measures will be dealt with in subsequent policy guidance and rulemaking. The project justification criteria in MAP-21 are the following: Mobility improvements . Prior to MAP-21 this criterion included the number of transit trips and travel time savings, giving greater weight for benefits going to people who are transit-dependent, compared with a hypothetical baseline alternative that represented "the best that can be done to address identified transportation needs in the corridor without a major capital investment in new infrastructure." FTA has redefined the mobility improvements criterion. It is now measured by total trips on the project, but retains the extra weight given to trips made by transit-dependent passengers. This measure is no longer compared to a baseline alternative. Apart from being simpler, FTA notes that this new measure will increase the relative importance of shorter transit trips. In the previous scheme, projects serving shorter trips were at a disadvantage in the competition for funds because riders would have had less opportunity to save time than those using projects serving longer trips. Environmental benefits . Previously t h ese benefits were measured as the air quality designation of the project's location , but in its rulemaking FTA broaden s this to t he "direct and indirect benefits to the natural and human environment, including air quality improvement from changes in vehicular emissions, reduced energy consumption, reduced greenhouse gas emissions, reduced accidents and fatalities, and improved public health."Congestion relief . This was previously included in the cost effectiveness criterion, but only by assuming that "congestion relief adds about 20 percent to the travel time savings generated by the project." Because this criterion was added by MAP-21 the specific measures used in the evaluation will be decided upon in future policy guidance and rulemaking. Economic development effects . Prior to MAP-21, this was evaluated on the basis of transit-supportive plans and policies, such as zoning regulations near transit stations, that would foster economic development should the project go forward. In its rulemaking, FTA includes an evaluation of affordable housing plans and policies in the project area. Land use (or capacity needs of the corridor for core capacity projects) . In the past this has involved measuring existing land uses and parking supply in the corridor and station areas. FTA, in its rulemaking, adds a measure of publically supported housing in the corridor. Cost-effectiveness as measured by cost per rider . Prior to MAP-21, cost effectiveness was measured by a project's cost and predicted effect on reducing users' travel time. FTA will now use the cost per rider measure instead. According to FTA, this measure will simplify the evaluation and balance the benefits of long- and short-distance trips. MAP-21 eliminated operating efficiencies as a project justification criterion and added congestion relief. FTA proposes to give equal weight to each of the six factors within the project justification evaluation. FTA also proposes to give the project justification criteria a 50% weight of the overall score; the other 50% will be determined by a project's local financial commitment. To be approved for federal funding a New Starts project must have an acceptable degree of local financial commitment. This includes financing that is stable, reliable, and timely; sufficient resources to maintain and operate both the existing public transportation system and the new addition; and contingency money to support cost overruns or funding shortfalls (49 U.S.C. §5309(f)(1)). These factors are largely unchanged in MAP-21, as is FTA's authority in assessing these factors to evaluate the extent to which local financing exceeds the required non-federal share. However, MAP-21 did add another consideration in assessing local financial commitment: "private contributions to the project, including cost effective project delivery, management or transfer of project risks, expedited project schedule, financial partnering, and other public-private partnership strategies" (49 U.S.C. §5309(f)(2)(F)). Prior to MAP-21, the weighted measures determining a project's local financial commitment were capital finances (50%), operating finances (30%), and non-New Starts funding share (20%). In the new proposed scheme, local financial commitment will be judged on current capital and operating condition (25%), commitment of capital and operating funds (25%), and the reasonableness of capital and operating cost estimates and planning assumptions as well as capital funding capacity (50%). FTA also proposes that if the New Starts funding share is less than 50% of the project's capital cost then the overall local financial commitment rating will be raised one level. New Starts Program Legislative History The New Starts program evolved from Section 3 of the Urban Mass Transportation Act of 1964 (P.L. 88-365). In 1994, Section 3 became Section 5309 in a revision without substantive change of Title 49 of the United States Code. Beginning in the 1970s, as the commitment of, and demand for, federal funding began to grow, the Department of Transportation issued a series of policy statements on the principles by which it would distribute discretionary money to so-called "new starts." These statements issued in 1976, 1978, 1980, and 1984 introduced a series of principles that were written into federal law, including long-range planning, alternatives analysis incorporating a baseline alternative, cost effectiveness, local financial commitment, multi-year contracts specifying the limits of federal participation, supportive local land use planning, and a ratings system. Congress inserted many of these principles into law in the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA; P.L. 100-17 ). STURAA established the criteria by which New Starts projects would be judged in order to be eligible for federal funding, and also required DOT's recommendations for funding in the subsequent fiscal year to be detailed in an annual report to Congress. The criteria enacted in STURAA required a New Starts project to be based on an alternatives analysis and preliminary engineering, to be cost-effective, and to be supported by an acceptable amount of local financial commitment that is stable and dependable. In the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA, P.L. 102-240 ), Congress added to the cost-effectiveness criterion the justifications of mobility improvements, environmental benefits, and operating efficiencies. ISTEA also added a list of lesser considerations such as congestion relief, energy consumption, transit supportive land use policies and future patterns, and economic development. A New Starts project would still need to be based on alternatives analysis and preliminary engineering and to have an acceptable amount of local financial commitment. The Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ) left the existing law mostly unchanged, but added a few additional considerations such as the costs of sprawl and the technical capacity of a grantee (usually a transit agency) to undertake a project. TEA-21 also required FTA to rate projects overall as "highly recommended," "recommended," or "not recommended." TEA-21 also made it a requirement that FTA formally approve a project to move from preliminary engineering into final design. FTA published its Final Rule in response to TEA-21 in 2000, and subsequently published several program guidance documents. SAFETEA changed the three-point scale, introduced in TEA-21, to a five-point scale of high, medium-high, medium, medium-low, and low. It also elevated two factors—economic development effects and public transportation supportive land use policies and future patterns—from considerations to project justifications. SAFETEA also created the Small Starts program. Prior to the enactment of SAFETEA, FTA issued a "Dear Colleague" letter announcing that it would target funding to those projects which received a medium or better rating for cost effectiveness. According to FTA this was in response to concerns expressed by Congress, GAO, and the DOT's Inspector General about recommending for funding projects that received a medium-low on cost effectiveness. Following the passage of SAFETEA, in a Notice of Proposed Rulemaking (NPRM) on August 3, 2007, FTA proposed that a medium rating be required for FTA to recommend a project for funding, and for cost effectiveness to be weighted as 50% of the project justification measure. The other 50% would consist of land use and economic development combined into one criterion at a weight of 20%, mobility benefits (20%), environmental benefits (5%), and benefits to transit-dependent riders (5%). This proposal was not well received by the House Transportation and Infrastructure Committee, or by those responding to the notice. Some of the concerns were that, contravening the intent of SAFETEA, the rule would place too much emphasis on cost effectiveness and would not sufficiently evaluate or weight the economic development effects of transit projects. This, critics contended, would favor projects designed for suburban commuters, such as commuter rail and bus rapid transit projects, over more centrally located transit projects such as streetcars. Because of these concerns, Congress included language in the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ), preventing FTA from implementing a final rule. In the SAFETEA-LU Technical Corrections Act of 2008 ( P.L. 110-244 ), Congress amended 49 U.S.C. Section 5309 to require that FTA "give comparable, but not necessarily equal, numerical weight to each project justification criteria in calculating the overall project rating." This was carried forward in MAP-21 (49 U.S.C. §5309(g)(2)(B)(ii) and 49 U.S.C. §5309(h)(6)). FTA withdrew the 2007 NPRM in February 2009, and then in July 2009 issued final guidance establishing cost effectiveness as 20% of the project justification rating. The other factors were economic development (20%), mobility improvements (20%), land use (20%), environmental benefits (10%), and operating efficiencies (10%). This was followed in January 2010 with an announcement that FTA was withdrawing the policy of only recommending for funding projects that received a medium cost-effectiveness rating or better in favor of recommending projects with an overall rating of medium or better (although projects must score a medium or better on both project justification and local financial commitment). At the same time FTA announced that it intended to issue a new NPRM for changes to the evaluation for New Starts and Small Starts projects. In this regard, FTA issued an Advance Notice of Proposed Rulemaking on June 3, 2010, requesting comments on how to improve measurement of cost effectiveness, environmental benefits, and economic development. An NPRM was issued January 25, 2012, along with proposed New Starts/Small Starts policy guidance. A final rule was published January 9, 2013, along with revised proposed policy guidance. Before the changes in the proposed rulemaking were finalized Congress enacted MAP-21, making substantial changes to the New Starts program. Some of the changes proposed by FTA in its January 2012 NPRM were incorporated into the law. For example, MAP authorizes the use of warrants for projects in which the federal funding is $100 million or less or the federal funding share is 50% or less (49 U.S.C. §5309(g)(3)). Some other elements of the program subject to proposed new rules were changed by the law and some changes in the law were not considered in the proposed new rules. For example, operating efficiencies has been dropped from the list of project justifications and congestion relief added. FTA will deal with these sorts of issues in future rulemaking and policy guidance. The rulemaking and revised proposed policy guidance establish some significant changes in the evaluation of New Starts/Small Starts projects. According to the rulemaking, FTA has two broad goals: to measure a broader range of benefits and to simplify the evaluation process. To accomplish the first goal FTA will, for example, evaluate environmental benefits by measuring anticipated changes in air quality criteria pollutants, energy use, greenhouse gas emissions, and safety. Environmental benefits in the previous evaluation scheme were based solely on an area's air quality designation. To accomplish the second goal, FTA will take a number of steps including simplifying measures, eliminating the baseline alternative requirement, and improving the ways in which data are submitted to FTA and evaluated. One of the simplified measures is to evaluate mobility improvements as the estimated total number of trips generated by the project with an extra weight for trips by transit-dependent people. Prior to the rulemaking five measures were used to estimate mobility improvements including incremental travel time saved per passenger mile over the baseline alternative. This change, along with changes to the cost effectiveness measure required by law, will likely improve the rating of projects that generally provide shorter trips, such as streetcars.

The New Starts program is a discretionary funding program for the construction of new fixed-guideway public transportation systems and the expansion of existing systems. Eligible projects include transit rail, including subway/elevated rail (heavy rail), light rail, and commuter rail, as well as bus rapid transit (BRT) and ferries. Public transportation, as defined in federal law, does not include transportation by school bus, intercity bus, or intercity passenger rail (Amtrak). The New Starts program is one element of the federal public transportation program that is administered by the Federal Transit Administration (FTA) within the Department of Transportation. In July 2012, the New Starts program was reauthorized through FY2014 as part of the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141). Funding is authorized at $1.9 billion for FY2013 and FY2014, or about 18% of the overall federal public transportation program budget. Unlike FTA's other major programs, funding for the New Starts program comes from the general fund of the U.S. Treasury, not the mass transit account of the highway trust fund. Moreover, the New Starts program provides discretionary funding whereas the other major programs provide funding by formula. The program underwent several significant changes in MAP-21: Funding can now be used for substantial investments in existing fixed guideway lines that increase the capacity of a corridor by at least 10%, termed "core capacity improvement projects." MAP-21 also authorizes the evaluation and funding of a program of interrelated projects. MAP-21 retains the definition of Small Starts projects as those costing less than $250 million and seeking $75 million or less in federal funding. But MAP-21 does not specifically reserve funding for Small Starts projects as was the case in prior law. MAP-21 simplifies the New Starts process by reducing the number of major stages from four to three. The new stages are termed project development, engineering, and construction. MAP-21 eliminates the alternatives analysis that is separate from the alternatives analysis required by National Environmental Policy Act of 1969 (NEPA). MAP-21 provides FTA with authority to advance projects more quickly in certain circumstances. A recent focus of both Administration and congressional concern has been the rating scheme by which projects are evaluated, particularly the notion of cost effectiveness. Among other things, MAP-21 changes the definition of cost effectiveness from incremental travel time saved to cost per rider. This would likely improve the rating of projects that generally provide shorter trips, such as streetcars.

Introduction The House and Senate have not reached agreement on a traditional budget resolution since agreeing to the FY2010 budget resolution in 2009. Although there are prior examples of delayed agreement or the absence of agreement on a budget resolution, the sustained lack of agreement in recent years has caused some to argue that the budget process is broken. Various budget process reforms have been proposed in response to the perceived problem of a broken budget process. For example, in recent years, members of the House Budget Committee have introduced legislation that would alter the process associated with the budget resolution. Such reform proposals have included replacing the concurrent resolution on the budget with a joint resolution that would require the President's signature. In addition, the committee has reported legislation replacing the requirement for annual action on a budget resolution with a requirement for biennial action. Others have pointed out that while Congress has not agreed on a budget resolution since 2009, it has agreed to budgetary parameters and constraints in other forms. For example, Congress agreed to legislation establishing budgetary constraints in the Budget Control Act of 2011 ( P.L. 112-25 ; BCA) as well as the Bipartisan Budget Act of 2013 ( P.L. 113-67 ; BBA). These statutes have included language to provide for enforceable budgetary parameters in the absence of a traditional budget resolution, and in the case of the BBA, these provisions are explicitly labeled as "Establishing a Congressional Budget." While these provisions function as an alternative to a traditional budget resolution, it is important to recognize how such provisions are constructed, and how they are similar to, or different from, the way in which a traditional budget resolution is constructed. This report provides an explanation of the provisions of The Bipartisan Budget Act of 2013 ( P.L. 113-67 ) included as Title I, Subtitle B, a section titled, "Establishing a Congressional Budget" designed to serve as a substitute for a traditional congressional budget resolution for FY2014 and potentially for FY2015. The report also highlights how those provisions compare with a traditional budget resolution and places them within the context of the budget process for FY2014 and FY2015. Legislative History The Bipartisan Budget Act of 2013, enacted December 26, 2013, resulted from negotiations between the Chairs of the House and Senate Budget Committees in association with the conference committee on the FY2014 budget resolution. Previously, on March 21, 2013, the House agreed to an FY2014 budget resolution ( H.Con.Res. 25 ) by a vote of 221-207. On March 23, 2014, the Senate agreed to its own FY2014 budget resolution ( S.Con.Res. 8 ) by a vote of 50-49. The two chambers, however, did not agree to convene a conference committee at that time. On October 16, 2013, the House requested, and the Senate agreed to, a conference on S.Con.Res. 8 to attempt to resolve their differences on an FY2014 budget plan, as part of the deal forged by House and Senate leadership to end the government shutdown. While the conference committee did not report, on December 10, the chairs of the House and Senate Budget Committees, Representative Paul Ryan and Senator Patty Murray "announced that they had reached a two-year budget agreement." On December 11, the House Rules Committee reported a special rule ( H.Res. 438 ) providing for the consideration of what was being referred to as the "Ryan-Murray agreement." The special rule specified that the legislative vehicle for the agreement would be H.J.Res. 59 . This measure had previously included language to provide continuing appropriations, but had been superseded by other congressional action and had not been enacted. The special rule made in order House consideration of the two-year budget agreement, titled the Bipartisan Budget Agreement (BBA), modified by a further amendment provided in the Rules Committee report that consisted primarily of the "Pathway for SGR Reform Act," also known as the "doc fix." As specified in the special rule, upon the House's adoption of H.Res. 438 , Representative Paul Ryan was permitted to make a motion that resulted in the House voting to send the legislative text consisting of the BBA and the "doc fix" to the Senate as a further House amendment to H.J.Res. 59 . The House agreed to the motion on December 12, 2013, by a vote of 332-94. On December 15, the Senate agreed by unanimous consent to consider the House's amendment to H.J.Res. 59 , and Majority Leader Harry Reid moved that the Senate concur in the House amendment and filed cloture on the motion. Two days later, on December 17, the Senate voted to invoke cloture on the motion by a vote of 67-33 and the following day, December 18, the Senate agreed to the motion to concur in the House amendment by a vote of 64-46. The legislation was then sent to the President and was signed into law on December 26, 2013 ( P.L. 113-67 ). Provisions in the BBA Related to a "Budget Resolution In addition to modifying the discretionary spending caps and extending the mandatory spending sequester related to the Budget Control Act of 2011 (BCA), the BBA included various other provisions, titled "Establishing a Congressional Budget," related to congressional budget resolutions for FY2014 and FY2015. Provisions in the BBA as a Traditional "Budget Resolution" As described below, the provisions labeled "budget resolution" in the BBA differ from a traditional budget resolution, although they allow Congress to function largely in the same manner as it would under a budget resolution. The Congressional Budget Act of 1974 (the Budget Act) provides for the annual adoption of a budget resolution with the objective of forging an agreement between the House and Senate that establishes parameters within which Congress will consider subsequent budgetary legislation for the upcoming fiscal year. These parameters are enforced by points of order. Specifically, provisions in the Budget Act allow any Member in either chamber to raise a point of order against the consideration of legislation that would violate budget limits once agreed to. In particular, budgetary levels are enforced though Sections 311 and 302 of the Budget Act, which deal with the enforcement of spending and revenue aggregates, and committee spending allocations, respectively. Section 311(a) generally prohibits the consideration of (1) any spending measure that would violate the aggregate budget authority and outlay levels for the first fiscal year covered by the budget resolution and (2) any revenue measure that would violate the aggregate revenue levels for the first fiscal year or the sum of all fiscal years covered by the budget resolution. Section 302(a) of the Budget Act generally requires that the aggregate amounts of spending recommended in the annual budget resolution be allocated by committee. Once allocated, these levels are enforced by generally prohibiting the consideration of legislation that would violate the committee allocation (under Section 302(f) of the Budget Act). The Budget Act requires that the House and Senate Appropriations Committees receive an allocation for only one fiscal year, but the remaining House and Senate committees receive allocations for the entire period covered by the budget resolution. As a result, the spending levels are enforceable for one year in the case of the Appropriations Committees, but are enforceable for a multi-year period in the case of the other House and Senate Committees. Section 302(b) of the Budget Act requires that the House and Senate Appropriations Committees subdivide their allocations by subcommittee. Section 302(f) also generally bars the consideration of any spending measures that would cause the Appropriations Committees' suballocations of spending made under Section 302(b) to be breached. When the House and Senate do not reach final agreement on a budget resolution in a timely manner (or fail to reach agreement altogether), budget enforcement for the upcoming fiscal year is complicated. The multi-year budget levels in the prior year's budget resolution remain in effect and may provide some basis for enforcing points of order with respect to revenue and mandatory spending legislation. Changing economic conditions and technical factors, however, may have rendered the prior budget levels out of date, thereby undermining their value as a realistic basis for enforcement of current policies. Furthermore, since a committee allocation to the Appropriations Committee is only for one year, the House and Senate cannot rely on a prior year's budget resolution. If a budget resolution is not adopted for a fiscal year, there is no allocation of spending made to the Appropriations Committees under Section 302(a) and no basis for them to make the required spending suballocations under Section 302(b). In such situations, the House and Senate may employ a variety of mechanisms to establish a basis for updated enforcement. Often, the House and Senate use simple resolutions to establish budgetary levels that are then enforceable in that respective chamber, as if they had been included in a budget resolution agreed upon by both the House and Senate. These are often referred to as "deeming resolutions." However, the term deeming resolution is not officially defined, nor is there any specific statute or rule authorizing such legislation or prescribing its content. Instead, the use of a deeming resolution simply represents the House and Senate, often separately, employing legislative procedures to deal with enforcement issues on an ad hoc basic. Recently, updated budgetary enforcement has been provided for in statutory budget control legislation. In such cases, the budgetary control legislation has included language stating that, in the absence of a budget resolution, the chair of the Budget Committee may file a statement of budgetary levels, which would have effect in the respective chamber. For example, Section 106 of the BCA ( P.L. 112-25 ) established enforceable budgetary levels in the Senate for FY2012 and FY2013 if Congress did not adopt a budget resolution for that fiscal year. It required that the Senate Budget Committee chair file a statement of levels of various budgetary amounts, consistent with the statutory limits established in the act. Similarly, Section 111(a) of the BBA specifically provides that For the purpose of enforcing the Congressional Budget Act of 1974 for fiscal year 2014, and enforcing, in the Senate, budgetary points of order in prior concurrent resolutions on the budget, the allocations, aggregates, and levels provided for in subsection (b) shall apply in the same manner as for a concurrent resolution on the budget for fiscal year 2014 with appropriate budgetary levels for fiscal year 2014 and for fiscal years 2015 through 2023. In addition, Section 115 and Section 116 include similar provisions for FY2015 for the House and Senate respectively. One question that has arisen is whether the use of an alternative legislative vehicle has any impact on the enforceability of the budgetary levels and other provisions in the BBA. Article I of the Constitution, however, gives Congress the broad authority to determine its rules of procedure. This constitutional authority allows Congress to include rule-making provisions, such as enforceable budgetary levels, in any legislative vehicle it desires, whether it is in chamber rules, a concurrent resolution, or a statute. In each case, the rule-making provisions have equal standing and effect. Further, under this rule-making principle, Congress has the authority to take parliamentary action that waives its rules in certain circumstances if it sees fit. This power is not compromised by the fact that the rule-making provision may be established in statute. In short, the levels referenced in the BBA's budget resolution provisions are not any more, or less, enforceable than a traditional budget resolution because they originate in statute. The Budget Act entails that the budget resolution "shall set forth" budgetary levels. Traditionally, budget resolutions have always included explicit budgetary totals in the form of dollar amounts The FY2014 "budget resolution" included in the Bipartisan Budget Act, however, does not include specific dollar amounts. Instead, it states that the Chairs of the House and Senate Budget Committees shall subsequently file in the Congressional Record budgetary totals consistent with the amended discretionary spending caps and the May 2013 baseline adjusted for specified budgetary effects. Once those budgetary totals are filed, they are enforceable as if they had been included in a budget resolution. This means that when Members agreed to the FY2014 "budget resolution" within the BBA, they did so without language providing explicit dollar amounts or reference to priorities in the form of functional categories. The fact that the exact dollar amounts were not specified, however, does not change enforceability of the levels once they are filed as specified. This provision is similar to the one that appeared in the BCA which instructed, for purposes of Senate budget enforcement, the Senate Budget chair to file in the Congressional Record certain budgetary levels for the purposes of enforcement, which specified that the levels be consistent with the statutory limits in the act. Once filed in March 2012, these levels were often referred to as a "deeming resolution." The Budget Act requires the inclusion of certain budgetary levels in the text of the budget resolution, as well as the accompanying report. Of these required budgetary levels, only some are subsequently enforceable, while others appear only for informational purposes, such as functional categories. The levels specified in the Bipartisan Budget Act that were directed to be filed in the Congressional Record did not include all of the levels required to be in a budget resolution by the Budget Act. For example, it did not include the corresponding deficit level or the public debt. It did, however, include the levels enforced by points of order that are required by the Budget Act such as overall spending, overall revenue and the spending allocations for each committee. Although the budgetary levels enacted in the BBA are enforceable, one unconventional aspect of how the BBA functions in place of a traditional budget resolution are the provisions that specifically refer to the relationship of the BBA to previous actions concerning a budget resolution. The most salient language with regard to this appears in Section 113, which provides that In the House of Representatives, for the remainder of the 113 th Congress, the provisions of H.Con.Res. 25 (113 th Congress), as deemed in force by H.Res. 243 (113 th Congress), shall remain in force to the extent its budgetary levels are not superseded by this subtitle or by further action of the House of Representatives. As a consequence of this language, those provisions adopted as part of the deeming resolution for FY2014 previously agreed to by the House and not addressed in Title I, Subtitle B of P.L. 113-67 would continue to have force and effect. Similarly, deficit-neutral reserve funds adopted by the Senate in S.Con.Res. 8 (113 th Congress), and enumerated in Section 114(d), are also deemed to have force and effect. As a consequence of these provisions, although the budgetary levels required to be filed for FY2014 under Section 111(b) by the chairs of the Budget Committees of the House of Representatives and the Senate are enforceable, the provisions enacted in the BBA and styled as the budget resolution for FY2014 cannot be read in isolation from previous budgetary actions. Another feature of P.L. 113-67 functioning as a budget resolution for FY2015 that contrasts with more traditional budget resolutions is the language that addresses the specific possibility that it can be supplanted by future action. The authority for the provisions of the BBA to act in place of a budget resolution for FY2015 in the House is established in Section 115. Similar authority with respect to the Senate is established in Section 116. Sections 115(f) and 116(e) (along with Sections 112(b) and 114(e)), however, explicitly state that this authority shall expire if a concurrent resolution on the budget for FY2015 is agreed to by the Senate and House of Representatives. Similar language appeared in Section 106(e) of the BCA in 2011. As applied in that case, the language was interpreted to mean that although the allocations required to be filed under the act could function as the equivalent of a budget resolution for purposes of Senate enforcement, the BCA did not preclude the later adoption of a budget resolution, and did not preclude the consideration of a concurrent resolution under the privileged and expedited procedures provided under the Budget Act. As stated above, these variations in content, format, and structure are not necessarily significant for the purpose of House and Senate enforcement of budgetary levels. Such variations, however, could potentially affect the privileged nature of a measure intended to be considered as a budget resolution on the House and Senate floor. The Budget Act allows that the budget resolution be considered under expedited procedures, but only if the measure meets the qualifications to be a budget resolution as specified by the Budget Act. The option to use such special procedures may be compromised if the measure includes the variations described above, because these would not fulfill the requirements in the Budget Act. This was not an issue for the budget resolution provisions included in the BBA, as the measure was not considered under such special procedures. Budgetary Levels in the FY2014 Budget Resolution Although the BBA provisions in Section 111, styled as a budget resolution for FY2014, are not traditional in nature, they nonetheless established certain parameters for subsequent budgetary legislation. General information on those budgetary levels is provided below. Discretionary Spending The BBA increased both the defense discretionary and nondefense discretionary statutory spending caps (associated with the BCA) to $520 billion and $492 billion in new budget authority, respectively, for F2014. The BBA then states that those levels be incorporated into the FY2014 "budget resolution." Specifically, the BBA states that the chairs of the House and Senate Budget Committees shall submit a statement for publication in the Congressional Record that includes committee spending levels (302(a) allocations) for the House and Senate Appropriations Committees for FY2014 "consistent with the discretionary spending limits set forth in this Act." These levels were submitted on January 14 and January15, 2014, in the House and Senate, respectively. Once filed, these levels became enforceable on the House and Senate floor. FY2014 appropriations were enacted on January 17, 2014, adhering to these levels. Mandatory Spending and Revenue Section 111 also specifies various levels associated with mandatory spending and revenue; these generally keep mandatory spending and revenue levels at current law levels. Specifically, the act states that the chairs of the House and Senate Budget Committees shall submit a statement for publication in the Congressional Record that includes levels related to mandatory spending and revenue. In each case, such levels are to be "consistent with the May 2013 baseline of the Congressional Budget Office adjusted to account for the budgetary effects of this Act and legislation enacted prior to this Act but not included in the May 2013 baseline of the Congressional Budget Office." The levels were submitted in the House and Senate on January 27 and January 15, respectively. Once filed, these levels became enforceable on the House and Senate floor. Other Provisions in the 2014 Budget Resolution As with typical budget resolutions, the BBA budget resolution included various procedural provisions such as points of order. For example, a point of order against advance appropriations in the Senate was included in Section 112. In addition, the BBA includes dozens of provisions referred to as "adjustments" and "reserve funds." Some of these incorporate by reference the provisions in versions of the budget resolutions separately agreed to by the House and Senate in March of 2013 ( H.Con.Res. 25 and S.Con.Res. 8 ). Reserve Funds and Adjustments Congress frequently includes "reserve funds" and "adjustments" in the annual budget resolution. These provisions provide the chairs of the House or Senate Budget Committees the authority to adjust the budgetary allocations, aggregates, and levels in the future if certain conditions are met. Typically these conditions consist of legislation dealing with a particular policy being reported by the appropriate committee or an amendment dealing with that policy being offered on the floor. If the specified condition is met, the Budget Committee chairman submits the revised levels to her or his respective chamber. Generally, the goal of such a reserve fund or adjustment is to allow certain policies to be considered on the floor without triggering a point of order for violating levels in the budget resolution. Adjustments and reserve funds frequently require that the net budgetary impact of the specified legislation not increase the deficit, and are referred to as "deficit neutral" adjustments or reserve funds. Such deficit-neutral provisions provide that legislation may violate the levels or allocations in the budget resolution, but require the excess amounts, if they would increase the deficit, be "offset" by equivalent amounts. The Budget Committee chair may then revise budgetary levels to prevent a point of order from being offered against the legislation. Reserve funds are not always required to be deficit-neutral. They may, instead, allow the levels of spending or revenue set forth in the budget resolution to be breached, as long as the policy legislation meets the requirements specified in the reserve fund. An example of a reserve fund in action is as follows: Section 114(d) incorporated by reference (to S.Con.Res. 8 ) the following deficit-neutral reserve fund for the Senate. SEC. 313. DEFICIT-NEUTRAL RESERVE FUND FOR A FARM BILL. The Chairman of the Committee on the Budget of the Senate may revise the allocations of a committee or committees, aggregates, and other appropriate levels in this resolution for one or more bills, joint resolutions, amendments, motions, or conference reports that provide for the reauthorization of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ; 122 Stat. 1651) or prior Acts, authorize similar or related programs, provide for revenue changes, or any combination of the purposes under this section, by the amounts provided in such legislation for those purposes, provided that such legislation would not increase the deficit over either the period of the total of fiscal years 2013 through 2018 or the period of the total of fiscal years 2013 through 2023. After enactment of P.L. 113-67 , the House and Senate considered the Agricultural Act of 2014, also known as the "Farm bill." On January 30, 2014, the Senate began consideration of the Farm bill conference report, and Senate Budget Committee Chair, Senator Patty Murray, revised budgetary levels of the FY2014 budget resolution pursuant to the reserve fund. An excerpt from the Congressional Record shows the following: Mrs. MURRAY. Madam President, section 114(d) of H.J.Res. 59 , the Bipartisan Budget Act of 2013, allows the chairman of the Senate Budget Committee to revise the allocations, aggregates, and levels filed on January 14, 2014, pursuant to section 111 of H.J.Res. 59 , for a number of deficit-neutral reserve funds. These reserve funds were incorporated into the Bipartisan Budget Act by reference to sections of S.Con.Res. 8 , the Senate-passed budget resolution for 2014. Among these sections is a reference to section 313 of S.Con.Res. 8 , which establishes a deficit-neutral reserve fund for a farm bill. The authority to adjust enforceable levels in the Senate for a farm bill is contingent on that legislation not increasing the deficit over either the period of the total of fiscal years 2013 through 2018 or the period of the total of fiscal years 2013 through 2023. I find that the conference agreement on H.R. 2642, the Agricultural Act of 2014, as reported on January 27, 2014, fulfills the conditions of the deficit-neutral reserve fund for a farm bill. Therefore, pursuant to section 114(d) of H.J.Res. 59 , I am adjusting the budgetary aggregates, as well as the allocation to the Committee on Agriculture, Nutrition, and Forestry. Below this statement, revised budgetary tables were inserted. The conference report on the Farm bill passed the Senate several days later. Senators have expressed concern regarding reserve fund or adjustment provisions and whether their presence would result in a situation in which legislative questions, which would otherwise have required a three-fifths threshold in the Senate, could be agreed to with only a simple majority. Such questions may have arisen because adjustment provisions give authority, under specified circumstances, to the Budget Committee chair to revise budgetary levels to possibly prevent a point of order from being offered against the legislation-a point of order which otherwise would have required three-fifths of the Senate to waive. Such a reserve fund or adjustment provision, however, would only have an impact on whether a budgetary point of order could be made. But it would not affect the Senate's other rules and procedural requirements, such as the cloture process, and the possibility that the measure would need three-fifths of the Senate to agree to end debate on a legislative question, such as final passage. BBA Provisions Related to an FY2015 Budget Resolution The BBA includes provisions for FY2015 related to a budget resolution, similar to those for FY2014, described above. If by April 15, 2014, the House and Senate have not agreed on a budget resolution for FY2015, then the House and Senate Budget Committee chairs are required to submit, by May 15, to the Congressional Record , allocations, aggregates, and levels that would become enforceable in the same manner as a concurrent budget resolution for FY2015. General information on those budgetary levels is provided below. Discretionary Spending The BBA increased both the defense discretionary and nondefense discretionary statutory spending caps (associated with the BCA) for FY2015 to $521 and $492 billion respectively. The BBA states that in the event that a budget resolution has not been agreed to by April 15, 2014, the chairs of the House and Senate Budget Committees shall submit a statement for publication in the Congressional Record that includes committee spending levels (302(a) allocations) for the House and Senate Appropriations Committees for FY2015 consistent with the discretionary spending caps. Mandatory Spending and Revenue The BBA's FY2015 budget resolution provision also specifies various levels associated with mandatory spending and revenue in the absence of agreement on a concurrent resolution on the budget for FY2015. These generally keep mandatory spending and revenue levels at current law levels. Specifically, the act states that the chairs of the House and Senate Budget Committees shall submit a statement for publication in the Congressional Record that includes levels related to mandatory spending and revenue. In each case, such levels are to be "consistent with the most recent baseline of the Congressional Budget Office." Congressional Consideration of an Alternative FY2015 Budget Resolution While the BBA was referred to as a two-year budget agreement, and does establish certain enforceable budgetary levels for FY2015, nothing precludes Congress from acting on a budget resolution for FY2015, either before or after these levels have been filed. On April 4, 2014, the House Budget Committee reported a budget resolution for FY2015 ( H.Con.Res. 96 ), which was agreed to by the House on April 10. Nonetheless, on April 29, the chair of the House Budget Committee, Representative Paul Ryan, filed in the Congressional Record , levels as provided for in the BBA. Those were immediately enforceable on the House floor. The Senate Budget Chair, Senator Patty Murray, has indicated that the Senate Budget Committee will not report an FY2015 budget resolution, and on May 5, filed in the Congressional Record , levels as provided for in the BBA. This, however, does not necessarily preclude the Senate from considering a budget resolution. Under Senate precedent, if the Senate Budget Committee has not reported a budget resolution by April 1, the Budget Committee is discharged from further consideration of any budget resolution that has been referred. As a consequence, the Senate Budget Committee was discharged of the House-passed budget resolution for FY2015 ( H.Con.Res. 96 ), which was received in the Senate and referred to the Senate Budget Committee on April 11. Under Senate precedent, any Senator can make a non-debatable motion to proceed to the consideration of any such budget resolution.

The Bipartisan Budget Act of 2013 (P.L. 113-67) included as Title I, Subtitle B, a section titled, "Establishing a Congressional Budget" designed to serve as a substitute for a traditional congressional budget resolution for FY2014 and potentially for FY2015. This report provides an explanation of such provisions, highlights how those provisions compare with a traditional budget resolution, and places them within the context of the budget process for FY2014 and FY2015.This report assumes a general understanding of the congressional budget process. For more information on the budget resolution and the congressional budget process generally, see CRS Report 98-721, Introduction to the Federal Budget Process, coordinated by [author name scrubbed]

Introduction Continuing appropriations acts, commonly known as continuing resolutions (CRs), have been an integral component of the annual appropriations process for decades. When Congress and the President do not reach final decisions about one or more regular appropriations acts, they often negotiate and enact a CR. Two general types of CRs are used. An "interim" CR provides agencies with stopgap funding for a period of time until final appropriations decisions are made, or until enactment of another interim CR. A "full-year" CR, by contrast, provides final funding amounts for the remainder of a fiscal year in lieu of one or more regular appropriations acts. If interim or full-year appropriations are not enacted, a funding gap and government shutdown occur for affected agencies and programs. This report analyzes potential impacts that interim CRs might have on agency operations. CRs have become commonplace in the federal budget process, with CRs occurring in some form in all but four years out of a 61-year period from FY1952 to FY2012. However, studies of the impacts of interim CRs are quite limited aside from mostly anecdotal accounts. Furthermore, interim CRs are formulated differently from time to time, and may affect highly diverse agencies and programs in varying ways. Without in-depth analysis of specific circumstances, therefore, it may be difficult, or in many cases impossible, to make generalizable statements about the impacts of interim CRs on particular agencies at particular times. It is possible, however, to identify some potential impacts of interim CRs prospectively, utilizing several approaches. This report uses three. First, the report discusses how an interim CR's provisions and requirements may impact directly upon an agency, based on what an interim CR explicitly is formulated to do. Second, the report analyzes Office of Management and Budget (OMB) and agency documents that have provided guidance or requirements for how an agency should navigate through periods of interim CRs. The existence and emphases of such documents may suggest the occurrence, or at least the risk of occurrence, of interim CR-related impacts on the operations of agencies. Third, the report analyzes brief mentions of claims of impact contained in Government Accountability Office (GAO) reports from a 20-year span, typically made by agency officials without independent GAO validation. In addition, a GAO report from 2009 provided the results of a case study, in which GAO evaluated the effects of interim CRs on six federal bureau-size agencies. The possibility that an interim CR might cause impacts may raise corresponding issues for Congress. One issue relates to the fact that the President, OMB, and agencies may play roles in the formulation, negotiation, and implementation of interim CRs. An implication of this involvement is that Congress typically does not solely determine what the impacts of an interim CR will be, because the President, OMB, and agencies may influence the nature and extent of potential impacts. Another issue relates to interim CRs as a product of high-stakes negotiation over major issues of fiscal and substantive policy. Claims about positive or negative impacts of CRs may be used to argue that changes in CR language, budget priorities, or the budget process are necessary. The ways in which such claims are framed, however, typically rest on implicit assumptions about what would have happened in the absence of the interim CR (e.g., a government shutdown, on one hand, or agreement on final appropriations, on the other). Viewing interim CRs as a product of high-stakes negotiation helps explain why differing assumptions sometimes may be plausible. Given the nature of budget deliberations and the potential for changes in the budget process to change power relationships among participants, the ways in which the impact of an interim CR may be framed might be viewed as similarly significant. The report's final section discusses these and other topics. Full-year CRs occur less frequently than interim CRs. Historically, the term "CR" has been used in different ways in the context of providing full-year appropriations amounts. In any case, full-year CRs effectively become regular appropriations acts for the fiscal year, complete with the certainty of final funding decisions. For this reason, full-year CRs generally are not discussed in this report. Interim CRs and Their Requirements Usage of the term "continuing resolution," like other budget terms, has varied sometimes to reflect evolving budget practices. This section of the report discusses several aspects of how interim CRs typically have been formulated and implemented, in order to identify how interim CRs may impact upon the operations of agencies. Some related terms also are highlighted, in order to distinguish between interim CR-related provisions and other provisions that sometimes appear in the context of CRs. Contexts and Purposes of Stopgap Funding The federal fiscal year begins October 1. For agencies and programs that are funded through annual appropriations acts, appropriations must be enacted by this date if many governmental activities are to continue operating. These funds pay for most of the routine operations of federal agencies, including salaries, contracts, and grants. Final action on some of the regular appropriations acts is frequently delayed beyond October 1. A delay may occur, for example, when negotiations between Congress and the President have not resulted yet in final decisions. When action on one or more regular appropriations acts is incomplete after the beginning of a fiscal year, Congress often provides temporary funding for affected agencies by using an interim CR. The stopgap funding is available until a date specified in the CR, enactment of a new interim CR, or enactment of full-year appropriations, whichever occurs earliest. In this sense, the term "continuing" has been used to indicate that appropriations will continue at a certain level (and subject to certain conditions), pending further decisions. Interim CRs usually are enacted in the context of ongoing and high-stakes budget negotiations between Congress and the President and within Congress. In general, interim CRs typically are intended to (1) preserve congressional prerogatives to make final decisions on full-year funding levels and (2) prevent a funding gap and corresponding government shutdown. Consequently, interim CRs provide relatively restrictive funding levels for agencies. In addition, an interim CR may be structured purposefully as less than optimal from the perspective of many stakeholders, in order to retain sufficient incentive for negotiating parties to come to an accord for final decisions. Participants in a negotiation also may find it necessary to compromise, purposefully accepting what they perceive as some undesirable impacts in an interim CR (e.g., temporary constraints on funding) in order to achieve what they perceive as more important, desirable impacts (e.g., achievement of budget policy goals or avoidance of a government shutdown). In other words, some impacts of interim CRs may be a product of intentional concessions in negotiations, in order to achieve other impacts. Provisions and Agency Requirements "Rate for Operations" Formula Interim CRs have remained fairly constant in form and structure in recent years. In contrast to regular and supplemental appropriations acts, an interim CR generally does not provide a specific amount of budget authority for an appropriations account for a specific time period of availability. Rather, an interim CR provides authority to obligate and spend funds at a statutorily prescribed pace, or "rate," over time, for an appropriations account. More technically, an interim CR typically provides funding at a specified "rate for operations" for accounts covered by the CR. An agency may continue to obligate and spend funds at this rate for the duration of the interim CR—that is, until the CR expires or is superseded. The interim CR uses a formula to calculate this rate. These formulas, which are based on annual amounts or levels of spending, may be set in various ways. For example, funding has been based on formulas such as (1) the lower of the amounts provided in the House-passed version or Senate-passed version of the bill (assuming both houses have acted); (2) the amounts provided in a particular committee-reported bill; or (3) the funding levels available for the previous fiscal year. Interim CRs frequently provide rates that vary among the regular appropriations bills funded. Under an interim CR's formula, an agency that ultimately expects to receive a substantial increase in its full-year funding level compared to the previous year typically would be subject to rate restrictions and would not receive the increased level of funding for the duration of the interim CR, unless special exceptions were made. Apportionment After enactment of an interim CR, OMB provides detailed directions to executive agencies on the availability of funds and how to proceed with budget execution, typically in a bulletin. The bulletin includes announcement of an "automatic apportionment" of funds that will be made available for obligation, as a percentage of the annualized amount provided by the CR. Under a typical OMB bulletin, part of the annualized amount is apportioned and made available for obligation. Funds usually are apportioned either in proportion to the time period of the fiscal year covered by the CR, or according to the historical, seasonal rate of obligations for the period of the year covered by the CR, whichever is lower. A 30-day CR might, therefore, provide 30 days worth of funding, derived either from a certain annualized amount that is set by formula or from a historical spending pattern. In an interim CR, Congress also may provide authority for OMB to mitigate furloughs of federal employees by apportioning funds for personnel compensation and benefits at a higher rate for operations, albeit with some restrictions. Interim CRs impose some paperwork burden on agencies as a result of these procedures. Restrictions on "New Starts" and Other Activities Congress has used interim CRs to protect its prerogative to set full-year funding levels by restricting and guiding agency activities in other ways, as well. For example, an interim CR may prohibit an agency from initiating or resuming any project or activity for which funds were not available in the previous fiscal year (i.e., prohibit "new starts"). In addition, Congress has included provisions like the following in interim CRs, concerning programs that have high initial rates or distributions of funds (see Sec. 109, below) and concerning projects and activities generally (see Sec. 110). Sec. 109. Notwithstanding any other provision of this joint resolution, except section 106, for those programs that would otherwise have high initial rates of operation or complete distribution of appropriations at the beginning of fiscal year 2008 because of distributions of funding to States, foreign countries, grantees, or others, such high initial rates of operation or complete distribution shall not be made, and no grants shall be awarded for such programs funded by this joint resolution that would impinge on final funding prerogatives. Sec. 110. This joint resolution shall be implemented so that only the most limited funding action of that permitted in the joint resolution shall be taken in order to provide for continuation of projects and activities. Anomalies Congress, the President, and agencies sometimes negotiate for the inclusion of "anomalies" to the formulas and restrictions in a CR, to accommodate what they perceive as exceptional circumstances for an agency, program, or policy. Anomalies typically are included to prevent what some or all stakeholders and parties to CR negotiations perceive as major programmatic, operational, or management problems that would be caused if an otherwise "cookie cutter" approach were used to provide funding at a uniform rate and with uniform restrictions. However, when measured against the typical coverage of interim CRs, anomalies tend to be rare. Substantive Legislative Provisions CRs do not necessarily provide only stopgap or final funding. Some interim and full-year CRs have included "substantive" legislative provisions—that is, provisions under the jurisdiction of committees other than the House and Senate Appropriations Committees—covering a wide range of subjects. CRs are attractive vehicles for such provisions because they are considered must-pass legislation on which Congress and the President eventually must reach agreement. "Clean" CRs A CR that contains a rate for operations but does not contain any anomalies or substantive legislative provisions is sometimes referred to as a "clean" CR. However, a CR has at times been described as clean if it includes a limited number of such provisions that an observer views as acceptable. The level of cleanliness of a CR is typically in the eye of the beholder, therefore. Types of Potential Impacts As discussed above, provisions and requirements of interim CRs may impact upon the operations of agencies in many ways. If impacts were viewed in more general categories, an interim CR might be characterized as having several types of potential impacts on the operations of agencies. Avoidance of Government Shutdowns In the absence of agreement about full-year appropriations among the House, Senate, and President, an interim CR may have the impact of preventing funding gaps and shutdowns of government agencies. Historically, shutdowns prior to FY1996 generally were of short duration and were seen as having relatively modest effects, especially when they occurred over a weekend. Partial shutdowns of the federal government in FY1996, however, were more far-reaching in their effects. A five-day shutdown in November 1995 resulted in the furlough of an estimated 800,000 federal employees. A second, 21-day shutdown occurred a month later, resulting in the furlough of nearly 300,000 federal employees. A large but unspecified number of federal contractor employees were also furloughed or laid off as a result of suspended contracts. The shutdowns also had pervasive effects on the delivery of services. Compliance with Administrative Requirements Because an interim CR imposes tight restrictions on the obligation of funds for its entire duration, an interim CR may impact upon an agency's administrative work. As one study of the potential impacts of interim CRs on DOD summarized, "[t]he most visible effect" of a short-term CR is its impact on the time and paperwork necessary to manage the distribution of funds. As a consequence, comments from agency budget officials about the impacts of interim CRs might focus on, or be colored by, this experience. Funding Level An interim CR determines the funding level that is available for the duration of the CR. At least three funding scenarios appear to be possible for an agency that is funded by an interim CR: (1) less funding than otherwise would have been provided under a full-year appropriation (or, essentially, a lower rate for operations during the CR's duration); (2) more funding; or (3) the same amount. For example, suppose an agency anticipated an increase in its full-year budget because of apparent consensus on a higher prospective funding level among the House, Senate, and President. Further suppose, however, that the agency's budget is included in a legislative vehicle that is the subject of some controversy due to budget or programmatic issues elsewhere in the legislation. If the level of policy conflict among the House, Senate, and President were such that an interim CR were used to provide funding until disagreements were resolved, the agency might receive a considerably lower rate for operations than was anticipated for the duration of the CR. Assuming a final funding decision were made at the anticipated level, an agency might or might not be able to "catch up" with what it had planned to do. By contrast, if an agency expected a lower full-year amount than the rate that was provided by an interim CR, the agency might experience more flexibility than previously had been anticipated for the duration of the CR. Finally, if an agency expected flat funding from one year to another, there might be little or no impact associated with an interim CR's funding amount. In the face of a restrictive funding level, agency personnel may reduce or delay a variety of actions, including hiring, award of contracts, and travel. Whether any potential impacts manifest themselves in actual cases would depend on specific circumstances, including how the interim CR is crafted, the time of year, and an agency's or program's particular operations. Restrictions on New Projects and Activities Prohibition on new projects and activities may delay or disrupt an agency's ability to undertake planned activities. For agencies with little need to engage in "new starts," this prohibition may not be significant in its implications. For agencies that typically engage in new projects or change their funding priorities from year to year, however, the prohibition may have more significant impacts on operations. Funding Uncertainty Uncertainty related to full-year funding levels may impact upon an agency's ability to follow its plans. Uncertainty may have two dimensions, concerning (1) the level of full-year funding that ultimately will be available and (2) the timing of when the full-year amount will be available. If one or both kinds of certainty were needed for an agency to make decisions (e.g., when to begin a critical sequence of actions or events), an interim CR might cause an agency to alter its operations, rates of spending, and spending patterns over time, with potential ripple effects for internal management of the agency and its programmatic activities. Additional Perspectives on Potential Impacts Other sources of information may suggest more specific ways in which an interim CR prospectively might impact, or retrospectively may have impacted, upon an agency's operations. OMB and Agency Documents OMB and agencies have extensive experience operating under interim CRs. It seems plausible that they have learned many related lessons in recent decades. Perhaps as a consequence of such lessons, OMB and agencies have provided to their personnel written guidance and requirements for how to operate under an interim CR and how to avoid undesirable impacts. The existence and emphases of such documents may suggest the occurrence, or at least the risk of occurrence, of interim CR-related challenges for the operations of agencies. OMB Documents OMB has issued several documents that provide guidance or requirements to agencies, including its annually issued Circular No. A-11 , occasionally issued bulletins, and other documents. These documents suggest the following: There is some risk that an agency may not correctly calculate the funds available under an interim CR and OMB's automatic apportionments without close OMB supervision and guidance. Both Circular No. A-11 and OMB's occasional bulletins devote the majority of their attention to CR formulas and apportionment amounts, in compliance with the Antideficiency Act and the CR-imposed direction to "operate at a minimal level until after your regular appropriation is enacted." There is some risk that an agency may undertake a new project or activity, contrary to an interim CR's requirements. Both Circular No. A-11 and OMB's occasional bulletins address this point. During a CR of extended duration, there is some risk of "major disruptions to essential government services" if care is not taken to conduct acquisitions using certain practices and "basic steps." According to OMB, these practices and steps include determining the availability of funding for existing and new contract requirements; modifying existing contracts as required by the "fiscal constraints imposed by the CR"; giving contractors and especially small businesses appropriate notice of funding limitations; following "prudent contracting principles and practices" to ensure available funds are used "as efficiently and effectively as possible" and to "minimize disruption of agency operations"; and funding only ongoing projects and activities, "not new initiatives or projects." Agency Documents Agency documents that provide guidance and impose requirements for how to operate under an interim CR appear to range from the highly elaborate to the more ad hoc. For example, the Department of the Army issued extensive "general guidance" concerning "rules for operation" under a CR and during a funding gap. The National Aeronautics and Space Administration (NASA) has integrated CRs and shutdowns into its instructions and process diagrams on budget execution. Smaller entities have created their own guidance memoranda and "instruction" documents. Agencies also may issue documents advising on the status of grant awards under a CR, and providing advice to federal and state officials on how to make timely grant awards under a CR. As with OMB documents, the existence and emphases of agency-level documents suggest the following: There is some risk that agency personnel may not properly comply with CR-related statutory requirements and non-statutory congressional directives without detailed guidance on, for example, the execution of new funds for things such as military personnel appropriations, operation and maintenance appropriations, and other categories of spending. To ensure compliance with congressional directions, agency personnel need to be instructed that objects of expenditure such as "[t]ravel, training, and other discretionary costs should be limited to essential programmatic requirements," and agency staff need detailed guidance for actions that obligate funds, including procurement requests and other purchases. There is some risk that agency spending may exceed congressionally directed minimal amounts in some situations, making it necessary to caution agency personnel to restrain spending even if both Senate and House versions of appropriations bills may provide for an increase. Although an agency may have the tools and policies to award grants in a timely way when operating under an interim CR, and even improve the timeliness of awards to states under current policies, it is nevertheless "more difficult ... to make timely awards while the Agency operates under a series of short continuing resolutions, but it is still possible." There is some risk that stakeholders and grant recipients will not know that grant awards may not be fully funded until enactment of full-year appropriations. Therefore, stakeholders and grant recipients must be notified or reminded. GAO Reports GAO Case Study A literature review identified a single GAO report that focused primarily on the issue of potential or actual impacts of interim CRs. GAO interviewed officials at six bureau-size agencies about the effects of interim CRs on "program delivery, management support, and revenue collection." GAO noted that interim CRs enabled agencies to continue to carry out their missions until their regular appropriations were enacted, and that "legislative anomalies may alleviate some challenges of operating during the CR period." Nevertheless, although the case study agencies' experiences varied, GAO found that all of the agencies reported administrative inefficiencies like delayed hiring (due to funding uncertainty) and some repetitive work (e.g., entering several short-term contracts or issuing multiple grants instead of annual or quarterly awards). Hiring delays may have affected some agencies' abilities to conduct all planned activities (e.g., food and medical device inspections). Agencies reported also that longer-term interim CRs delayed contracts for nonrecurring projects or compressed the time available for discretionary grants. However, some agencies shifted their contract and grant cycles to later in the fiscal year to reduce the amount of additional work required to modify contracts and award grants in multiple installments. Long-term CRs may allow for better planning in the near term, compared to a series of short-term interim CRs. However, GAO reported that some officials said a prolonged interim CR "limited their decision-making options, making trade-offs more difficult" (e.g., needing to reprioritize funds from other operations to address emergency situations). Evidence From Other GAO Reports Apart from the study described above, GAO reports also may be used to suggest basic categories of potential impacts. A full-text search of all GAO reports and testimonies from a 20-year span of time identified a number of items focusing on non-CR topics that also contained brief mentions of claims of impact associated with interim CRs. In most cases, the claims were made by agency officials without independent validation, because potential or actual CR impacts were not the focus of the GAO documents. The claims of impact are analyzed and cited here in two categories, based on their attribution to interim CR-related (1) funding levels or (2) funding uncertainty. Funding Levels A number of GAO reports and testimonies cited claims of impact that agency officials attributed to the funding levels of interim CRs. The claims cited travel expenses being "held to a minimum"; delayed or frozen hiring and cancellation of training; possible limitation of funding available for some construction projects; suspension of the issuance of loan guarantees; delayed contracts; prolonged interagency transfer of funds and differences between estimated and actual costs; impeded use of funds from previous years for a new agency; and delayed delivery of funds to recipients. In one instance, GAO cited a claim that an interim CR should have no impact on the timeliness of assistance payments. Funding Uncertainty In addition, GAO reports and testimonies cited alleged impacts that agency officials attributed to funding uncertainty related to interim CRs. These claims cited difficulties in managing a new agency; frozen hiring and overtime pay, as well as reduced numbers of cases that were processed; and delayed start-ups of an office, pilot initiative, and process reengineering. In the absence of validation studies, it is not clear what conclusions can be drawn about the potential (or actual) impacts of interim CRs. However, the claims of impact contained in the GAO publications may suggest a number of hypotheses, including the following: impacts of interim CRs may occur in many or all of the cited activities in some agencies and circumstances; some or all of the cited activities may be at risk of impacts from interim CRs unless an agency undertakes focused planning and execution, or requests that relevant anomalies be included in interim CRs; and agencies that anticipate large funding increases may be at particular risk of impacts from interim CRs. Potential Issues for Congress The possibility of interim CR-related impacts may raise issues for Congress. Notably, claims of impacts may generate arguments that changes in CRs, budget priorities, or the budget process are necessary to avoid or modify some purported impacts. Given the high-stakes nature of budget deliberations and the potential for changes in the budget process to change power relationships among its participants, claims of impact might be viewed as similarly significant. Managing Potential Impacts of CRs with Anomalies If Congress considers pursuing an interim CR, the subject of anomalies usually arises. Anomalies may be included among the provisions of an interim CR in order to modify or eliminate potential impacts of an interim CR. Depending upon how an anomaly is structured, an anomaly may cause the funding for an agency to behave exactly like it would under a regular appropriations act, at least for the duration of the CR. However, anomalies frequently are not included for many programs in interim CRs. A potential explanation for the rarity of anomalies is that the granting of too many anomalies would reduce incentives to negotiate seriously and come to final agreement on full-year appropriations. Another, related explanation is that an anomaly could, in effect, constitute a concession during negotiations and reduce a stakeholder's leverage, unless there were consensus the anomaly was necessary. In situations when an agency expects a higher level of funding in an upcoming fiscal year, or if an agency needs authority to undertake new projects or activities in order to achieve a task, the agency could request an anomaly. For executive agencies, such a request can be made through the President and OMB, if the White House elected to propose the anomaly to Congress. Alternatively, an agency might make such a request directly to Congress, either formally or informally. An agency could make a request to the President or OMB but have the request denied. In such a case, an agency might or might not informally make its views or concerns known directly to Congress. The possibility of direct communications between agencies and Congress has sometimes been a contentious issue in congressional-executive relations, both generally and in a budgetary context. In a budgetary context, most executive agencies have operated under statutory requirements since 1921 that require budget-related requests to be submitted through the President, as noted below. Congressional Access to Agency Information and Employee Views The President, OMB, and agencies often are involved with Congress in the process of formulating, negotiating, and implementing interim CRs. Therefore, they may influence the potential impacts of interim CRs. Some influence may come from the bargaining power of the President. Another source of influence, however, may stem from the issue of access to information from agencies and views of their employees. Because agencies and their employees are "in the trenches" implementing and formulating public policy, they may have considerable access to information about the potential impacts of an interim CR. Congress may not always have ready access to such information. Under the Budget and Accounting Act, 1921, as amended and recodified, Congress has prohibited most executive branch officers and employees from submitting budget requests to Congress, except through the President and subject to presidential modification. However, Congress has statutorily exempted some agencies from such restrictions through provisions sometimes referred to as "bypass authority." OMB regulations governing the budget process also direct agency officers and employees to "avoid volunteering" opinions to Members and committees of Congress that are inconsistent with Administration policies. Therefore, the extent to which information and views flow from agencies and their personnel to Congress about the potential impacts of interim CRs, both formally and informally, may vary. Role of Assumptions in Assessing Potential Impacts A claim about the impact of an interim CR may rest on implicit assumptions. The term "impact" implies a comparison between the described change that is caused by an interim CR, on one hand, and an assumption about "what otherwise would have happened" without the interim CR, on the other hand. The assumption or estimation of "what otherwise would have happened" is crucial for any claim about the impact of an interim CR. For example, suppose an observer characterized an interim CR as having caused a high level of uncertainty for an agency's program planning or execution. This statement claims that the CR caused the stated impact (i.e., high level of uncertainty), which otherwise would not have happened, all other things being equal. In this case, the claim of impact implicitly assumes a scenario under which, in the absence of an interim CR, full-year appropriations would have been passed by October 1. Passage of full-year appropriations, in turn, would have eliminated uncertainty about funding. However, it also may be plausible that absence of a CR might instead cause an impasse in negotiations and a government shutdown, rather than enactment of full-year appropriations, rendering the observer's claim contestable. The reverse argument may also be made. Suppose another observer characterized an interim CR as having prevented a government shutdown. However, it may be plausible that absence of a CR might cause negotiators to reach agreement on full-year appropriations, thereby avoiding the shutdown without need for a CR. Claims of an impact or lack of impact can be debatable, therefore, and become subjects of scrutiny or even controversy. Some observers, for example, might question the validity of an assumption. An observer might be partly motivated to raise such objections, because claims of impacts may generate an argument that a change in budget priorities or the budget process is necessary in order to avoid or modify some purported impact. Viewing interim CRs as a product of negotiation, in which parties may come to the table with different underlying values and assumptions, helps explain why differing perspectives may be plausible. It is conceivable, for example, that participants in a negotiation may hold opposite perspectives about the impact of an interim CR in a particular situation. Each participant's views might be based both on his or her aspirations for the outcome of negotiations and the negotiating leverage the participant believes he or she could wield. In other words, because there typically is some uncertainty about the outcome of any negotiation, contrasting viewpoints may be plausible until decisions are made.

Continuing appropriations acts, often known as continuing resolutions (CRs), have been a component of the annual appropriations process for decades. When Congress and the President do not reach final decisions about one or more regular appropriations acts by the beginning of the federal fiscal year, October 1, they often enact a CR. Two general types of CRs are used. An "interim" CR provides agencies with stopgap funding for a period of time until final appropriations decisions are made, or until enactment of another interim CR. A "full-year" CR provides final funding amounts for the remainder of a fiscal year in lieu of one or more regular appropriations acts. "Anomalies" may be included in an interim CR to prevent what parties to CR negotiations perceive as major problems that would be caused if an otherwise uniform approach were used to provide funding and impose related restrictions. The President, Office of Management and Budget (OMB), and agencies often are involved with Congress in the process of formulating, negotiating, and implementing interim CRs. An implication of their involvement is that they may influence the potential impacts of interim CRs. Interim CRs typically are intended to both (1) preserve congressional prerogatives to make final decisions on full-year funding levels and (2) prevent a funding gap and corresponding government shutdown. Consequently, interim CRs provide relatively restrictive funding levels for agencies and usually prohibit projects or activities that were not funded in the previous year (sometimes called "new starts"). Interim CRs also impose some paperwork burden on federal agencies. Two other potential impacts might be identified. First, the restrictive funding level of an interim CR may impact upon an agency's activities, compared to the situation of receiving full-year appropriations. For example, agency personnel may reduce or delay a variety of actions, including hiring, award of contracts, and travel. Second, an agency funded by an interim CR may experience some uncertainty about what its final funding level will be. Uncertainty may cause an agency to alter its operations, rates of spending, and spending patterns over time, with potential ripple effects for internal management of the agency and its programmatic activities. Whether any potential impacts manifest themselves in actual cases would depend on specific circumstances, including how the interim CR is crafted, the time of year, and an agency's or program's particular operations. OMB and agency documents, as well as Government Accountability Office (GAO) reports, provide additional perspectives on potential impacts of interim CRs. Related issues for Congress may include use of anomalies to manage impacts, congressional access to information and views from agencies and their employees, and the assumptions that are used when assessing potential impacts. More extensive analysis on this subject is available in CRS Congressional Distribution Memorandum, Potential Impacts of Interim Continuing Resolutions (CRs) on Agency Operations and the Functioning of the Federal Government, coordinated by [author name scrubbed] (available on request). This report will be updated annually or more frequently as events warrant.

Introduction In the last 30 years, the United States has devoted resources and committed billions of dollars toward restoring large ecosystems such as the Chesapeake Bay, the Great Lakes, the Florida Everglades, and the San Francisco Bay and Sacramento and San Joaquin Rivers Delta (California Bay-Delta). These initiatives generally cover large areas in one or more states and affect millions of people. Ecosystem restoration in a policy context has gone beyond just restoring the natural environment, and encompasses other objectives such as improving water supply and conveyance, managing natural resources, and restoring endangered species. Because of these wide-ranging objectives, large-scale ecosystem restoration initiatives involve many stakeholders, including federal, state, and local agencies, and private and nongovernmental organizations. Most of the large-scale ecosystem restoration initiatives are ongoing, and many decision makers evaluate their progress (or lack thereof) to uncover lessons learned and implement changes. Congress plays a key role in large-scale ecosystem restoration efforts. Congress is generally responsible for authorizing federal agency involvement in restoration efforts and establishing guidelines for managing and implementing ecosystem restoration projects. Congress is also interested in the progress of ecosystem restoration initiatives because many restoration activities and projects are funded by federal appropriations. Congressional oversight of ecosystem restoration initiatives has generated questions on the status of restoration initiatives, such as what projects or activities are included in a restoration initiative, whether there is overlap among projects and activities, whether funds are being used efficiently, and the extent to which a restoration initiative is progressing towards its goals. Answers to these questions sometimes generate criticism from observers. They contend that some restoration initiatives are loosely coordinated and organized, and lack comprehensive plans and tools for measuring progress. To temper some of these criticisms and address congressional concerns, some agencies implementing ecosystem restoration initiatives have proposed and constructed what have been called crosscut budgets . Federal laws have authorized crosscut budgets for ecosystem restoration initiatives, including the California Bay-Delta restoration initiative (CALFED; P.L. 108-361 , § 106) and the Great Lakes restoration initiative ( P.L. 111-117 , Division C, Title VII, § 739, extended by P.L. 112-10 , Division B, Title I, § 1101(a)(6)). In the context of ecosystem restoration, a crosscut budget is typically a document that organizes and reports the activities and funding of several entities working within the same broad initiative in a way that "cuts across" organizational boundaries. The primary purpose of a crosscut budget is to characterize and organize funding for an initiative in one document in a timely manner that is useful for decision makers. For example, the crosscut budget for the Florida Everglades restoration initiative lists funding and provides a description of federal and state activities contributing toward restoration. A crosscut budget can be developed and organized in several ways. It could be a document that goes into considerable detail, or, alternatively, a crosscut budget could simply present budget and other information in a table or spreadsheet format. Characteristics of a more comprehensive crosscut budget might include, for example, how much has been spent (and under what authority) for projects, what has been accomplished with the funds, how much is left to be implemented and the cost of doing so, and proposed milestones for the next round of funding. Conceivably, a crosscut budget could also track a restoration initiative's overall progress, provide transparency about coordination of the initiative's activities, and function as a coordinating and oversight document for Congress, relevant federal, state, and local agencies, and other stakeholders. Crosscut budgets do not answer all of the criticisms of how large-scale ecosystem restoration initiatives are planned and implemented. For example, although they are typically used to show budgetary allocations across organizational boundaries, crosscut budgets often do not present information about desired outcomes or programmatic impacts. They may provide stakeholders, however, with a tool for organizing, planning, and working with funds and goals for these initiatives, albeit at a cost in terms of requiring additional analytical work and executive attention by participating agencies, which are typically scarce commodities. This report discusses typical and potential elements of a crosscut budget, provides examples of enacted legislation that authorizes the use of crosscut budgets, and examines some crosscut budgeting issues that Congress might consider. Potential Elements of a Crosscut Budget Purposes, Stakeholders, and Audiences At its most basic level, a crosscut budget is often used to present budget information from two or more agencies whose activities are targeted at a common policy goal or, alternatively, related policy goals. This can assist in making data from multiple agencies more understandable (e.g., putting levels of effort into perspective, showing how different efforts relate to each other) and might be used as a tool for congressional oversight committees, participating agencies, and stakeholders implementing an ecosystem restoration program or initiative. A crosscut budget may be used to track program accomplishments, measure progress toward achieving program goals, or compare activities conducted by various agencies aimed at the same goal. Creating a crosscut budget for a complex ecosystem restoration initiative, such as that in the Everglades, can be challenging. On one level, getting multiple agencies to construct a budget together or to cooperate closely can be difficult, given competing demands for the attention of agency leaders and scarce analytical resources in budget and programmatic staffs. Indeed, compelling multiple agencies to work together might be part of the goal of requiring a crosscut budget, insofar as a crosscut budget requires communication and might facilitate broader coordination of efforts. On another level, creating useful crosscut budget information can be challenging because stakeholders have different needs and no one format will necessarily be helpful to all. Creating (or requiring) a crosscut budget, therefore, could involve (1) deciding the purpose(s) for which, and the audience(s) for whom, the crosscut budget is intended; (2) balancing the need for brevity to make the crosscut useful, while still including sufficient project data to track funding and progress; and (3) ensuring there is sufficient analytical capacity within participating agencies to produce quality information. Design Questions There is no standard design for a crosscut budget. The design depends on the questions to be answered, the audience to be served, and the desired extent of coordination among agencies. Crosscut budgets usually are designed to track funding. However, sometimes they are viewed as a tool for organizing and tracking the progress of complex program elements, planning for the implementation of future activities, and helping to establish a framework for conducting program evaluations. When designing a crosscut budget, questions to consider include: How closely related to the overall program goal must an activity be to be included in the crosscut budget? Tracking funds for large-scale ecosystem restoration initiatives is complex, because there are rarely any definitions of what types of activities and programs should be included (and excluded). At what levels should funding be tracked: by project, by agency, by multiple measures, by overall program goal, or by some other measure? Should funding be tracked using appropriations, obligations, or outlays? Should in-kind contributions, private funding, or other non-budgetary efforts (e.g., regulatory changes) be represented somehow? How many years should a crosscut budget cover (e.g., retrospectively, currently, and prospectively)? Should a crosscut budget track progress in achieving policy and programmatic outcomes, as well as funding? If so, which evaluation techniques should be used to measure progress of a restoration initiative? Congress may consider whether crosscut budgets should be submitted to Congress; if so, how often? What entity should be tasked with producing the crosscut budget? In making that choice, would there be implications for data accuracy, comprehensiveness, or bias? Potential Crosscut Budget Elements The following paragraphs describe potential elements of crosscut budgets and discuss how they might be used in the context of ecosystem restoration initiatives. Defining Crosscut Scope A crosscut budget attempts to capture funding related to overall program purposes and goals. Because a crosscut may involve multiple federal, state, and local agencies, it is typically important to have criteria that determine which projects and programs a crosscut budget will track. Deciding on criteria for inclusion may be difficult, however, because there are many ways to categorize funding, and different agencies may have different definitions of whether a project or activity is "related" fully or partially to a program goal. The criteria that are used will determine whether the crosscut budget captures funding that is directly related (including all projects and programs specifically authorized to achieve one or more ecosystem restoration goals) or indirectly related (inclusive of all projects and programs that affect or support the restoration goal, regardless of their primary purposes or authorization). Each perspective may be useful, depending on what the crosscut budget is intended to capture. Once categories are defined, maintaining consistent definitions will ideally allow projects, programs, and funding to be compared reliably from year to year. Levels of Aggregation in Tracking Funding Funding categories may be tracked at various levels of aggregation or disaggregation, each of which has its advantages and disadvantages, depending on stakeholder needs. For example, tracking funding by program goal will show the level of effort over time dedicated to each goal. Because some activities might make impacts upon several goals, tracking by goal is oftentimes imprecise. (See " Tracking Progress ," below.) Tracking funding at the individual project level may be more useful for some stakeholders, but unwieldy for others when the number of projects is large or complexity becomes an issue. A complication often arises when some activities are reorganized or packaged together differently, making it difficult to compare funding from year to year. Stages of Funding Funding may be tracked in terms of appropriations, obligations, and outlays. These terms describe different stages in the expenditure of federal funds and are in some ways similar to the stages of using a credit card. Appropriations provide budget authority that limits how much an agency can spend (like a credit card limit); obligations occur when agencies enter into contracts or otherwise are legally liable to pay for goods and services (similar to signing a credit card receipt); and outlays occur when funds are expended to fulfill obligations (like paying a credit card bill). Within each of these categories, it may be necessary for some stakeholders to track the fiscal year in which funds were authorized (especially funds that are available to be expended for periods longer than a year, such as multi-year and no-year funds). Because the stages are chronological, obligations and outlays from an appropriation may or may not occur in the same fiscal year as the appropriation. That is, an FY2010 appropriation may or may not be fully obligated and outlayed in FY2010. For example, an account that pays for salaries may obligate all of its FY2010 appropriation in FY2010. In this case, measuring the obligations in FY2010 would provide a reliable measure of the effort in paying salaries. In contrast, a construction account may not obligate or outlay all of its FY2010 appropriation in FY2010, because construction projects are typically multi-year efforts that often use multi-year funds instead of funds available for only a year (annual funds). In this case, obligations and outlays are not directly comparable to annual appropriations, and it is possible that obligations and outlays for some activities will contain funds from more than one appropriation. This challenge is compounded when tracking different programs, many of which expend funds at different rates in multiple agencies. Time Frame Covered It is necessary to define which years of funding will be included in the crosscut budget. Often, funding is tracked from program inception, or from some milestone date at which the federal government formally recognized the program. Historical information can also be useful, if related activities may have occurred in the past. As noted earlier, data from earlier years may not be directly comparable to recent data simply because agencies may not have categorized programs or organized budget-related data in a consistent manner over time. Annual crosscut budgets may also be helpful in years when consolidated appropriations laws are passed. Information would be available in one document as opposed to being spread out throughout a law or explanatory statement, or hidden under a larger program. Timing Requirements of Submissions and Updates Congress might decide whether crosscut budgets must be submitted to Congress and, if so, when and how frequently they must be submitted. For example, requiring submission of a crosscut budget concurrently with the President's annual budget request may seem logical. However, many agencies do not determine their allocations for individual programs within a budget account until four to six weeks (or longer) after the President's request is submitted, so agency data may be adjusted after submission of the President's budget. Therefore, the time frame for submitting the crosscut budget may affect the accuracy or currency of the data. Also, state fiscal years and budget cycles often differ from federal budget time frames, and the crosscut budget may need to account for any such differences. A crosscut budget that comes out very late in the fiscal year, however, may not be useful for Congress as it considers federal appropriations bills. Requiring periodic updates (e.g., quarterly) might address many of these complications and compel participating agencies to coordinate more closely throughout the year, but at increased cost in terms of reporting requirements. Data Accuracy, Consistency, and Responsibility Accurate budget data are necessary for a compiling a crosscut budget. Both state and federal data would need to be linked to agency-wide budget accounts, therefore, to ensure data accuracy. Furthermore, without some coordination or centralized effort, data submitted by various parties might be provided in inconsistent formats or using inconsistent definitions. One option to address data consistency (and corresponding accuracy) may be to assign responsibility for the crosscut budget to a single federal agency. Some potential disadvantages of this option are that the assigned federal agency may not receive timely data submission from other agencies; that it may not have good access to non-federal sources of data; and that it may not be able to evaluate the accuracy of data from all sources. A second option may be to place responsibility for a crosscut budget with the Office of Management and Budget (OMB). Involving OMB can bring an initiative under greater White House control, as opposed to agency control, which might or might not have implications for how information is presented and perceived (e.g., the White House perspective versus an agency's perspective, which can differ). Nevertheless, OMB might not have access to data from non-federal sources. A third option is to place responsibility for the crosscut budget with an intergovernmental task force. This may facilitate access to more sources of data, and increase coordination, but the taskforce may have less authority or influence (e.g., to enforce accuracy, consistency, or prevent bias) and technical budget knowledge than either a single federal agency or OMB. Tracking Progress The progress of ecosystem restoration initiatives has been assessed from two perspectives. First, an assessment of progress can reflect whether a restoration initiative is implementing its projects and activities. In the Everglades, for example, many judge the progress of the restoration initiative based on the implementation of component restoration projects. There are 68 projects that constitute the Comprehensive Everglades Restoration Plan (CERP), of which 20 were authorized in the Water Resources Development Act of 2000 ( P.L. 106-541 , § 601; WRDA 2000). Seven years after the enactment of WRDA 2000, Congress authorized two additional projects. Many argued that the delay in authorizing additional projects under CERP constituted a lack of progress in the restoration initiative. A second method for assessing progress is by measuring whether projects and activities are accomplishing overall restoration goals. Under the CALFED restoration initiative ( P.L. 108-361 , § 106), progress is sometimes viewed in terms of how objectives (e.g., levee integrity and surface storage capacity) are being reached. Progress is mandated by law to proceed in a balanced manner. How to measure balanced progress, however is not clear. For objectives that are not quantifiable, sometimes indicators that represent the goals of the restoration initiative could be measured to estimate progress. If the indicator or set of indicators improves under a goal, positive progress would be reported. Typically, crosscut budgets for restoration initiatives have not included information that tracks the progress of ecosystem restoration efforts. Further discussion on how crosscut budgets can incorporate measures of progress is provided later in this report. Examples of Crosscut Budgets for Ecosystem Restoration The Everglades and CALFED ecosystem restoration initiatives submit crosscut budgets annually. Their crosscut budget documents share similarities, but differ with respect to the characteristics of their programs. Both crosscut budgets may provide Congress with ideas on how to tailor a crosscut budget for a restoration initiative, and provide a precedent for authorizing the use of crosscut budgets. Everglades Crosscut Budget The Everglades crosscut budget describes activities to be funded by the President's budget request and provides a brief description and some context for agency programs. The Everglades crosscut budget is produced by the staff of the South Florida Ecosystem Restoration Task Force, which coordinates the activities of its federal, state, tribal and local members that implement Everglades restoration programs. The authorization for the crosscut budget is in the Water Resources Development Act of 1996 (WRDA 1996; P.L. 104-303 , § 528(f)). The Everglades crosscut budget tracks annual appropriations for programs within the Army Corps of Engineers, the U.S. Environmental Protection Agency (EPA), and agencies of the U.S. Department of the Interior (DOI), U.S. Department of Agriculture (USDA), and National Oceanic and Atmospheric Administration (NOAA), located within the U.S. Department of Commerce. It also provides information on state programs and appropriated and requested state funding for the same time frame, although it notes that the state fiscal year differs from the federal fiscal year. County and local funding is not included in this crosscut budget. The annual Everglades crosscut budget includes enacted appropriation levels from some previous fiscal years. There is no information on overall milestones and progress toward Everglades ecosystem restoration in this crosscut budget, and little linkage between funding and milestones. The budget does not attempt to track progress or how much total funding has been allocated to a project or is needed to finish the project. Other reports associated with the restoration initiative attempt to track progress toward meeting restoration goals, including a progress report that is required not less than every five years from October 2005. The Everglades crosscut budget has two categories. The first includes programs specifically authorized in the Water Resources Development Act of 2000 (WRDA 2000; P.L. 106-541 , Title VI, § 601) for the Comprehensive Everglades Restoration Plan. The second includes programs and projects separate from WRDA 2000 that directly affect restoration program goals, as well as overhead funding in some agencies (such as operational expenses for national parks in the region) that may indirectly affect program goals. Although the criteria for inclusion in the first category are clear, the budget documents do not state why the second category includes overhead funding for some agencies and not others. The funding totals in the crosscut budget are associated with a detailed description of the projects funded (including a description and location of the project) and funds matched to individual projects within a program in several cases. Unique to this crosscut budget is the reporting of specific funds from nationwide programs that apply to the Everglades ecosystem. For example, funding from the USDA's Environmental Quality Incentives Program (EQIP) for the Everglades ecosystem is given. EQIP is a nationwide program that provides financial and technical assistance to farmers for implementing soil and water conservation practices. Since the inception of the Everglades crosscut budget there has been discussion about the utility of the budget. Some contend that the budget is a useful tool for organizing and reporting both federal and state funding totals annually. Some others, however, state that the timing of the budget document release is not useful for the federal appropriations cycle. The crosscut budget is usually released at the beginning of each fiscal year with the previous year's data. For example, the FY2008 request for funding and FY2007 funding totals were not available until January 2008, which was after the FY2008 funding deliberation in Congress. CALFED Bay-Delta Program Crosscut Budget The California Bay-Delta Program (CALFED) was initiated in 1995 to resolve water resource conflicts in the San Francisco Bay and Sacramento/San Joaquin Rivers Delta (Bay-Delta) in California. The program was reauthorized in 2004 with specifications for creating a crosscut budget ( P.L. 108-361 , § 106). The crosscut budget contains a short discussion of criteria used to categorize projects, and includes over 80 pages of tables that identify federal and state agency funding by program element. The CALFED crosscut budget is produced annually and includes the Administration's request for federal funds for the upcoming fiscal year, and previous fiscal year funding for federal and state agencies involved in the initiative. Included are funds for projects or programs conducted by federal agencies such as the Corps, EPA, and agencies under the DOI and USDA. Although funding for each federal and state agency was organized by CALFED program elements (e.g., water quality, conveyance), no other evaluations or measures of progress toward restoration goals or linkages between funding and restoration milestones are included. A separate annual report that tracks the progress and the status of the CALFED components is also required ( P.L. 108-361 , § 105). This report provides a summary of the accomplishments and future activities within each of the components of the program. The annual report does not contain funding information or descriptions of individual projects and activities, which are found in the crosscut budget. The CALFED crosscut budget tracks funding for activities that fall into either of two categories. Category A programs and funds are those consistent with the CALFED Bay-Delta Program Record of Decision and P.L. 108-361 in terms of program goals, objectives and priorities, and geographical area. Category B programs and funds have related and overlapping program objectives and a geographical area that overlaps with the CALFED solution area. Category A programs appear to directly address CALFED elements, whereas Category B programs are related to the elements, and may indirectly benefit them. Larger, nationwide programs such as USDA agricultural conservation programs and EPA's Clean Water State Revolving Funds to states are generally grouped in Category B. For the most part, descriptions of individual projects are not included in the crosscut budget. For some projects, the funding source or authorization is identified. The crosscut budget is submitted to Congress by OMB and reflects a collaboration between the EPA, DOI, Corps, and USDA. The crosscut budget states that the information submitted is the best available, but that because some programs' data were not complete (e.g., final grants had not yet been awarded in some programs), the numbers could change in the future. The budget also stated that the organization of the data may differ from that of past or future CALFED crosscut budget data. There have been few comments on any positive or negative aspects of the CALFED crosscut budget. Some have suggested that its length may become unwieldy in future years if it keeps growing. Crosscut Budget: Issues for Congress This report concludes with a discussion of how crosscut budgets address selected issues related to large-scale ecosystem restoration initiatives. Accountability Congressional oversight of large-scale restoration initiatives typically generates questions on agency responsibility and accountability for restoration programs and activities. In some cases, a single agency or administrator cannot be identified. (For example, if the objective is improving water quality, there may be several activities conducted under different agencies that could improve water quality, but no one agency is responsible for achieving the objective.) In practice, most crosscut budgets in ecosystem restoration connect specific projects to accountable agencies, but few relate projects or activities to overall objectives, thereby making it difficult to assign accountability for the restoration initiative to a responsible agency. Congress could establish requirements or provide direction in order to address this issue. Some have suggested including a separate directory within a crosscut budget that provides a lead agency to each objective of the restoration initiative. For example, improving water quality may be assigned to the EPA, or scientific research on restoration may be assigned to the U.S. Geological Survey (USGS). This type of directory would only be possible if individual projects and activities could be linked to restoration objectives. This may require the creation of a comprehensive restoration plan, which is lacking in some current restoration initiatives. At the same time, relating a specific project or activity (along with its funding) exclusively to a specific goal or objective can be difficult or impossible. As noted earlier and further illustrated in Figure 1 , a single restoration activity might contribute to the achievement of multiple goals. In the figure, activity "A" and its funding "$a" are considered (perhaps on the basis of previous scientific studies) to influence two "outcomes of interest" ("1" and "2"), which might be considered to be explicit programmatic goals by some stakeholders. However, without sophisticated program evaluation techniques, it is often impossible to estimate the impact of program activities on outcomes, compared to what would have happened without the program activities. Furthermore, even with program evaluation techniques, it is often difficult to estimate what proportion of any changes in an outcome (e.g., outcome "2") are attributable to activity "A" versus activity "B" Furthermore, the funding that supports activity "A" might not be easily divisible into two groups exclusive to "1" and "2," respectively. In contrast, a complex restoration initiative might have many activities contributing toward achievement of a single goal. This can undermine attempts to report budget information and activities in relation to only a single goal. As an alternative, some have suggested evaluating each of the goals of a restoration initiative based on a suite of activities, or evaluating each restoration activity based on achieving a set of goals. Tracking Progress Many contend that restoration initiatives need to track progress so that stakeholders can determine what projects or activities are giving the "biggest bang for the buck." Some cite methods of evaluating and monitoring individual programs that are being done at the federal level. For example, with enactment of the Government Performance and Results Act of 1993 (GPRA), Congress directed agencies to use evaluations and performance information to inform the planning and operation of annual activities, as well as to think and plan strategically beyond a single year. In an annual context, Congress called for agencies to provide snapshots of this thinking and information in annual performance plans, to accompany their budget requests, and also in annual program performance reports after a fiscal year is completed. Others suggest that combining crosscut budgets with annual reports may provide a mechanism to track progress and funding simultaneously. For example, the CALFED Program has an annual report with detailed project schedules and quantitative milestones for each of its eleven elements that could be used to track progress within the crosscut budget. Some options for tracking progress with certain kinds of evaluations and metrics, including project management metrics, are outlined below. Project Management Approach One option to track progress might be to relate funding requested for a given year to milestones planned to be achieved in that year (i.e., within a "project management" orientation), and to place those milestones within the overall context of the program to which it contributes. This might allow congressional authorizers and appropriators to see what the funding is intended to accomplish and whether project outputs are on schedule and to revisit the milestones as the following year's appropriation request is considered. Alternatively, if funding cannot be linked to milestones, overall progress on achieving goals within an initiative may be rated. For example, a program might be rated "red" for project implementation delays considered serious, "yellow" for delays considered slight, and "green" for projects on schedule, with explanatory notes included about any delays or schedule changes. Some may contend, however, that it is difficult to smoothly link funding with project milestones for a program as multifaceted as a large-scale ecosystem restoration initiative, since it requires detailed knowledge of each agency's budget as well as each agency's projects, and would require extensive coordination among many agencies. End Outcomes Some contend that one way to track progress of an ecosystem restoration initiative is to assess whether it is achieving its goals, or end outcomes. Measuring the direct impact of restoration activities on achieving end outcomes, compared to what would have happened without the restoration activities, can be difficult. Several factors that are beyond the activities or projects being assessed may contribute toward achieving ecosystem restoration goals (e.g., modernizing wastewater treatment plants so that they release less toxic effluents). In order to estimate the impact of restoration activities, after controlling for the other factors, more sophisticated evaluations must often be conducted. Further, stakeholders can disagree on the most important goals and criteria for judging "success." This may result in progress being defined in different ways depending on the perspectives of the stakeholders. Disagreement about goals, or relative priorities among goals, does not necessarily compromise the tracking of progress in a crosscut budget effort if all major perspectives are included, but selective inclusion or omission of some perspectives could provoke claims of bias. An alternative approach to measure progress of a restoration initiative is to measure overall change in the ecosystem (i.e., change due to the restoration initiative and other factors). Some managers may use indicators of ecosystem components to track the state of the ecosystem over time. These indicators may include water clarity, population size of endangered or threatened species, or acres of underwater seagrass in an ecosystem. Generally, these indicators are not directly related to restoration activities, but provide an overall context for whether, or how, ecosystem conditions are changing over time. An example of this approach is used to measure the condition of the Chesapeake Bay ecosystem. Several ecosystem indicators are measured on a point scale annually and graded. The measurements are from 0 to 100, with a 100 representing the state of the Chesapeake Bay at the healthiest point that can be described. Indicators are given a letter grade based on their point total within the scale. An average of all indicators is presented as the "state of the bay." The indicators do not necessarily reflect restoration goals or efforts, rather components of the ecosystem. For 2008, the Chesapeake Bay was graded at 28. Progress can also be measured using this approach by comparing the point total of indicators over time. Some are critical of this method and contend that the use of indicators that aim to measure an initiative's "performance" might be affected by a host of other factors in addition to the program being considered (e.g., coastal habitat restoration can be improved by planting native species under a restoration program and by changes in climate that promote plant growth). If this is widespread, then measuring progress with indicators becomes dissociated from evaluating the progress of the restoration program. Outputs and Intermediate Outcomes Some evaluation efforts focus on what have been called outputs and intermediate outcomes. Specifically, these approaches could measure outputs (e.g., direct measurements of project-related activities or efforts) and intermediate outcomes (e.g., consequences of project activities and efforts, including progress toward goals, that are expected to lead to the ends desired but are not themselves ends). In some cases, outputs (such as acres of water storage) can be directly related to outcomes (increased water storage). In other cases, outcomes (such as raising the number of breeding pairs of birds) may be one component of, or an intermediate outcome leading toward, a desired end outcome (such as improved ecosystem health). As with end outcomes, it is often necessary to use more sophisticated evaluations to assess the impact of a restoration initiative on intermediate outcomes, compared to what would have happened without the restoration initiative, because other factors might also influence what happens with the intermediate outcomes. Funding as Proxy Indicator Funding itself could be tracked as a proxy to indicate progress in a restoration effort, if the underlying activities have been shown to have or are widely regarded as having a high probability of achieving the desired outcomes. Consistent levels of funding are presumed to relate to consistent progress toward achieving the desired outcome of a project. For example, maintenance projects may require the same level of funds from year to year to fix annual problems. Funding may not always be related to progress. For example, construction projects typically require little funding in early years as preliminary studies are completed, but need more funding later when actual construction occurs. Therefore, little funding initially and more funding later for construction projects may indicate consistent progress towards the completion of a project. Funding Categories Defining what programs should be included in an assessment of restoration activities and their funding has been controversial for several restoration initiatives. Depending on what programs are included in the crosscut budget, some could argue that the funding for a restoration initiative is or is not sufficient. Including funding from nationwide programs that indirectly support ecosystem restoration can increase funding estimates drastically. For example, the Great Lakes Interagency Task Force estimated that $524 million was spent in FY2004 to restore water quality in the Great Lakes. Of this amount, $314 million comes from five nationwide programs (four agricultural conservation programs and the EPA's Clean Water State Revolving Fund) that do not specifically address Great Lakes restoration as their mission. Attempts have been made to identify funding for specific ecosystems from total funding amounts of nationwide programs, but criteria and methodologies for distinguishing funding is unclear. For example, in some cases, funding from national programs is organized according to county lines, which rarely correspond to ecosystem or watershed boundaries. This discrepancy can create large variability in funding totals. Before determining what activities to include in a crosscut budget, some restoration initiatives have defined the geographical area of the ecosystem and determined what activities constitute ecosystem restoration. A defined ecosystem area is useful for determining what activities can affect the ecosystem. For example, funding for wastewater treatment plants that are located in the ecosystem or upstream from the ecosystem could be included in a crosscut budget. An understanding of what is a restoration activity can help to determine what gets included in a crosscut budget. One approach for deciding which programs to include in a crosscut budget is to separate programs by whether they directly or indirectly fund activities that promote restoration goals and objectives. Direct funding for restoration usually is authorized through restoration programs that target the ecosystem in question. Indirect funding is generally from programs that focus on one aspect of restoration but could apply to several ecosystems (e.g., a program that monitors the water quality of streamflows). Defining direct and indirect funding can be difficult. One option is to determine if restoration of the ecosystem, or part of the ecosystem, is explicitly authorized in law as a purpose of a program in question. If so, this would constitute a program that directly funds activities for restoration. Funding for program activities that could address the restoration of the ecosystem but are not explicitly linked to a specific ecosystem would constitute indirect funding. The crosscut budget for CALFED uses this approach to organize and report its activities. An alternative approach would be to include only programs or activities that are limited to the defined area of the ecosystem. For example, funding from agricultural conservation programs would be included in a crosscut budget only for those funds given to farmers that have farms within the ecosystem boundaries, as opposed to the entire state or county that may include a portion of the ecosystem. Another approach to separate indirect and direct funding would be to classify indirect funding as funding that would exist in the absence of a restoration effort, and direct funding as funding that exists because a restoration initiative is in place. Coordination Ecosystem restoration initiatives encompass the activities of multiple stakeholders. Therefore coordination among stakeholders and activities is important for an initiative's success. Coordination is often related to how an ecosystem restoration initiative is governed, and in some initiatives, the adequacy of governance and coordination have been questioned. Problems related to coordination include not being able to assign accountability, to determine funding gaps, or to identify overlapping or repeating restoration activities. A crosscut budget might help address coordination issues by listing responsible agencies with restoration objectives or activities; might enable managers to find funding gaps by providing a list of activities under each objective and by reporting progress; and might prevent project overlap by including activities from all stakeholders working at the federal, state, and local levels. A crosscut budget would likely require some additional cost for the administrative and analytical work required to produce and maintain it. Conclusion Some who are critical of large-scale ecosystem restoration initiatives contend that some initiatives are loosely coordinated, do not have comprehensive plans and tools for measuring progress, and do not have defined methods for assessing funding totals. In response, some have suggested implementing crosscut budgets as part of the reporting requirements of ecosystem restoration initiatives. Crosscut budgets, such as those in use for restoring the Everglades and the California Bay-Delta, address some concerns by reporting restoration activities, their funding, and federal and state agencies responsible for the restoration. However, these crosscut budgets do not attempt to define ecosystem restoration activities or measure progress toward the goals of the restoration initiative as related to funding. Expanding the breadth of crosscut budgets by incorporating these functions, according to some, will temper some criticisms of large-scale ecosystem restoration initiatives. However, if crosscuts become too unwieldy and large, or are not designed to address the needs of specific audiences and stakeholders, some believe that they will not communicate information in an effective and timely manner and will result in a wasted investment of resources.

In the last 30 years, the United States has devoted enormous effort and committed billions of dollars toward restoring large ecosystems such as the Chesapeake Bay and the Great Lakes. These ecosystem restoration initiatives generally address multiple objectives that go beyond restoring the ecosystem, such as water conveyance and levee stability. Consequently, these initiatives involve many stakeholders conducting and implementing a variety of restoration activities and other projects. Coordinating and overseeing the implementation and funding of such projects and activities can be challenging, and sometimes controversial. To address the complexity of organizing, managing, and implementing ecosystem restoration initiatives, some agencies involved in restoration initiatives have implemented crosscut budgets. At its most basic level, a crosscut budget is often used to present budget information from two or more agencies whose activities are targeted at a common policy goal or related policy goals. Crosscut budgets can assist in making data from multiple agencies more understandable, and could be used to inform congressional oversight committees, participating agencies, and stakeholders implementing an ecosystem initiative. A crosscut budget may also be used to track program accomplishments, measure progress towards achieving program goals, or compare activities conducted by various agencies aimed at the same goal. When designing a crosscut budget, there are several potential elements that can be considered, including the scope of the crosscut, or which types of programs and activities should be included in the crosscut; levels of aggregation within the crosscut; stages of funding tracked by the crosscut (e.g., appropriations or outlays); time frame covered; timing of submission and updates; assigning responsibility for gathering the data for the crosscut; and tracking progress of restoration activities and projects. The variability in the design and implementation of crosscut budgets for ecosystem restoration initiatives generates several design questions. For example, some believe that funding amounts should be portrayed in relation to progress toward achieving restoration goals. Other issues include determining what programs to include or exclude in a crosscut budget, assigning accountability, and coordinating projects in an ecosystem restoration initiative. Crosscut budgets can help address coordination and organizational issues in restoration initiatives. Some contend that expanding their breadth to track progress or evaluate success in restoration initiatives may make them more effective. Others, however, suggest that if crosscuts become too unwieldy and complex, or are not designed to address the needs of specific audiences and stakeholders, they may not communicate information in an effective and timely manner.

Introduction In the 1994 general election, Republicans won a majority of seats in the House for the first time since the 83 rd Congress (1953-1955). By practice, the majority party organizes the House. It elects its Speaker, chairs its committees, holds majorities on its committees, selects its officers, and manages its legislative agenda. One of the majority's prerogatives is writing the House's rules and using its majority status to effect the chamber's rules on the day the new House convenes. It is a feature of the House, but not of the Senate, that it must adopt rules at the convening of each Congress. It is also a feature of the House that it relies heavily on its formal rules, and formal means of temporarily changing them, rather than on the informal, ad hoc procedures so often used in the Senate. Although each new House largely adopts the chamber rules that existed in the previous Congress, each new House also adopts changes to those rules. Among the many subjects that the rules may cover, these changes can strengthen the ability of the majority to control the legislative process and the legislative agenda, and they can bestow rights on the minority party, minority interests, and individual Members. The changes made by the Republican majority in the 104 th Congress rules resolution and in subsequent rules resolutions adopted by Republican majorities through the 109 th Congress addressed nearly every aspect of the legislative process, budget process, committee organization, administrative operations, and ethical standards. The changes the Republican majority made were not conceived solely in the days following the 1994 elections, but drew on many experiences and sources. This report has two principal parts reflecting its two principal purposes. The first part analyzes the sources of Republican rules changes. Republicans built their critique of Democratic management of the House over many years. In drafting rules for the 104 th and subsequent Congresses and in other exercises of the House's rulemaking authority, Republicans could draw on their experience and on a variety of partisan and bipartisan plans and proposals. The first purpose of the report is to identify the sources of the broad rewriting of House rules in the 104 th Congress and additional changes in subsequent Congresses. The second part of the report organizes rules changes affecting committees and the House floor topically and changes affecting budgetary legislation, House administration, and ethics by Congress, and briefly explains the changes in layman's terms. These changes were included in the rules resolutions adopted at the beginning of the 104 th through 109 th Congresses, special orders adopted in conjunction with the rules resolutions, and Speakers' policy announcements made at the convening of each of these Congresses. The major topical headings for this part of the report are as follows: " Rules Changes Affecting Committees " " Rules Changes Affecting the Chamber and Floor " " Rules Changes Affecting Budgetary Legislation " " Rules Changes Affecting Administrationof the House " " Rules Changes Affecting Ethics Standards " Each of these major headings is further subdivided by topic or by Congress. The second purpose of the report is to catalogue and briefly explain by topic—regardless of the location of a topic in one or more rules—specific changes to rules over the course of Republican majority control of the House. This report supplements the official source of rules changes, the House Rules and Manual . This volume, printed in each Congress to reflect adoption of a rules resolution, contains the current provisions of House rules. For each rule, it also contains the House parliamentarian's notes describing changes to the rule (or its specific clauses) and decisions of presiding officers and the House based upon the rule. Rules in the House Rules and Manual are arranged by rule number. This report does not describe all of the actions taken during each Congress that effected permanent and temporary organizational, procedural, administrative, and other changes in the operation of the House. In addition to changes made through rules resolutions, such changes were made through freestanding legislation and as provisions of bills or resolutions, and in report language on legislation and in joint explanatory statements accompanying conference reports. Legislative branch appropriations bills and budgetary legislation contained organizational, procedural, and other changes that were temporary or permanent. So-called fast-track or expedited House procedures were included in legislation that otherwise addressed a policy matter. Democratic Caucus and Republican Conference rules and decisions also had an impact on how specific House rules (such as rules on suspension of the rules and on committee assignment limits) were implemented. In a few instances, changes made by means other than the House rules resolution are described, where necessary to understand changes made in rules resolutions. Selected references to relevant freestanding bills and resolutions, however, are provided in footnotes in the report. Between the 104 th and 109 th Congresses, some committees were created and others were abolished, and some committees' names were changed. In this report, the names of committees appear as they existed in the specific Congress referenced. Following the next section, " The 103 rd Congress: Prelude to Change ," there is a section titled " Recodification of House Rules, 106 th Congress ." During the 105 th Congress (1997-1999), a Rules Committee task force completed the first recodification of House rules since the 1880s. Citations appearing in this report are only to the recodified rules. The parliamentarian's notes in the House Rules and Manual, attached to specific rules, clauses, or paragraphs, trace the recodification of specific provisions of House rules, in addition to changes to the text of the rules. This report is the first in a series on House rules changes. A second report currently covers changes for the 110 th through 112 th Congresses: CRS Report R42395, A Retrospective of House Rules Changes Since the 110 th Congress , by [author name scrubbed] and [author name scrubbed]. It is also divided into two parts, with the first part covering the partisan critique of the majority party's management of the House—a source of rules changes when the majority changed—and the second part organizing rules changes topically. The topic headings in reports in the series are the same, to the extent that the same procedural and other topics were addressed in each time frame. The 103rd Congress: Prelude to Change The House rules changes made in the 104 th Congress reflected a Republican frame of reference that was built over many years as the minority party, including more democratic floor processes, minority party rights, a subordinate role for seniority, accountability in House operations, and streamlining of the House's organization and staffing. The rules changes in the succeeding five Republican-organized Congresses continued to draw on this frame of reference, but also drew on current experiences in managing the House. While Republican Members as members of the minority party for 40 years had less invested in the status quo of the House than Democratic Members, they nonetheless had some investment, such as the opportunity awaiting those Republican Members who might assume the chairmanship of a committee on which they had long served as ranking minority Member. These interests also influenced the final 104 th Congress rules package. Republican criticisms relevant to the changes made in the 104 th Congress began with the decisions on rules made at the direction of the Democratic Caucus beginning after the 1974 election. The Committee Reform Amendments, agreed to just a month before the 1974 elections, had abolished proxy voting in committees and allocated to the minority one-third of statutory committee staff and one-third of investigative committee staff. The rules for the House in 94 th Congress (1975-1977) restored proxy voting, although requiring proxies to be given in writing, and abrogated the committee staff allocation formula, with minority committee staffing in the 94 th Congress anticipated to be about 20% of total committee staffing. As the Democratic majority began innovating in the 1970s and 1980s with special rules—such as modified closed rules and "king of the Hill" rules—to give a procedural advantage to its preferred policy outcome, Republican House Members formed groups, such as the Conservative Opportunity Society and the Republican '92 Group, to contest Democrats' legislative management of the House by employing House procedures to attract attention, to critique Democratic proposals, and to develop and publicize substantive Republican alternatives. The Conservative Opportunity Society, founded by then-Representative Newt Gingrich in 1983, promoted conservative proposals as an alternative to the so-called welfare state. The '92 Group, named for the goal of electing a Republican majority in the House in 1992, was founded by Republican moderates such as then-Representatives Olympia Snowe and Tom Tauke. It also advanced proposals for governing as an alternative to Democratic legislation. Then, in the 102 nd and 103 rd Congresses, scandals cast a pall over public perceptions of Congress, exposing Members' special treatment and self-dealing, and contributing to the public's sense of disconnection between Members of Congress and their constituents. The disclosure of damaging information began in 1991 with an investigation of the House post office stamp clerks for embezzlement and drug dealing. A reported allegation by a post office supervisor that he had helped Members of Congress "get thousands of dollars in cash through phony transactions disguised as stamp purchases" led to subpoenas for the records of three Members, one of whom was the chair of the Ways and Means Committee, Representative Dan Rostenkowski. On May 31, 1994, Representative Rostenkowski was indicted on 17 criminal charges involving embezzlement, fraud, and coverup. In September 1991, a General Accounting Office audit revealed that Members had written 8,331 bad checks (non-sufficient fund checks) in the 12 months ending June 30, 1990, at the House bank, a check-cashing service in the Capitol for Members and staff. Later that month, House Administration Committee members revealed that more than 250 Members were in arrears for bills at House restaurants for more than $255,000. In March 1992, the House voted to release the bad check audit data, including Members' names. In May 1992, the ranking Republican Member of the House Appropriations Committee was separately indicted on bribery and illegal gratuities charges. In August 1992, a Democratic Member from Massachusetts was separately indicted on charges of extortion, racketeering, and tax evasion. In the 102 nd and 103 rd Congresses, a greater than usual number of Members of both chambers were investigated by their house's respective ethics committees or federal authorities and a number of Members of the House were indicted. Facing a volatile electorate in the 1992 elections, 52 Representatives retired, 19 were defeated in primaries, and 24 were defeated in the general election. While the state of the economy set the tone for the 1992 elections, the scandals, particularly the House bank scandal, figured prominently in incumbents' decisions not to run for reelection and in incumbents' defeat. In the 1994 election, voters ended Democrats' 40-year majority in the House. While a desire for change was a theme that political observers found among the electorate, a significant group of voters responded specifically to the Republicans' campaign manifesto, the Contract with America, which called for "institutional reforms designed to make the House less cumbersome and more accountable." The Republicans' 104 th Congress rules package, subsequent rules packages, and other exercises of the House's rulemaking authority drew many specific changes from experiences like these and from three principal sources: the Republican alternative rules package in the 103 rd Congress, the recommendations of the Joint Committee on the Organization of Congress, and the House Republicans' Contract with America. These three sources are discussed in detail in this section. 103rd Congress Rules The Democratic Caucus at its early organization meeting in December 1992 approved a number of rules changes, which continued to be developed until the rules package ( H.Res. 5 ) was put before the House at the convening of the 103 rd Congress on January 5, 1993. Except for a rules change that removed the House general counsel from the Office of the Clerk and created an Office of General Counsel under the Speaker and another rules change that conformed House rules on franked mail to a new law of the 102 nd Congress, the Democratic rules package was silent on the ethics issues of the previous Congresses. An innovation included in the rules package provided a vote in the Committee of the Whole to the four Delegates and the Puerto Rican Resident Commissioner, and allowed these five individuals to chair the Committee of the Whole as other Members were able to do. This change also allowed a re-vote in the House if the Delegates' or Resident Commissioner's vote affected the outcome of a vote in the Committee of the Whole. The Delegates and Resident Commissioner were not given a vote in the House meeting as the House. The Delegates and Resident Commissioner could also be appointed to any conference committee, not just those created for legislation reported from a committee on which they served. During debate, Democratic Members portrayed this change as a matter of fairness and democracy in action, and pointed out the services of citizenship undertaken by residents of the territories, Puerto Rico, and the District of Columbia. They argued that allowing the Delegates and Resident Commissioner to vote in the Committee of the Whole did not flout constitutional requirements since their votes could not affect the outcome of votes in the House. (The counter-argument appears below under " Republican Critique .") Democratic Members indicated that other major changes proposed to the House rules were made for purposes of legislative efficiency and productivity, although Republicans challenged this explanation and countered with their own proposed rules changes, as explained below (see " Republican Critique "). Committees were allowed to meet while the House was sitting under the five-minute rule, without having to seek permission to do so. Committee records were dispositive on the presence of a quorum to report a measure, reducing the opportunity to raise a point of order on the floor, and a point of order on the floor was prohibited in most instances when a measure was reported by a voice vote or unanimous consent. (A counter-argument appears below under " Republican Critique .") Moribund general teller vote procedures (a method of counting votes without recording individual Members' positions) in the Committee of the Whole were eliminated; the possibility of recorded tellers remained in the event the electronic voting system malfunctioned. The Speaker was authorized to declare short recesses throughout a Congress, rather than only by authorization of a special rule, a general authority previously granted only at the end of a Congress. If a question of the privileges of the House was raised by the majority or minority leader, it would be considered immediately. If a privileges of the House resolution was offered by another Member, it would be noticed, and the Speaker was required to schedule debate on it within two legislative days. Debate time on a question of the privileges of the House would be divided between the proponent, on the one hand, and the leadership of the party in opposition to the motion, on the other, as determined by the Speaker. This change allowed the Speaker to put off debate on any privileges of the House resolution not raised by the majority or minority leader to a time of the Speaker's, majority's, or House's preference, and took half of debate time away from the proponent of a question of privileges, who previously controlled all debate time. In instances where the Senate added legislative language to a general appropriation bill and a motion was made in the House to, in the motion's effect, agree to a change in existing law, the chair of the authorizing committee with jurisdiction over the subject matter could make an intervening motion to insist on disagreement to the amendment. While some could argue that the change protected the prerogatives of the House, others could argue that the change was a parochial protection for a specific committee. The change also allowed the motion to hold up a conference report without proposing a legislative solution. The motion would then be debated for one hour, with time divided between the proponent of the motion to insist on disagreement and a proponent of the motion to change existing law, presumably the chairs of the authorizing and Appropriations committees. The Speaker was also authorized to add Members to, and remove them from, conference committees and select committees. The House Fair Employment Practices resolution was codified in the rules, and changes were made in procedures of the Office of Fair Employment Practices. The permanent authorization of the Select Committee on Aging was repealed, and the temporary authorizations of three existing select committees were not renewed in the rules package, thus terminating the existence of those select committees. A rules change that had been endorsed by the Democratic Caucus was dropped from the proposed rules package. This change would have limited special orders (non-legislative debate normally occurring after the conclusion of a day's legislative debate) to three hours or not later than 9:00 p.m., whichever came first. Special orders were allowed under the traditions of the House, and regulated by the Speaker's announced policies. When the rules change was not offered, special orders continued to be regulated by the Speaker's announced policies. Republican Critique While the majority party in the House can use its numbers to effect the chamber rules it desires, the minority party often tries to amend the rules proposed by the majority and normally critiques the proposed rules. Republicans in the 103 rd Congress argued against the proposed rules on the basis of what they did and what they failed to do. Representative Gerald Solomon, as ranking Republican on the Rules Committee and Republican floor manager of the rules debate, used his opening remarks to argue that, after the events of the last Congress, voters had chosen change in the 1992 election and Democrats were misreading the voters' message: "The American people thought last November they were voting for a change. Where is it?" Many of the Republican Members who spoke during debate on the rules spoke against allowing the Delegates and Resident Commissioner to vote in the Committee of the Whole. Their arguments were based on constitutional objections that only Representatives of states may be Members of the House; the constitutionality of the existing practice of allowing Delegates and the Resident Commissioner to vote on committees had not been established; the disparity that existed in population among the territories, Puerto Rico, and the District of Columbia and between the territories and the congressional districts; and the situation that federal income tax receipts were returned to the territories, Puerto Rico, and the District of Columbia. Some Members also argued that, practically, the votes of the Delegates and Resident Commissioner would be sought to build a majority and, politically, the change reduced the Republicans' election gains by half since the Delegates and Resident Commissioner were all Democrats. This last point was reinforced in editorial columns representing a range of political orientation. Although other specific proposals in the rules package evoked criticism, none besides the Delegate voting was criticized so much as expanding the possible meaning of the requirement for a quorum to be physically present in committee to report out legislation. Minority Leader Robert Michel stated: a rolling quorum defeats the purpose of collective deliberation and decision making. The very word "Congress" has at its root the concept of coming together, of being together, of political community, and to institute procedures that fragment the collective sense of decision making and responsibility in the House is to demean the very concept of the Congress. In discussing the proposed change to this rule, Representative Bob Walker's remarks revealed that a sense of the comity between the two parties appeared to be lacking: Under the rolling quorum concept, what can happen is that legislation can be passed not by a committee meeting in a room and deciding that it is time to pass the legislation, but by a declaration that "what we are going to do is allow the vote to remain open until sufficient members of the committee have shown up to vote on the matter," so literally the vote can take place over a matter of hours, over a matter of days, over a matter of weeks, over a matter of months. Republican Procedural Actions In addition to debate, the Republican minority did three other things during the debate on the proposed rules package. First, they prepared an extensive alternate package of rules changes (see Table 1 ) although they were not able to offer the alternate as an amendment once the previous question was moved on the Democratic majority's rules resolution. Once the previous question is moved in the House, no amendments or further debate are in order. A number of the proposals in this alternate rules package were included in the Republicans' 104 th Congress rules resolution, and several of these proposals (or similar ones) also appeared in the Democrats' 103 rd Congress rules resolution. Second, Republicans inserted in the Congressional Record nearly 24 pages of documentation explaining and in support of their alternate rules package. Third, they offered two motions that provided alternative ways (to amending) to obtain votes on changes to the majority's proposed rules package. As soon as the resolution containing the majority's rules package was reported on the floor, Representative Gerald Solomon offered a motion to refer the resolution to a special committee to study the constitutionality of giving voting rights in the Committee of the Whole to Delegates and the Resident Commissioner. The motion was tabled on a vote of 224-176. At the conclusion of debate on the majority's rules package, Representative Michel offered a motion to commit the resolution to a select committee with instructions to report back forthwith with two amendments to strike provisions related to new privileges for the Delegates and Resident Commissioner and to add a new provision of term limits of three consecutive Congresses for chairs and ranking minority Members of standing committees, effective immediately. The motion was defeated on a 187-238 vote. The Republicans' alternate rules package was the first principal source of rules changes subsequently advanced by Republican majorities in the 104 th and subsequent Congresses. Joint Committee on the Organization of Congress A second principal source for Republicans' 104 th Congress and subsequent rules was the recommendations of the Joint Committee on the Organization of Congress. The 102 nd Congress (1991-1992) created a Joint Committee on the Organization of Congress (JCOC). The joint committee was directed in H.Con.Res. 192 to report to the two chambers by December 31, 1993, the end of the 103 rd Congress's first session, on its work: [The joint committee shall] (1) make a full and complete study of the organization and operation of the Congress of the United States; and (2) recommend improvements in such organization and operation with a view toward strengthening the effectiveness of the Congress, simplifying its operations, improving its relationships with and oversight of other branches of the United States Government, and improving the orderly consideration of legislation. The study shall include an examination of—(1) the organization and operation of each House of the Congress, and the structure of, and the relationships between, the various standing, special, and select committees of the Congress; (2) the relationship between the two Houses of Congress; (3) the relationship between the Congress and the executive branch of the Government; (4) the resources and working tools available to the legislative branch as compared to those available to the executive branch; and (5) the responsibilities of the leadership, their ability to fulfill those responsibilities, and how that relates to the ability of the Senate and the House of Representatives to perform their legislative functions. For the House, the House subcommittee of the joint committee recommended changes affecting the breadth of House organization and operations. Many of these recommendations were mirrored in the Senate subcommittee's recommendations for the Senate. The following is a synopsis of the House subcommittee's recommendations, which informed the Republicans' rules resolutions and other exercises of the House's rulemaking authority beginning with the 104 th Congress: Legislative-Executive Relations All standing House committees should be required to prepare an oversight agenda at the beginning of each Congress and to submit it to the House Administration Committee for consideration in the committee funding process. The House Administration Committee should publish these agendas and its recommendations for coordination among committees' oversight activities. Committees should also be required to hold oversight hearings on reports concerning the executive branch, such as inspectors general's reports. All committees should be directed to eliminate unessential executive reporting requirements. With House approval, the Speaker should be authorized to appoint ad hoc oversight committees. Although there were no specific recommendations on legislative-judicial relations, appropriate committees were encouraged to develop formal and informal means of dialogue between the two branches. Committee System Members' committee assignments should be limited to two standing committees and four subcommittees. Waivers could be granted by the House only after recommendation of a Member's party caucus. If enforcement of the assignment limit caused a committee to have less than half the number of Members serving on it as it had in the 103 rd Congress, the Rules Committee would be directed to report a resolution abolishing the committee and transferring its jurisdiction. A Member should be allowed to serve on the Permanent Select Committee on Intelligence for eight years (rather than six years), and the chair could serve an additional term if the Member named chair was in his or her final term. Except for the Committee on Appropriations, exclusive or major committees should not have more than five subcommittees. Non-major committees would be limited to four subcommittees. The Speaker would be instructed to designate a "primary" committee of jurisdiction in referring legislation, and could set time or subject-matter limits on other committees of referral after the primary committee reported a piece of legislation. Subcommittees should be prohibited from meeting when their parent committee was meeting, without the written permission of the committee chair. A week's notice of a committee or subcommittee meeting should generally be required. Committee reports should include the roll-call vote on a motion to report or, if reporting was by voice vote, contain a list of those Members present for the voice vote. Committees should be directed to publish their committee and subcommittee attendance and voting records semiannually in the Congressional Record . Standing committees should prepare an oversight agenda at the beginning of each Congress, and report at the end of the Congress on how that agenda was fulfilled. The reports would be taken into consideration by the House Administration Committee in deliberations on committee funding. Floor Procedure A minority motion to recommit with instructions should be guaranteed. Members should also be permitted in debate to make references to certain actions taken by the Senate or its committees that were a matter of public record. The House should have a four-day legislative week, and specific times would be set aside only for floor proceedings or only for committee meetings. The Congressional Record should be a substantially verbatim transcript of House proceedings. The House parliamentarian should be directed to prepare a recodification of House rules. Budgetary Legislation Congress should establish a two-year budget cycle for presidential budget submissions, budget resolutions, multiyear authorizations, and appropriations. A budget resolution and appropriations bills would be considered in the first year of the two-year cycle, and multiyear authorizations and committee oversight would occur in the second year. The Appropriations Committee should be required to notify appropriate committees of jurisdiction whenever it reported a measure containing unauthorized appropriations or legislative provisions. A point of order would lie against an appropriation in excess of an authorization level set by the House. Budget resolutions should include a statement on total tax expenditures attributable to special provisions of the tax code. Committee reports on tax bills, and joint explanatory statements to conference reports on tax bills, should list tax expenditures, and committee reports on appropriations bills, and joint explanatory statements to conference reports on appropriations bills, and authorization bills should list earmark provisions. To gain better control over entitlement spending, a new process should be established that requires the President to submit targets for direct spending and to make recommendations for reaching the targets in the event they will be exceeded. Ethics Process The Committee on Standards of Official Conduct (the "Ethics Committee") should be allowed to use a panel of private citizens as fact finders to investigate complaints against Members and to report to the committee any formal charges of violations. Staffing and Support Agencies A Speaker task force should be appointed to study the legislative branch to achieve cost savings consistent with reductions implemented in the executive branch under the National Performance Review. Eight-year authorizations should be imposed on the Congressional Budget Office, Congressional Research Service, General Accounting Office (now the Government Accountability Office ), Office of Technology Assessment, and Government Printing Office. Appropriate committees should study means to better coordinate nonpartisan services in the legislative branch and minimize duplication, and should assess the feasibility of opening such services to competitive bidding by the private sector. Appropriate committees should report on the feasibility of granting to private firms by competitive bid the right to operate certain congressional facilities, including the barber and beauty shops, gymnasium, health and medical services, restaurants, and child care facilities. A bicameral "office of compliance" should be created to study how to apply labor laws to Congress, and to issue regulations applying those laws to Congress, effective on House and Senate approval of a concurrent resolution. The office should also establish administrative enforcement mechanisms, using independent hearing officers and providing recourse to federal appellate review. The House Administration Committee should be given a goal of creating professional development programs for congressional employees. Appropriate House and Senate committees should study staff salaries and take steps to achieve greater parity between the chambers. Information Technology The Joint Committees on the Library and on Printing should be abolished, and their functions should be transferred to a Joint Committee on Information Management, which would oversee information management for Congress. Public Understanding To foster public understanding of Congress and the legislative process, the House should undertake different activities such as experimenting with alternative forms of debate, such as Oxford Union-style debates; encourage the creation of a congressional education center; and enhance orientation programs for journalists covering Congress. Legislative information should be more readily available to Members, the public, and the media, and bills, committee reports, conference reports, and amendments (to bills to be considered under suspension of the rules) should be available for review at least 24 hours before consideration. Action on the JCOC Recommendations in the 103rd Congress Legislation embodying the JCOC's recommendations was introduced in the 103 rd Congress ( H.R. 3801 and S. 1824 ), but no action was taken on these measures. The House, however, passed H.R. 4822 , the Congressional Accountability Act, which the Senate did not act on. In explication of recommendations of the joint committee, this bill would have applied certain federal labor laws to Congress, established an Office of Congressional Fair Employment Practices, provided a dispute resolution process, and established a procedures for Congress to consider rules proposed by the new office's board. The House also agreed to H.Res. 578 , establishing an Office of Compliance and effecting other recommendations related to the applicability of labor laws to Congress. The House and Senate also came close to passing new lobby laws and gift rules ( S. 349 , H.Rept. 103-75), but, while the House agreed to the conference report on the measure, Senate consideration ended when the Senate failed to invoke cloture on the conference report. Contract with America As part of the campaign preceding the 1994 elections, most Republican candidates for U.S. Representative signed the Contract with America, a campaign platform for institutional change and priority legislation, should Republicans become the majority party in the House in the 104 th Congress. The provisions of the platform that related to Congress as an institution were as follows: On the first day of the 104 th Congress, the new Republican majority will immediately pass the following major reforms, aimed at restoring the faith and trust of the American people in their government: First, require all laws that apply to the rest of the country also apply equally to the Congress; Second, select a major, independent auditing firm to conduct a comprehensive audit of Congress for waste, fraud or abuse; Third, cut the number of House committees, and cut committee staff by one-third; Fourth, limit the terms of all committee chairs; Fifth, ban the casting of proxy votes in committee; Sixth, require committee meetings to be open to the public; Seventh, require a three-fifths majority vote to pass a tax increase; Eighth, guarantee an honest accounting of our Federal Budget by implementing zero base-line budgeting. The Contract with America was the third principal source for changes to House rules in the 104 th Congress. These eight planks were the basis for the eight sections of title I of H.Res. 6 , agreed to in the House January 4, 1995. Recodification of House Rules, 106th Congress The recodification of House rules was a recommendation of the Joint Committee on the Organization of Congress. A brief explanation is included here in this report since references to the numbers and clauses of rules in succeeding sections are to the recodified rules. With the Speaker's approval, the Rules Committee established a task force on recodification at the committee's organizational meeting for the 105 th Congress. House rules had last been comprehensively recodified in the 1880s. Fifty-one rules were collapsed to twenty-eight, without substantive change but with deletion of obsolete provisions. The recodification sought to use consistent language, to cluster together like provisions, and to retain rules numbers long associated with certain procedures. The Rules Committee presented its recommendations to House leaders, chairs, and ranking minority Members in October 1998. The proposed recodification was adopted when the House adopted its rules for the 106 th Congress on January 6, 1999. The parliamentarian's notes in the House Rules and Manual, attached to specific rules, clauses, or paragraphs, trace the recodification of specific provisions of House rules, in addition to changes to the text of the rules. Therefore, citations appearing in the balance of this report are only to the recodified rules, and only to a clause of a rule at the time a change was made. Cross references to House rules prior to recodification may be found in the parliamentarian's notes or through Table 2 , and changes following recodification to the numbering of clauses, paragraphs, and subparagraphs may be found in the parliamentarian's notes. Rules Changes Affecting Committees Surveys and hearings conducted by the Joint Committee on the Organization of Congress showed that Members and staff, in overwhelming numbers, ranked committee structure and other matters involving committees to be among their greatest concerns. The House had previously made extensive changes to committee organization or procedures or both in the Legislative Reorganization Act of 1946, the Legislative Reorganization Act of 1970, the Congressional Budget and Impoundment Control Act of 1974, the Committee Reform Amendments of 1974, and a 1980 resolution realigning committee jurisdiction over energy. Incremental changes to committee organization and procedures had been made in biennial rules resolutions, and, as noted above, decisions in the Democratic-controlled House in the 103 rd Congress eliminated four select committees. Changes to the committee system made in rules resolutions in the 104 th Congress and subsequently addressed most aspects of the committee system. The following section identifies changes made to the committee system on the opening day of each Congress since the 104 th Congress in resolutions adopting the rules of the House and establishing special orders, and pursuant to the Speakers' announcements. The section is organized around three central themes: (1) structure and organization, including committee chairmanships and committee assignments, committee jurisdiction, and subcommittees; (2) procedure, including committee hearings and meetings, committee reports, referral, and oversight; and (3) staff and funding. Structure and Organization Assignments and Size General Assignment Rules44 H.Res. 6 , agreed to in the 104 th Congress, prohibited Members from serving on more than two standing committees and four subcommittees of standing committees, with exceptions approved by the House upon recommendation of the respective party caucus or conference. House rules had been silent on assignment limitations. A subcommittee was defined as a unit of a committee set up for at least six months; a special oversight subcommittee of the National Security Committee was exempted from this definition. Ex officio service by a chair or ranking minority Member on their committee's subcommittees was not included in the limit. H.Res. 6 also authorized the Speaker, with the approval of the House, to appoint ad hoc oversight committees to review matters within the jurisdiction of two or more standing committees. The change was one of several made in House rules to enhance and coordinate House committee oversight. A House rule previously provided this authority to the Speaker only when the House approved creation of an ad hoc committee with legislative authority or, generally, a select committee. Budget Committee46 H.Res. 6 in the 104 th Congress changed the permissible duration of Members' service on the Budget Committee to four Congresses in six Congresses from three Congresses in five Congresses. In the 106 th Congress, the prohibition of service on the Budget Committee for more than four Congresses in any six successive Congresses was waived during the 106 th Congress by a separate order in H.Res. 5 . In the 108 th Congress, H.Res. 5 provided that the Budget Committee's membership would include one member from the Rules Committee, codifying a decision made in the Republican Conference's early organization meetings. (Amended clause 5 of Rule X.) H.Res. 5 in the 109 th Congress contained a provision that one member of the majority party and one member of the minority party were to be "designated" by the respective elected leaderships as members of the Budget Committee. The rule that was amended had previously required the members to be "from" the elected leaderships. (Amended clause 5 of Rule X.) Ethics Committee47 In the 106 th Congress, H.Res. 5 eliminated the requirement that four members (two from each party) of the Standards of Official Conduct Committee (the "Ethics Committee") rotate off the panel every Congress, and changed service on the committee to three Congresses in any five Congresses from two Congresses in any three Congresses. The size of the committee was also set at 10 members, 5 of each party. (Amended clause 5 of Rule X.) Intelligence Committee50 Membership on the Permanent Select Committee on Intelligence was changed by H.Res. 6 in the 104 th Congress to four terms from three in six successive Congresses, while the chair and ranking minority Member were allowed to serve a fifth term. The Speaker was also designated as an ex officio member of the committee in place of the majority leader; the minority leader continued as an ex officio member. The size of the Intelligence Committee was also decreased to 16 members (from 19), with a limit of not more than 9 members from one party. In the 107 th Congress, H.Res. 5 increased the size of the Intelligence Committee to not more than 18 members (from not more than 16 members), of which not more than 10 could be from the same party. (Amended clause 11(a)(1) of Rule X.) Chairmanships/Term Limitations52 Pursuant to H.Res. 6 , effective with the 104 th Congress, committee and subcommittee chairs were limited to serve as chair to not more than three terms in three consecutive Congresses. The resolution also permitted any majority member, not the senior most ranking majority Member, to be designated as the vice-chair of a committee or subcommittee. H.Res. 6 also allowed a chair or ranking minority Member of the Permanent Select Committee on Intelligence who had served just one term to be reappointed to serve an additional term if he or she had already completed the term limit of four Congresses on the committee. In the 108 th Congress, H.Res. 5 abolished the term limit for service as chair or ranking minority Member of the Permanent Select Committee on Intelligence. (Amended clause 11 of Rule X.) The term limit for service as chair or ranking minority Member of the Budget Committee was codified to six years, equal to the term limitation for other standing committee chairs. (Amended clause 5 of Rule X.) H.Res. 5 in the 109 th Congress authorized the chair of the Rules Committee to serve as chair notwithstanding the rule limiting service of committee chairs to three consecutive terms. (Amended clause 5 of Rule X.) Committee Abolition The Committee on the District of Columbia, the Committee on Merchant Marine and Fisheries, and the Committee on Post Office and Civil Service were abolished pursuant to H.Res. 6 in the 104 th Congress. (See " Jurisdiction " below for explanation of the distribution of the committees' jurisdiction.) Committee Creation and Retention54 (See also " Jurisdiction " below.) H.Res. 6 also authorized the Speaker, with the approval of the House, to appoint ad hoc oversight committees to review matters within the jurisdiction of two or more standing committees. The change was one of several made in House rules to enhance and coordinate House committee oversight. A House rule previously provided this authority to the Speaker only when the House approved creation of an ad hoc committee with legislative authority or, generally, a select committee. A rules change in H.Res. 5 in the 105 th Congress extended until January 21, 1997, the existence of a Select Committee on Ethics (comprising members of the Standards of Official Conduct Committee in the 104 th Congress), to allow committee members to complete their work and make any recommendations to the House related to the official conduct of Speaker Newt Gingrich. H.Res. 5 in the 106 th Congress contained a separate order continuing until March 31, 1999, the existence of the Select Committee on U.S. National Security and Military/Commercial Concerns with the People's Republic of China. H.Res. 5 in the 108 th Congress created a Select Committee on Homeland Security for one Congress's duration with legislative jurisdiction to develop recommendations and report to the House on matters relating to the Homeland Security Act of 2002. The select committee was also charged with conducting a study of committee jurisdiction over the issue of homeland security and reporting any recommended changes to the House by September 30, 2004. H.Res. 5 in the 109 th Congress created a permanent, standing Committee on Homeland Security with legislative and oversight jurisdiction. The new panel was granted legislative jurisdiction over the following: (1) Overall homeland security policy. (2) Organization and administration of the Department of Homeland Security. (3) Functions of the Department of Homeland Security related to the following: (A) Border and port security (except immigration policy and non-border enforcement; (B) Customs (except customs revenue); (C) Integration, analysis, and dissemination of homeland security information; (D) Domestic preparedness for and collective response to terrorism; (E) Research and development; and (F) Transportation security." The new committee was granted oversight authority over homeland security, including the "interaction of all departments and agencies with the Department of Homeland Security." (Amended clauses 1 and 3 of Rule X.) In addition, in his announced policies for the 109 th Congress, the Speaker stated that referrals to the Select Committee on Homeland Security would not constitute precedent for referrals to the permanent committee. (See " Jurisdiction " below in this section for concomitant changes in other committees' jurisdiction.) Committee Names (Name changes are made as amendments to Rule X, with any needed conforming changes made in other rules.) Several committees were given new names under H.Res. 6 for the 104 th Congress: Banking and Financial Services (formerly Banking, Finance, and Urban Affairs); Commerce (formerly Energy and Commerce); Economic and Educational Opportunities (formerly Education and Labor); Government Reform and Oversight (formerly Government Operations); House Oversight (formerly House Administration); International Relations (formerly Foreign Affairs); National Security (formerly Armed Services); Resources (formerly Natural Resources); Science (formerly Science, Space, and Technology); and Transportation and Infrastructure (formerly Public Works and Transportation). In the following 105 th Congress, H.Res. 5 changed the name of the Committee on Economic and Educational Opportunities to the Committee on Education and the Workforce. In the 106 th Congress, pursuant to H.Res. 5 , the name of the Committee on Government Reform and Oversight was changed to the Committee on Government Reform; the Committee on House Oversight was returned to the Committee on House Administration; and the Committee on National Security was returned to the Committee on Armed Services. H.Res. 5 of the 107 th Congress changed the name of the Committee on Commerce to the Committee on Energy and Commerce. Further, the resolution reconstituted the Committee on Banking and Financial Services as the Committee on Financial Services. (See " Jurisdiction ," next below, for an explanation on the realignment of these two committees' jurisdiction.) Jurisdiction61 (See also " Committee Creation and Retention " above and " Referral " below.) 104th Congress H.Res. 6 transferred jurisdiction from the District of Columbia Committee and the Post Office and Civil Service Committee (both abolished by the resolution) to the Government Reform and Oversight Committee. The Post Office Committee's jurisdiction over the Franking Commission was transferred to the House Oversight Committee. Specific jurisdiction over paperwork reduction and over public information and records was added to the Government Reform Committee's jurisdiction, and the committee was given specific responsibility for coordinating House committees' oversight plans. The House Oversight Committee's jurisdiction over the erection of monuments to the memory of individuals was transferred to the Resources Committee. Also abolished was the Merchant Marine and Fisheries Committee. Its jurisdiction was dispersed among several panels: the Merchant Marine Academy, the national security aspects of merchant marine, and interoceanic canals were transferred to the National Security Committee; marine research was transferred to the Science Committee; the Coast Guard, navigation, vessel registration, prevention of collisions at sea, non-national security aspects of merchant marine, and pollution of navigable waters were transferred to the Transportation and Infrastructure Committee; and fisheries, marine affairs except pollution of navigable waters, oceanographic affairs, and endangered species were transferred to the Resources Committee. An addition for purposes of clarification was also made to the National Security Committee's jurisdiction, for intelligence-related activities of the Department of Defense. An addition was made to the Transportation and Infrastructure Committee's jurisdiction over federal management of emergencies and natural disasters. Changes affected a sizable portion of the Commerce Committee's jurisdiction: primary jurisdiction over Glass-Steagall reform legislation was given to the Banking and Financial Services Committee; food inspection was consolidated in the Agriculture Committee with the addition of the inspection of poultry, seafood, and seafood products; railroads and inland waterways were absorbed by the Transportation and Infrastructure Committee; the Trans-Alaska Pipeline (except ratemaking) was transferred to the Resources Committee; and the commercial application of energy technology was moved to the Science Committee, consolidating its jurisdiction over energy research and development. The Commerce Committee gained from the Resources Committee jurisdiction over regulation of the domestic nuclear energy industry, and a conforming change was made in the committee's oversight jurisdiction. H.Res. 6 also added specific water conservation jurisdiction for the Agriculture Committee. It added specific jurisdiction for the Banking Committee over economic stabilization, defense production, and financial aid to commerce and industry. It added small business jurisdiction related to regulatory flexibility and paperwork reduction to the jurisdiction of the Small Business Committee. H.Res. 6 also expanded the Budget Committee's jurisdiction to include "Measures relating to the congressional budget process, generally" and "Measures relating to the establishment, extension, and enforcement of special controls over the Federal budget, including the budgetary treatment of off-budget Federal agencies and measures providing exemption from reduction under any order issued under part C of the Balanced Budget and Emergency Deficit Control Act of 1985." A paragraph of the committee's jurisdiction regarding concurrent budget resolutions and matters under titles III and IV of the Congressional Budget Act was amended to add: "and other measures setting forth appropriate levels of budget totals for the United States Government." The Judiciary Committee's jurisdiction was clarified with the specific addition of "judiciary" and "administrative practice and procedure" to its jurisdiction. H.Res. 6 also amended the jurisdiction of the Permanent Select Committee on Intelligence to reflect previous referral decisions. 105th Congress In the 105 th Congress, H.Res. 5 revised the jurisdictions of the Budget and Government Reform and Oversight Committees. The Budget Committee was given oversight over the "budget process" rather than over solely the "congressional budget process." The Government Reform Committee was given jurisdiction over "government management and accounting measures, generally" rather than "budget and accounting measures, generally." 107th Congress H.Res. 5 in the 107 th Congress transferred jurisdiction over securities and exchanges, and insurance generally, to the Committee on Financial Services from the Committee on Energy and Commerce. (Amended clause 1 of Rule X.) In addition, the Permanent Select Committee on Intelligence gained exclusive oversight responsibility over the sources and methods of the core intelligence agencies. (Amended clause 3 of Rule X.) The resolution transferred, to the clerk of the House, the House Administration Committee's responsibilities to examine House-passed bills, joint resolutions, amendments, and enrolled bills and joint resolutions, and to present enrolled bills and joint resolutions to the President. In cooperation with the Senate, the clerk now examines bills and joint resolutions passed by both houses to ensure their correct enrollment, and presents enrolled bills and joint resolutions originated in the House to the President, after obtaining the signatures of the Speaker and the President of the Senate. The clerk then reports to the House the fact and date of a measure's presentment to the President. (Amending clause 2(d) of Rule II, and clause 4(d)(1) of Rule X.) 108th Congress H.Res. 5 in the 108 th Congress created a Select Committee on Homeland Security for one Congress's duration with legislative jurisdiction to develop recommendations and report to the House on matters relating to the Homeland Security Act of 2002. The select committee was also charged with conducting a study of committee jurisdiction over the issue of homeland security and reporting any recommended changes to the House by September 30, 2004. 109th Congress H.Res. 5 in the 109 th Congress transferred jurisdiction of the Committee on Transportation and Infrastructure over transportation security and port security to the Committee on Homeland Security, but the Transportation and Infrastructure Committee retained jurisdiction over the Coast Guard as an agency and over many of its programs and activities and over transportation safety. The resolution also transferred jurisdiction over domestic preparedness for terrorist acts to the Committee on Homeland Security, but the Transportation and Infrastructure Committee retained jurisdiction over natural disasters and other emergencies. Further, the resolution transferred the Judiciary Committee's jurisdiction over border security to the Committee on Homeland Security, but the Judiciary Committee retained jurisdiction over immigration and over non-border related policy. The resolution also specifically added "criminal law enforcement" to the jurisdiction of the Judiciary Committee. The resolution transferred jurisdiction over the Customs Service to the Committee on Homeland Security, although the Committee on Ways and Means retained jurisdiction over customs revenue. (Amended clause 1 of Rule X.) (See " Committee Creation and Retention " above for the jurisdiction of the Select Committee on Homeland Security that existed in the 108 th Congress and the jurisdiction of the permanent Homeland Security Committee established in the 109 th Congress.) In addition, the Speaker in his announced policies for the 109 th Congress indicated that the referral of measures to the Select Committee on Homeland Security of the 108 th Congress would not constitute precedent for referrals to the standing Committee on Homeland Security. The Speaker's announced policies also addressed the January 20, 2001, "Memorandum of Understanding Between Energy and Commerce Committee and Financial Services Committee," regarding the jurisdictions of the two committees. The Speaker announced that the final two paragraphs of the memorandum dealing with electronic commerce, anti-fraud authorities under securities laws, and the setting of accounting standards by the Financial Accounting Standards Board would no longer provide jurisdictional guidance. Subcommittees69 H.Res. 6 in the 104 th Congress prohibited any committee from having more than five subcommittees, except for Appropriations (13 subcommittees), Government Reform and Oversight (7), and Transportation and Infrastructure (6). In the 106 th Congress, H.Res. 5 maintained the existing rule restriction regarding the limitation of five subcommittees; however, committees that maintained an oversight subcommittee were restricted to no more than six subcommittees. H.Res. 5 also deleted the Committee on Transportation and Infrastructure from the exemption to the five subcommittees plus an oversight subcommittee. (Amended clause 5 of Rule X.) Further, the Committee on Government Reform, in order to maintain a Census Subcommittee, was allowed by a separate order in the rules resolution to have eight subcommittees for the 106 th Congress. H.Res. 5 in the 107 th Congress maintained the rule regarding the number of subcommittees each committee could create. However, by separate order in the rules resolution, the Committee on Government Reform was allowed to create up to eight subcommittees and the Committee on International Relations and the Committee on Transportation and Infrastructure were allowed to create up to six subcommittees each. The 108 th Congress's H.Res. 5 also maintained the existing rule on subcommittees. However, the Committee on Armed Services, the Committee on International Relations, and the Committee on Transportation and Infrastructure were allowed by separate order in the rules resolution to create up to six subcommittees each. H.Res. 5 in the 109 th Congress maintained the existing rule on subcommittees. However, by separate order in the rules resolution, the Committee on Armed Services and the Committee on Transportation and Infrastructure were entitled to create up to six subcommittees each, and the Committee on International Relations was allowed to create up to seven subcommittees in the 109 th Congress. Procedure Committee Reports71 H.Res. 6 in the 104 th Congress added content requirements to the directive to committees to submit biennial activities reports. The resolution required activities reports to contain separate summaries of legislative and oversight activities, and for the oversight summary to compare a committee's plan to its actions and to list recommendations resulting from the committee's oversight. H.Res. 6 required committee reports on legislation to include members' recorded votes in committee on amendments. Reports already included members' recorded votes on motions to report. H.Res. 6 contained a "truth-in-budgeting baseline reform" provision requiring a comparison (when practicable) of total funding in legislation to the "appropriate levels under current law." The purported effect of this rules change was to require that the entire amount of authorizations, appropriations, and entitlement spending to be shown in cost estimates, not solely in increments of change. The "truth" aspect was intended to get at a criticism of baseline budgeting that allowed spending increases above a current year's level, but below baseline levels, to be characterized as spending cuts. H.Res. 5 in the 105 th Congress authorized committees to (1) file joint investigative or oversight reports with other committees on matters on which they conducted joint studies or investigations, (2) file investigative or oversight reports after the final adjournment of a Congress if they were properly approved by the committee and at least seven calendar days had been permitted for filing views, and (3) file final activity reports after an adjournment if at least seven calendar days had been permitted for filing views. H.Res. 5 also stipulated that proposed investigative reports would be considered as read if available for at least 24 hours in advance of their consideration. In addition, H.Res. 5 changed the period for filing views on reports from three full days after the day on which the bill or matter was ordered reported to two days. The resolution granted a committee an automatic right to have until an hour after midnight on the second day to file its report, if an intention to file views was announced. The resolution repealed the requirement that committee reports include an inflationary impact statement. Reports, however, must now include a new "constitutional authority statement" that cited the specific powers granted to Congress by the Constitution upon which the proposed measure was based. H.Res. 5 stated that committees must make their publications available in electronic form "to the maximum extent feasible." It also conformed the layover requirements for Budget Committee reports on budget resolutions to those of other committees for legislation they reported. H.Res. 5 in the 107 th Congress repealed the requirement that committee reports include a summary of oversight findings and recommendations by the Committee on Government Reform, but required inclusion of a new statement of general performance goals and objectives, including outcome-related goals and objectives for which the measure authorized funding. (Amended clause 4 of Rule X.) In addition, committees were allowed to file supplemental reports, without additional layovers, to correct errors in the depiction of record votes taken in committee. (Amended clause 3 of Rule XIII.) Appropriations Committee H.Res. 6 in the 104 th Congress required the Appropriations Committee to identify unauthorized appropriations in its committee reports on general appropriations bills, in addition to the existing requirement to list legislative provisions. The Appropriations Committee was also prohibited in H.Res. 6 from including non-emergency provisions in emergency appropriations measures, unless the provisions rescinded budget authority, reduced direct spending, or reduced an amount for a designated emergency. With regard to reports on general appropriations bills, H.Res. 5 in the 107 th Congress required the Appropriations Committee to include additional information on unauthorized appropriations—a statement of the last year for which expenditures were authorized, the level authorized for that year, the actual level of spending for that year, and the level of appropriations in the current bill. (Amended clause 3 of Rule XIII.) Ways and Means Committee H.Res. 5 in the 105 th Congress allowed the majority leader, after consultation with the minority leader, to designate "major tax legislation" on which the report by the Ways and Means Committee could then include a "dynamic estimate"—the macroeconomic feedback emanating from the proposed change in tax policy. The dynamic estimate was to be "used only for informational purposes," not for enforcement or scorekeeping purposes. In the 108 th Congress, H.Res. 5 required the Ways and Means Committee to include in committee reports on measures amending the Internal Revenue Code a "macroeconomic impact analysis" by the Joint Taxation Committee. A macroeconomic impact analysis was defined as an estimate of "changes in economic output, employment, capital stock, and tax revenues expected to result from enactment of the proposal." The joint committee's analysis was also to include a statement of assumptions and data sources. The reporting requirement could be waived if the Joint Taxation Committee certified that such an analysis was not calculable, or the chair of the Ways and Means Committee inserted the analysis in the Congressional Record prior to the measure's consideration by the House. (Amended clause 3 of Rule XIII.) Conference, Motion to Go to H.Res. 5 in the 109 th Congress allowed committees to adopt a rule allowing the committee chair to offer a privileged motion to go to conference whenever the chair deemed it appropriate to do so. Previously, a chair needed prior authorization by his or her committee to make such a privileged motion. (Amended clause 2 of Rule XI.) Hearings Procedures72 (See also " Openness " and " Witnesses " below.) H.Res. 5 in the 105 th Congress authorized committees to adopt a rule or motion to (1) permit selected majority and minority Members, in equal numbers, to take more than five minutes to question witnesses, up to a limit of 30 minutes per side, per witness, and (2) permitted staff to question witnesses if the other side was given equal time and opportunity to do so. A House rule had provided only for five minutes of questioning of witnesses by committee members. H.Res. 5 in the 106 th Congress clarified the rule permitting more than five minutes of time for committee members and staff to question witnesses. An addition to the rule stated that such time must be equally divided between majority and minority. A change to the rule stated that such questioning could not exceed one hour in total. (Amended clause 2 of Rule XI.) In the 107 th Congress, H.Res. 5 struck the word "investigative" from the rule on hearing procedures so that it was clear the procedures referred to all hearings. (Amended clause 2 of Rule XI.) Meetings, Restrictions on H.Res. 6 in the 104 th Congress prohibited committees from sitting while the House was reading a measure for amendment under the five-minute rule without special leave to sit. Special leave would be granted unless 10 or more Members objected to the unanimous consent request, or a privileged motion offered by the majority leader was adopted by the House. The Committees on Appropriations, Budget, Rules, Standards of Official Conduct, and Ways and Means were exempted from the prohibition on sitting. While restrictions on committees meeting while the House was reading a measure for amendment under the five-minute rule had varied, House rules in the immediately preceding 103 rd Congress allowed committees to meet without obtaining permission to do so, except during a joint session or meeting of the House and Senate. The Speaker in addition established the following guidelines regarding requests by committees to meet while the House was proceeding under the five-minute rule: If the request for permission to sit pertained to a day for which the legislative program had not been announced, then unanimous consent was required. Once the legislative program for a day had been announced, then the objections of 10 Members would be required to deny a request. Requests would not be entertained on a day that all votes on legislative matters had been postponed to another day; however, requests for committee hearings to be held later in the week would be accepted by the chair if a request had the concurrence of the ranking minority Member of the committee or subcommittee. On days when legislative business was to be conducted, and when roll-call votes were in order on legislation, the chair would entertain requests during the one-minute period only when assured of the support of the ranking minority Member of the committee or subcommittee involved. If 10 or more Members objected to a request, then that request could not be renewed on the same day unless the chair was assured that the objections had been withdrawn. The chair would not entertain requests after legislative business had concluded. H.Res. 5 in the 105 th Congress allowed all committees to meet at any time the House was in session without first obtaining special leave from the full House. The Speaker's policy, therefore, was also discontinued. Openness (See also " Witnesses " below.) H.Res. 6 in the 104 th Congress prohibited committee meetings from being closed to the public unless the deliberations would endanger national security, compromise sensitive law enforcement information, defame a person, or violate a law or House rule. Meetings previously could have been closed without a stated purpose. The resolution also struck from the House rule committee deliberations over budget and personnel as matters that allowed a committee to close a meeting. The House rule already allowed a meeting to be closed only by a majority vote, a quorum being present. Further, broadcast coverage and still photography was specifically allowed for any hearing or meeting that was open. H.Res. 5 in the 105 th Congress clarified the procedure for closing a hearing, indicating that a hearing would not be closed if a majority of those voting, instead of a majority of committee members, determined that the evidence or testimony would not tend to defame, degrade, or incriminate any person. H.Res. 5 in the 105 th Congress also required committees, to the maximum extent feasible, to make all committee publications available in electronic form. In the 107 th Congress, H.Res. 5 allowed either a member of the committee or a witness at a hearing to assert that evidence or testimony at the hearing may tend to defame, degrade, or incriminate a person. (Amended clause 2 of Rule XI.) Oversight (See also " Committee Reports " and " Openness " above, and " Subpoena " and " Witnesses " below.) H.Res. 6 in the 104 th Congress required all committees to adopt oversight plans—in an open meeting with a quorum present—and to submit them to the House Oversight Committee and the Government Reform and Oversight Committee by February 15 of the first session. The Government Reform and Oversight Committee was required to report the plans back to the House by March 31 with recommendations. The committee was directed to consult majority and minority leadership prior to submitting the committees' oversight plans to the House with its own recommendations for coordination and for ensuring the goals of the rule would be achieved. Previous House rules required committees to conduct oversight, but they were not specific and did not require a plan. In developing their plans, committees were instructed to consult with other committees with jurisdiction over the same or related laws, programs, or agencies. If a committee did not submit an oversight plan, it would not be in order to include its funding in a committee expense resolution. H.Res. 6 also authorized the Speaker, with the approval of the House, to appoint ad hoc oversight committees to review matters within the jurisdiction of two or more standing committees. The change was one of several made in House rules to enhance and coordinate House committee oversight. A House rule previously provided this authority to the Speaker only when the House approved creation of an ad hoc committee with legislative authority or, generally, a select committee. In the 106 th Congress, H.Res. 5 repealed the prohibition against consideration of a committee expense resolution when a committee had not submitted its oversight plan to the House Administration and Government Reform Committees by February 15 of the first session. (Amended clause 2 of Rule X.) H.Res. 5 in the 107 th Congress required committees to include in their oversight plans a review of specific problems with federal rules, regulations, statutes, and court decisions that were ambiguous, arbitrary, or nonsensical, or imposed a severe financial burden on individuals. (Amended clause 2 of Rule X.) H.Res. 5 in the 109 th Congress required committees, in oversight plans provided to the Government Reform Committee and the House Administration Committee, to "have a view toward insuring against duplication of federal programs." (Amended clause 2 of Rule X.) Proxy Voting (See also " Voting " below.) The 104 th Congress, pursuant to H.Res. 6 , prohibited proxy voting in committees and subcommittees. Quorums76 Pursuant to H.Res. 6 , the 104 th Congress eliminated so-called rolling quorums, returning to earlier text of the rule on reporting measures to the House, which required a majority of the committee to be "actually present." Text that allowed the rule to be interpreted to allow a rolling quorum was eliminated. In the 107 th Congress, H.Res. 5 amended the rule on the majority quorum requirement for reporting a measure to comprehend other instances in other rules when a majority quorum was required by House rules: the release of executive session materials, the issuance of subpoenas, and determining if evidence or testimony may defame, degrade, or incriminate any person. (Amended clause 2 or Rule XI.) Recess Authority H.Res. 5 in the 109 th Congress allowed for a privileged motion in committee to recess subject to the call of the chair for a period of less than 24 hours, rather than the existing rule that allowed for a privileged motion only to recess from day to day. (Amended clause 1 of Rule XI.) Referral77 (See also " Committee Creation and Retention " and " Jurisdiction " above.) H.Res. 6 for the 104 th Congress prohibited joint referral, the principal form of referral to more than one committee. The Speaker was instead directed upon introduction of a measure to designate a committee of primary jurisdiction. Split referrals and sequential referrals continued to be allowed, either upon introduction or after the primary committee reported, and the Speaker was still permitted to refer legislation to an ad hoc committee with the approval of the House. In his announced policies for the 104 th Congress, the Speaker deleted text from the Speaker's announcement for the 103 rd Congress, which had stated: "the appointment by the chair of various groups of conferees in the context of the particular House and Senate provisions sent to the conference should not be construed as precedent binding the Speaker to subsequent joint referrals of all bills amending the work product of that particular conference." H.Res. 5 in the 108 th Congress allowed the Speaker to refer measures to more than one committee without a designation of a primary committee under "extraordinary circumstances," providing the Speaker with an alternative to designating a primary committee if he or she believed extraordinary circumstances affecting referral to exist. (Amended clause 2 of Rule XII.) In the 109 th Congress, the Speaker's announced policies included a provision that indicated that referral of measures to the Select Committee on Homeland Security in the 108 th Congress "will not constitute precedent for referrals to the new committee," referring to the newly created standing Committee on Homeland Security. (See also the discussion above at " Committee Creation and Retention " and, under Jurisdiction, " 109 th Congress .") The Speaker's announced policies for the 109 th Congress also addressed the January 30, 2001, "Memorandum of Understanding Between Energy and Commerce Committee and Financial Services Committee," regarding the jurisdictions of the two committees. The Speaker announced that the final two paragraphs dealing with electronic commerce, anti-fraud authorities under securities laws, and the setting of accounting standards by the Financial Accounting Standards Board would no longer provide jurisdictional guidance. Subpoenas H.Res. 5 in the 106 th Congress clarified House rules to include the practice that a subpoena could specify the terms of return to other than at a meeting or hearing of a committee or subcommittee. (Amended clause 2 of Rule XI.) (See also " Quorums " above.) Transcripts The 104 th Congress, pursuant to H.Res. 6 , required hearing and meeting transcripts to be substantially verbatim accounts of the proceedings, with committee members' votes shown on roll-call votes. Voting Pursuant to H.Res. 6 in the 104 th Congress, committee reports were to include the names of committee members voting for or against any amendments in addition to their votes on the motion to report. H.Res. 6 also prohibited proxy voting in committees and subcommittees. H.Res. 5 in for the 108 th Congress permitted committees to adopt a rule that allowed the chair of the committee or subcommittee to postpone votes on approving a measure or matter, or on agreeing to an amendment, and to resume proceedings on a postponed question at any time after reasonable notice. An underlying proposition would remain subject to further debate or amendment to the same extent as when the question was postponed. (Amended clause 2 of Rule XI.) Committees did not previously have specific authority to postpone or cluster votes. Witnesses82 (See also " Hearings Procedures " and " Openness " above.) H.Res. 5 in the 105 th Congress required non-governmental witnesses who appear before a committee to provide with their advance written testimony, to the greatest extent practicable, a curriculum vitae and a disclosure by source of the federal grants and contracts received by them and any entity they represented in the current and preceding two fiscal years. This rule, a new addition to requirements placed on witnesses, has been called the "truth-in-testimony" rule. In the 107 th Congress, H.Res. 5 clarified that a copy of the committee rules and hearing procedures should be made available to witnesses "upon request," and that an assertion that evidence or testimony at a hearing may tend to defame, degrade, or incriminate a person may be made either by a member of the committee or by a witness at a hearing. (Amended clause 2 of Rule XI.) Staff and Funding (See also various entries related to congressional staff and consultants under " Rules Changes Affecting Administration of the House " and " Rules Changes Affecting Ethics Standards ," below.) Allocation of Staff The 104 th Congress, under the provisions of H.Res. 6 , required committee chairs to provide sufficient staff to subcommittees, whose chairs and ranking minority Members would lose independent hiring authority. Committee chairs were also directed to ensure the minority was "fairly treated" in the apportionment of staff. (See also " Number of Staff " below.) Associate Staff In the 104 th Congress, under new provisions of H.Res. 6 , associate or shared staff were excepted from prohibitions on performing work other than committee work, but each chair was required to certify that compensation by a committee was commensurate with the work performed. Explanatory information placed in the Congressional Record indicated that chairs could require certifications from supervising committee members. Conditions of employment for shared staff were subject to regulation by the House Oversight Committee. The Committee on Appropriations was exempted from these new provisions on associate staff. H.Res. 5 in the 108 th Congress stated that the associate or shared staff of the Committee on Appropriations were not subject to review by the Committee on House Administration with respect to the reporting of a committee expense resolution. Such staff were still to be subject to the general restrictions of House Rule X, clause 9. Further, H.Res. 5 clarified that the professional staff of the Appropriations Committee should comply with the same rules regarding their duties as professional staffs of other committees. (Amended clause 9 of Rule X.) Funding84 H.Res. 6 in the 104 th Congress consolidated what were separate salary authorization levels for statutory staff on the one hand and investigative staff and committee expenses on the other into committee salary and expense accounts funded by a single, two-year (rather than annual) committee expense resolution. Authorization of additional spending by any committee could still be obtained only through a supplemental expense resolution. The Budget Committee, which had been exempted from the committee funding process, was brought into the new process. The Appropriations Committee continued to be exempt from this process. The rules resolution also provided committees with interim spending authority consistent with planned reductions, pending adoption of a committee expense resolution. The chair of the House Oversight Committee was authorized to sign vouchers for committees terminated through the rules resolution. A provision of the resolution also stated that, if a committee did not submit an oversight plan, it would not be in order to include its funding in a committee expense resolution. In the 105 th Congress, H.Res. 5 allowed committee primary expense resolutions reported by the House Oversight Committee to include a reserve fund for unanticipated expenses, provided that any allocation from such a fund was approved by the House Oversight Committee. In the 106 th Congress, H.Res. 5 repealed the prohibition against consideration of a committee expense resolution when a committee had not submitted its oversight plan to the House Administration and Government Reform Committees by February 15 of the first session. (Amended clause 2 of Rule X.) Number of Staff Committee staff were to be reduced by at least one-third from the 103 rd Congress level pursuant to H.Res. 6 in the 104 th Congress. Explanatory information inserted in the Congressional Record indicated that this reduction was to be achieved by the House Oversight Committee through the committee funding process. The number of authorized staff for each committee was increased to 30 professional staff from 18 professional staff and 12 clerical staff, with all staff designated professional. The allocation for the minority was set at 10 (rather than 6 professional and 4 clerical), or one-third of professional staff if a committee hired fewer than 30 staff. Rules Changes Affecting the Chamber and Floor While in the minority, Republican complaints included being denied the opportunity to offer amendments to measures because of restrictive rules, an inability to routinely offer a motion to recommit with instructions, the increased volume of commemorative legislation, and a floor schedule that was neither family friendly nor conducive to deliberation. On the opening day of the 104 th Congress, the new majority rules package attempted to address some of these complaints, while renewing procedural rules that allowed them to control the schedule, agenda, and proceedings. Over the next several Congresses, some rules changes agreed to in 1995 were modified or even repealed as the majority party considered the competing demands of deliberation and decision making. In the 108 th Congress, in response to the September 11, 2001, and anthrax terrorist attacks, the majority's rules package addressed a previously unanticipated concern: How could a House with fewer Members conduct business? The following section identifies changes made to operations on the House floor on the opening day of each Congress from the 104 th through the 109 th Congress with adoption of the resolution continuing but amending the rules of the House and establishing special orders, and pursuant to the Speaker's announcements. It is organized topically, with cross references between the different topics and to related changes in other sections of the report. Adjourn, Motion to H.Res. 5 in the 108 th Congress clarified that a Member could move to adjourn during a call of the House (quorum call); allowing the motion had been at the discretion of the Speaker. Admission to the Chamber The Speaker added to his announced policies for the 105 th Congress a policy that he and previous Speakers had stated at various times, but not since 1977 at the beginning of a Congress. The announcement confirmed the concordance of the words of then-Rule XXXII, clause 3, with its understanding by the Speaker and its enforcement by the House. The rule allowed former Members and other former officials access to the House floor unless they (1) had a personal interest in legislation pending before the House or reported from committee, or (2) were employed to lobby on legislation pending before the House, reported from committee, or under consideration by a committee or subcommittee. The announcement reiterated these prohibitions against access by former Members, indicated they applied to former Members whose employer was lobbying legislation, and stated that former Members could be prohibited from the House floor and adjoining rooms. Serving Members were exhorted to report violations by former Members to the sergeant at arms. H.Res. 5 in the 108 th Congress granted designated majority and minority party leadership staff access to the House floor with the approval of the Speaker. (Amended clause 2 of Rule IV.) The change codified what had been practice, but on which the rules had been silent. In addition, in applying Rule 4 ("Hall of the House"), the Speaker in his announced policies for the 108 th Congress expressed his intent to grant approval only to leadership staff essential to floor activities. The Speaker then reiterated policies consistent with provisions of Rule IV limiting floor access to certain committee staff only when a measure reported from their committee was being considered, and allowing floor access for a Member's personal staff only when the Member had an amendment pending. A committee or personal staff member wishing to be present on the floor required the approval of his or her supervisor, which was then subject to the approval of the Speaker. Noting the concurrence of the minority leader regarding this policy, the Speaker directed the sergeant-at-arms to assure enforcement of the rule and the Speaker's policy. The Speaker expanded control over staff floor access in his policies for the 109 th Congress. First, he clarified that individual Members' staff were not entitled to floor access during House consideration of a Member's bill or during a Member's special order speech. Second, he requested that committee chairs and ranking minority Members submit to the Speaker a list of staff to be allowed on the floor during consideration of a measure reported by their committee. He stated that the sergeant at arms would keep these lists, and further stated that committee staff should exchange their IDs for committee staff badges. Amendment Process H.Res. 6 in the 104 th Congress provided for floor amendments to be numbered when submitted for printing in the Congressional Record . This change was intended to make it more convenient to identify such amendments. (See additional changes to the amendment process immediately following under " Appropriations Process .") Appropriations Process90 (See also " Appropriations Committee " under " Committee Reports ;" " Voting " below in this section; and " Rules Changes Affecting Budgetary Legislation " below.) H.Res. 6 in the 104 th Congress permitted Members to offer amendments en bloc to a general appropriations bill if the only effect of the en bloc amendment was to "transfer appropriations among objects without increasing the levels of budget authority or outlays in the bill," a so-called offsetting amendment. The rules change also disallowed any Member from demanding that the question (vote on the offsetting amendment) be divided. The rules change allowed Members to offer amendments to parts of an appropriations bill not yet open for amendment, making in order amendments proposing this type of transfer of funds. H.Res. 6 provided that all points of order against a general appropriations bill be automatically considered as reserved when the bill was reported to the House, obviating the need for a Member to be physically present to reserve them when the report was filed. H.Res. 6 also gave precedence (over a motion to further amend) to a motion that the Committee of the Whole rise and report, when the motion is offered by the majority leader or his designee, after a general appropriation bill has been read for amendment. The majority leader was thereby allowed, if the motion was agreed to, to preclude consideration of limitation amendments. The precedence of the motion existed in prior House rules, but the change restricted the motion's precedence to its being offered by the majority leader. H.Res. 6 also made automatic a roll-call vote on final passage or adoption of any bill, joint resolution, or conference report making general appropriations. While the rule obviated the need to request such a vote, the purpose of the rule change was to ensure that a roll-call vote occurred on passage or adoption of this legislation. A roll-call vote does not occur unless it is requested and seconded, or requested and the absence of a quorum is noted. H.Res. 5 in the 105 th Congress prohibited the Appropriations Committee from reporting a measure, or the House from considering an amendment, making the availability of funds contingent on the receipt or possession of information by the funding authority if that information was not already required by law. This change was directed at so-called made-known provisions and amendments that could be used despite a ban on legislating on appropriations bills. The rules resolution also further tightened the precedence of the majority leader's motion to rise and report over a further motion to amend by clarifying that the majority leader's motion has precedence over any motion to amend, not just over a motion to offer a limitation amendment. In the 108 th Congress, H.Res. 5 defined "tax or tariff provisions" vis-à-vis a general appropriation bill. Under existing House rules, tax and tariff measures could not be reported from a committee not having jurisdiction over such a measure, and an amendment with tax or tariff provisions was not in order to a bill reported by a committee not having jurisdiction. The change dealt with an ambiguity of the rules related to limitation amendments offered to appropriations bills. The 108 th Congress rules change provided that a tax or tariff measure "includes an amendment proposing a limitation on funds in a general appropriation bill for the administration of a tax or tariff." (Amended clause 5 of Rule XXI.) Bill Introductions96 (See also " Commemorative Legislation " below.) In the 104 th Congress, a separate order in H.Res. 6 allowed more than one Member to be listed as an original sponsor on the first 20 bills and first 2 joint resolutions. In the 106 th Congress, a separate order in H.Res. 5 reserved the first 10 bill numbers for assignment by the Speaker until March 1, 1999. In the 107 th Congress, a separate order in H.Res. 5 reserved the first 10 bill numbers for assignment by the Speaker during the first session of the 107 th Congress. A separate order in H.Res. 5 in the 108 th Congress reserved the first 10 bill numbers for assignment by the Speaker during the first session of the 108 th Congress. A separate order in H.Res. 5 in the 109 th Congress reserved the first 10 bill numbers for assignment by the Speaker for the duration of the 109 th Congress. Classified Materials In the 104 th Congress, H.Res. 6 required a nondisclosure oath by any Member, officer, or employee before being granted access to classified information. The new oath was added to the Code of Conduct. In the 107 th Congress, the clerk was directed in H.Res. 5 to publish in the Congressional Record the names of Members who had taken the nondisclosure oath. Commemorative Legislation H.Res. 6 in the 104 th Congress banned the introduction and consideration of commemorative legislation, and required a commemorative measure that a Member sought to introduce to be returned to the Member. "Commemoration" was defined as "any means of remembrance, celebration, or recognition for any purpose through the designation of a specified period of time." Conference98 The Speaker's announced policies for the 104 th Congress deleted a policy statement by the preceding Speaker in the 103 rd Congress. Speaker Thomas Foley had announced that appointment of conferees to reconcile provisions of a specific bill should not be construed as binding on subsequent joint referrals of measures to amend the "work product of that particular conference." The deletion brought the policy into accord with changes to the rule of referral, ending joint referral. (See " Referral " above.) H.Res. 5 in the 109 th Congress allowed committees to adopt a committee rule to grant general authority to the committee chair to make motions on the floor necessary to send a bill to conference whenever the chair deemed it appropriate to do so. Previously, a chair would need prior authorization by his or her committee to make such a privileged motion. (Amended clause 2 of Rule XI.) Motion to Instruct Conferees H.Res. 5 in the 107 th Congress clarified that a motion to instruct conferees was in order after a conference committee had been appointed for 20 calendar days without having filed its report, but only after the Member proposing to make such a motion gave one calendar day's notice of his or her intent to do so. The recodification of the House rules in the 106 th Congress included editorial changes to the rule on the privilege of motions to instruct conferees, but the editorial changes had unintended substantive consequences. The amendment in the 107 th Congress restored the operation of the rule to its pre-106 th Congress state to require one calendar day's notice of a Member's intent to make a motion to instruct conferees and to ensure the understanding that the elements of privilege—time elapsed, no report, and notice—operated together. (Amended clause 7 of Rule XXII.) Further, H.Res. 5 barred motions to instruct conferees and motions to recommit conference reports with instructions from including "argument," that is, statements in support of the motion rather than solely the instruction to the conferees to uphold a certain position in conference with the Senate. (Amended clause 7 of Rule XXII.) H.Res. 5 in the 108 th Congress stated that a motion to instruct conferees was in order after a conference committee had been appointed for 20 calendar days and 10 legislative days without making a report. The rule had previously required only that 20 calendar days must have elapsed. (Amended clause 7 of Rule XXII.) Congressional Record (See also " Decorum " below.) H.Res. 6 in the 104 th Congress required by rule that the House portion of the Congressional Record be a verbatim account of floor proceedings. The resolution also established this rule as a standard of conduct enforceable by action of the Committee on Standards of Official Conduct. Continuity of Congress101 Emergency Recess H.Res. 5 in the 108 th Congress authorized the Speaker, when notified of an imminent threat to the House's safety, to declare an emergency recess subject to a call of the chair. If notified of an "imminent impairment" of the meeting location during a recess of not more than three days, the Speaker, in consultation with the minority leader, could accelerate or postpone the reconvening of the House. The change also allowed the Speaker to convene the House elsewhere in Washington, DC, than the Hall of the House. (Amended clause 12 of Rule I.) Quorums H.Res. 5 in the 108 th Congress amended House rules to prepare for a catastrophic event by authorizing the Speaker to adjust the whole number of the House in the event of a Member's death, resignation, expulsion, disqualification, or removal, and directed the Speaker to announce to the House the adjusted number. (Amended clause 5 of Rule XX.) H.Res. 5 in the 109 th Congress amended this rule to provide for an adjustment as well upon a Member's swearing-in. (Amended clause 5 of Rule XX.) H.Res. 5 in the 109 th Congress more significantly allowed for the House to temporarily conduct business with a provisional quorum in catastrophic circumstances, but only after a motion to compel Members' attendance had been disposed of and the following actions had been taken in the following sequence: (1) a call of the House totaling 72 hours had been taken without producing a quorum; (2) the Speaker and majority and minority leaders received from the sergeant-at-arms a "catastrophic quorum failure report" stating that the House could not establish a quorum due to a catastrophic event; (3) the Speaker announced the content of the report to the House; and (4) a further call of the House of at least 24 hours' duration was conducted and a quorum did not appear. A provisional quorum would be calculated based on the number of Members who responded to the second call of the House. The content of a catastrophic quorum failure report was detailed in the new rule. (Amended clause 5 of Rule XX.) Speaker Succession H.Res. 5 in the 108 th Congress established a new requirement for the Speaker to submit to the clerk of the House a list of Members who would take over the responsibilities of the speakership in the event of a vacancy and pending the election of a new Speaker. (Amended clause 8 of Rule I.) Corrections Calendar H.Res. 5 in the 105 th Congress permitted consideration of Corrections Calendar measures at any time on a corrections day and permitted bills to be called up in any order from the calendar. A rule as adopted during the 104 th Congress had placed consideration of measures on the Corrections Calendar immediately after the Pledge of Allegiance and required bills on it to be called up in the order of their placement on the calendar. H.Res. 5 in the 107 th Congress exempted that measures placed on the Corrections Calendar from having to satisfy the three-day layover requirements applicable to measures generally and Corrections Calendar bills specifically before being eligible for floor consideration. (Amended clause 4 of Rule XIII and clause 6 of Rule XV.) H.Res. 5 in the 109 th Congress repealed the Corrections Calendar after it had experienced a period of disuse. (Deleted clause 6 of Rule XV.) Decorum and Debate Decorum (See also " Admission to the Chamber " and " Congressional Record " above.) The Speaker's announced policies for the 104 th Congress stated that violations of the rule against reference to personality could result in the chair immediately interrupting the Member instead of waiting for the Member to conclude his or her remarks. The Speaker's announced policies also admonished Members that it was not in order to speak disrespectfully of the Speaker and that, under House precedents, violations could be sanctioned even if a challenge was not timely. The Speaker's announced policies for the 106 th Congress referenced a separate policy statement on decorum announced earlier the same day. In light of the pending impeachment proceedings against President Bill Clinton, the Speaker announced that the House rule and precedents against avoiding personality in debate still applied. Only when the House was debating impeachment could Members make remarks that referred to misconduct on the President's part. In this same statement, the Speaker also reminded Members that House precedents did not permit them to characterize Senate action or inaction on a matter or allow them to call for specific action by the Senate. In his announced policies for the 108 th Congress, the Speaker added two items to the list of conduct items that Members should observe: Members should disable wireless phones when entering the chamber, and Members should wear appropriate business attire in the chamber. Debate Under H.Res. 6 in the 104 th Congress, unparliamentary remarks were permitted to be stricken from the record only by unanimous consent or by order of the House. This change was coupled with a new rule stating that the Congressional Record is a verbatim account of remarks in the House, thus clarifying how unparliamentary remarks could still be expunged from the Record . (See " Congressional Record " above.) The Speaker in the 104 th Congress emphasized that time limits on debate would be strictly enforced and that, to facilitate compliance, the chair would give a 10-second warning before a Member's time expired by lightly tapping the Speaker's gavel. The Speaker in the 105 th Congress discontinued the policy introduced in the 104 th Congress, whereby the chair would give a 10-second warning by lightly tapping the gavel before a Member's debate time had expired. H.Res. 5 in the 109 th Congress allowed remarks in debate to include references to the Senate or its Members, although remarks were to be confined to the question under debate and to avoid personality, which would include such matters as personal character or characteristics. The existing rule had allowed references to the Senate in House debate to refer only to matters of public record and factual descriptions involving the Senate, such as Senate committee action on a bill. (Amended clause 1 of Rule XVII.) Electronic Devices H.Res. 6 in the 104 th Congress prohibited use of electronic devices on the House floor. In the 107 th Congress, the Speaker reiterated a policy announced on January 27, 2000, which reminded all Members and staff that the use of any personal electronic office equipment, including cell phones and computers, was prohibited on the floor of the House at any time. The policy requested that cell phone use be done outside the chamber and that audible cell phone rings be silenced. The sergeant-at-arms was instructed to enforce the policy. H.Res. 5 in the 108 th Congress amended House rules banning the use of electronic devices on the floor to forbid only "a wireless telephone or personal computer," thereby allowing handheld electronic devices, such as a BlackBerry® smart phone. (Amended clause 5 of Rule XVII.) The Speaker also revised the language of the Speaker's policies regarding "personal electronic office equipment" to apply to a "wireless telephone or personal computer." Exhibits and Handouts The Speaker in the 105 th Congress instituted a new policy requiring that all handouts distributed on or adjacent to the House floor by Members during House proceedings bear the name of the Member authorizing distribution, in light of a "misuse of handouts on the floor of the House" and a request from the Committee on Standards of Official Conduct. The content of a handout needed to comply with same standards of decorum applicable to debate. Staff were also not permitted to distribute handouts in or near the House chamber. The policy also stated that a failure to adhere to this guidance could give rise to a question of privilege. H.Res. 5 in the 107 th Congress clarified that, whenever there was an objection on the floor to the use of an exhibit, the presiding officer could rule on the objection. The existing rule had implied that the issue must be submitted to the House for a vote. (Amended clause 6 of Rule XVII.) Delegates/Resident Commissioner H.Res. 6 in the 104 th Congress prohibited Delegates and the Resident Commissioner from voting in the Committee of the Whole. As explained above (" 103 rd Congress Rules " and " Republican Critique "), the House in the 103 rd Congress had allowed the Delegates and the Resident Commissioner to vote in the Committee of the Whole, with the possibility of a revote in the House if their votes affected the outcome of a vote. Discharge Petitions H.Res. 6 in the 104 th Congress provided for publication of, and other means of public access to, the names of Members who signed discharge petitions. The language specified how public disclosure of names was to take place, and directed the clerk of the House to identify other means of publicizing signatories. Previously, the names of signatories were made public only after a majority of Members had signed a discharge petition. H.Res. 5 in the 105 th Congress made clear that a discharge petition on a resolution from the Rules Committee could apply only to a resolution making in order the consideration of a single measure (and not multiple measures). The resolution subject of a discharge petition could also make only germane amendments to the named measure in order. District of Columbia Legislation H.Res. 6 in the 104 th Congress made District of Columbia legislation privileged on the second and fourth Mondays of each month when presented by the Committee on Government Reform and Oversight. The change to refer to the Government Reform and Oversight Committee was necessitated by the abolition of the District of Columbia Committee, whose legislation previously enjoyed privileged status on the second and fourth Mondays. (See " 104 th Congress " under " Jurisdiction " above.) Order of Business H.Res. 6 in the 104 th Congress incorporated the Pledge of Allegiance into the daily order of business, following approval of the Journal , codifying practice of the House since 1988. Public Debt Ceiling H.Res. 5 in the 107 th Congress repealed the House rule that provided for the automatic engrossment and transmittal to the Senate of a House joint resolution changing the public-debt ceiling—the so-called Gephardt rule, named for former Representative Richard Gephardt. The automatic engrossment was triggered by House agreement to a concurrent resolution on the budget. The automatic engrossment allowed the House to avoid a separate vote on initial adoption of debt-limit legislation. (Deleted Rule XXIII.) H.Res. 5 in the 108 th Congress reinstated the Gephardt rule. (Added a new Rule XXVII.) Public Works H.Res. 5 in the 106 th Congress eliminated an obsolete point of order related to specific roads in a general roads bill. (Amended clause 3 of Rule XXI.) H.Res. 5 in the 107 th Congress barred consideration of any measure, amendment, or conference report that names a "public work" in honor of a Member, Delegate, Resident Commissioner, or Senator while that person was serving in Congress. This prohibition was a new rule. (Added clause 6 to Rule XXI.) Question of Privileges of the House In the 106 th Congress, H.Res. 5 allowed the notice of the form of a question of privilege (that is, the full text of the resolution) to be waived by unanimous consent. Since a question admitted by the Speaker must be read, the change allowed the House to dispense with the requirement that the proponent read the resolution when noticing the question. (Amended clause 2 of Rule IX.) Recommit, Motion to H.Res. 6 in the 104 th Congress assured the minority the right to offer a motion to recommit, either with or without instructions. A motion with instructions is normally an attempt to immediately amend a measure, although it can be used to instruct a committee to take other actions such as consider an amendment or hold hearings. A motion to recommit without instructions is normally interpreted to be an attempt to kill a measure by sending it back to committee without any instructions on how the committee should proceed. The motion is in order prior to the question on passage. The rules change proscribed the Rules Committee from reporting a special rule preventing the minority leader or a designee from offering a motion to recommit with instructions, specifically listing a motion with amendatory instructions. The availability of the "minority's motion" had changed over many years, and special rules sometimes restricted the ability of the minority to offer a motion to recommit with instructions. Under the rules change, a special rule could disallow a motion to recommit with instructions on consideration of a Senate bill or joint resolution for which the text of a House-passed measure had been substituted. Speaker of the House H.Res. 6 in the 104 th Congress limited service as Speaker to four consecutive Congresses. Service for less than a "full session in any Congress" would not count toward this limit. (See also, above, " Speaker Succession ," under " Continuity of Congress .") H.Res. 6 also authorized the creation of an Office of Legislative Floor Activities in the Office of the Speaker. H.Res. 5 in the 108 th Congress repealed the limit on service of a Speaker. (Deleted clause 9 of Rule I.) Special Order Speeches and Other Non-Legislative Debate120 While the Speaker in his announced policies for the 104 th Congress continued previous Speakers' policies on special order speeches, he implemented some changes. First, Members would not be able to request permission to reserve time for a special order speech more than one week in advance. Second, on Tuesdays, following legislative business, Members could be recognized for special order speeches until midnight, with five-minute special orders preceding longer special orders. Third, on other days, following legislative business and following five-minute special orders, up to four hours would be available for other or longer special order speeches, with two hours available to each party. The leadership of either party could reserve the first hour of its party's time. Fourth, special order speeches on these other days would still not be allowed to continue past midnight. The time for each party's special order speeches would be equally reduced if less than four hours was available before midnight. Fifth, television cameras covering special order speeches would not be allowed to "pan" the chamber. A "crawl" on viewers' screens would indicate that legislative business had ended and the House was proceeding with special order speeches. The Speaker's policy implemented the same restriction on television coverage for morning hour debate as for special order speeches: cameras could not "pan" the chamber and a "crawl" would indicate the House was proceeding in morning hour. In the 105 th Congress, the Speaker amended the policy applicable to special order speeches to require the leadership of each party to submit a list to the chair showing the allocation of time within each party's two-hour time period. Special Rules (See also Recommit, Motion to, above.) H.Res. 6 in the 104 th Congress required special rules to the extent possible to identify the specific House rules being waived in a special rule. Suspension of the Rules H.Res. 5 in the 108 th Congress included a standing order allowing consideration of measures under suspension of the rules on Wednesdays through the second Wednesday in April (April 9, 2003). Under House rules, motions to suspend the rules had been in order only on Mondays and Tuesdays and the last six days of a session. H.Res. 5 in the 109 th Congress allowed the Speaker to entertain motions to suspend the rules on Wednesdays, in addition to Mondays and Tuesdays and the last six days of a session. (Amended clause 1 of Rule XV.) Tax Legislation H.Res. 6 in the 104 th Congress required a three-fifths vote (of the Members voting, a quorum being present) to pass a bill or joint resolution or agree to an amendment or conference report "carrying a Federal income tax rate increase." The resolution further disallowed the House from considering bills, joint resolutions, amendments, and conference reports containing a "retroactive Federal income tax rate increase." "Retroactivity" was defined as making the tax rate increase apply to a period "beginning prior to the enactment of the provision." (See also " Voting .") In the 105 th Congress, H.Res. 5 sought to clarify the definition of "Federal income tax rate increase" by limiting the relevant rules' effect to specified provisions of the Internal Revenue Code. The changes were meant to clarify that the requirement of a three-fifths vote to approve an income tax rate increase did not apply to provisions that merely increased revenues or effective tax rates. In the 108 th Congress, H.Res. 5 defined "tax or tariff provisions" vis-à-vis a general appropriation bill. Under existing House rules, tax and tariff measures could not be reported from a committee not having jurisdiction over such a measure, and an amendment with tax or tariff provisions was not in order to a bill reported by a committee not having jurisdiction. The change dealt with an ambiguity of the rules related to limitation amendments offered to appropriations bills. The 108 th Congress rules change provided that a tax or tariff measure "includes an amendment proposing a limitation on funds in a general appropriation bill for the administration of a tax or tariff." (Amended clause 5 of Rule XXI.) Unanimous Consent In his policies for the 105 th Congress, the Speaker reiterated previous Speaker's policies on recognition for unanimous consent requests for the consideration of bills and resolutions, but he clarified that this policy encompassed the wider instances of precedents listed in the parliamentarian's notes to Rule XIV, which at that time addressed decorum and debate. Unfunded Mandates H.Res. 5 in the 105 th Congress clarified the opportunity to offer a motion to strike an unfunded mandate provision from a bill (unless the motion was disallowed pursuant to a special rule). The clarification was that the motion was solely for unfunded intergovernmental mandates, not for private sector mandates. Voting129 H.Res. 6 in the 104 th Congress required a roll-call vote on final passage or adoption of any bill, joint resolution, or conference report making general appropriations or increasing federal income tax rates, and on final approval of any concurrent budget resolution or the conference report on a budget resolution. The rules resolution also authorized the Speaker to reduce to five minutes the time for voting on questions after a vote had been ordered on the motion for the previous question. The rule had previously allowed five-minute voting only after the motion for the previous question was ordered on a special rule. (Additional changes to the duration of voting are described immediately below with " Postponed Votes .") Regarding the conduct of votes by electronic device, the Speaker reiterated a policy in the 104 th Congress that Members would be granted at least 15 minutes to answer an ordinary roll call or quorum call. The Speaker, however, added a new statement to the policy: that the chair would have the full support of the Speaker in attempting to close a vote at the "earliest opportunity." The Speaker also indicated that Members should not rely on "signals relayed from outside the chamber" to assume that a vote would be held open until a Member arrived. H.Res. 5 in the 106 th Congress abolished the practice of pairing, other than live pairs. Pairing was a procedural mechanism for absent Members to show their position on a vote and indicate that their absence would not have affected the vote's outcome. A live pair, however, is a courtesy extended by a Member who is present for a vote to a Member who is absent for that vote. The Member present votes, announces he or she has a live pair with the absent Member, and withdraws his or her vote. The rules change preserved live pairs, but seemingly only when the House votes by a call of the roll. Members who are absent for a vote may insert a statement of their position in the Congressional Record . (Deleted clause 8 of Rule XX and amended clause 3 of Rule XX.) Postponed Votes H.Res. 6 in the 104 th Congress expanded the authority of the Speaker to postpone votes to include the motion for the previous question on a question that itself was susceptible to postponement. H.Res. 5 in the 105 th Congress extended the Speaker's authority to postpone votes to any manager's amendment and motion to recommit (or any previous question thereon) considered under the Corrections Day process. H.Res. 5 in the 106 th Congress added an original motion to instruct conferees to the list of votes that the Speaker could postpone. (Amended clause 8 of Rule XX.) The resolution also added to the Speaker's authority to reduce voting time to 5 minutes on all postponed questions and all questions incidental to these questions so long as the first vote in a series was a 15-minute vote. (Amended clause 10 of Rule XX.) H.Res. 5 in the 107 th Congress permitted the chair of the Committee of the Whole to postpone record votes on amendments, allowing at least 15 minutes for the first vote and reducing subsequent votes to not less than 5 minutes. (Amended clause 6 of Rule XVIII.) H.Res. 5 in the 108 th Congress clarified House rules allowing the Speaker to reduce the minimum time allowed for voting on a second or subsequent electronic vote to five minutes, provided the Speaker gave notice and no business had taken place between votes. (Amended clause 9 of Rule XX.) Another change provided the Speaker with flexibility by eliminating the requirement that postponed votes be taken in the order in which propositions were considered. (Amended clause 8 of Rule XX.) H.Res. 5 in the 109 th Congress added the motion to reconsider, tabling of motions to reconsider, and amendments reported from the Committee of the Whole among those votes the Speaker might postpone within two additional legislative days. (Amended clause 8 of Rule XX.) Rules Changes Affecting Budgetary Legislation This section of the report explains or lists rules and separate orders related to budgetary legislation that were included in each House's rules resolution in the 104 th through the 109 th Congresses. Other sources of change to the consideration of budgetary legislation, such as the annual concurrent resolution on the budget that is often a source of permanent or temporary changes in the budget process, have not been analyzed. Other process changes may be included in appropriations acts and other freestanding legislation; those changes are not discussed in this report. 104th Congress Two of the eight goals of the institutional reforms of the Contract with America dealt with budgetary legislation: a three-fifths vote "to pass a tax increase" and an "honest accounting of our Federal Budget by implementing zero baseline budgeting." These goals were refined for implementation as changes to House rules. Changes related to budgetary legislation also appear in " Rules Changes Affecting Committees ," including Members were permitted to serve four Congresses out of six consecutive Congresses on the Budget Committee, with existing exceptions continuing for majority and minority leadership representatives and, under certain circumstances, for chairs and ranking minority Members. (See " Budget Committee " under " Assignments and Size .") The Budget Committee was given jurisdiction over "Measures relating to the congressional budget process, generally" and over "Measures relating to the establishment, extension, and enforcement of special controls over the Federal budget, including the budgetary treatment of off-budget Federal agencies and measures providing exemption from reduction under any order issued under part C of the Balanced Budget and Emergency Deficit Control Act of 1985." (See " 104th Congress " under " Jurisdiction .") A "truth-in-budgeting baseline reform" provision required a comparison (when practicable) of total funding in legislation to the "appropriate levels under current law." The purported effect of this rules change was to require that the entire amount of authorizations, appropriations, and entitlement spending be shown in cost estimates, not solely in increments of change. The "truth" aspect was intended to get at a criticism of baseline budgeting that allowed spending increases above a current year's level, but below baseline levels, to be characterized as spending cuts. (See " Committee Reports .") The Appropriations Committee was prohibited in H.Res. 6 from including non-emergency provisions in emergency appropriations measures, unless the provisions rescinded budget authority, reduced direct spending, or reduced an amount for a designated emergency. (See " Appropriations Committee " under " Committee Reports .") The Appropriations Committee was also required to identify unauthorized appropriations in its reports on general appropriations bills. (See " Appropriations Committee " under " Committee Reports .") Changes related to budgetary legislation also appear in " Rules Changes Affecting the Chamber and Floor ," including A three-fifths vote was required to pass legislation containing a federal income tax rate increase. (See " Tax Legislation .") The House prohibited consideration of legislation containing a retroactive federal income tax rate increase, defined as the application of a tax rate increase to a period "beginning prior to the enactment of the provision." (See " Tax Legislation .") An automatic roll-call vote was required on final passage of (or adoption of the conference report on) any budget resolution or any measure making general appropriations or increasing federal income tax rates. (See " Voting .") A motion to rise and report during consideration of a general appropriations bill has precedence over motions to further amend the bill only if offered by the majority leader or a designee. (See " Appropriations Process .") A Member could offer en bloc offsetting amendments, to "transfer appropriations among objects without increasing the levels of budget authority or outlays in the bill." (See " Appropriations Process .") Whenever an appropriations bill is reported, all points of order against it are automatically reserved. (See " Appropriations Process .") Since H.Res. 6 also eliminated committees and changed the jurisdictions of committees, a provision of H.Res. 6 provided for the revision of spending allocations made under the budget resolution for FY1995. 105th Congress Changes made by H.Res. 5 in the 105 th Congress affecting budgetary legislation were described earlier as part of changes affecting committees and the House floor. Those changes discussed in the section " Rules Changes Affecting Committees " were The majority leader was allowed, after consultation with the minority leader, to designate "major tax legislation," on which the report by the Ways and Means Committee could then include a "dynamic estimate"—the macroeconomic feedback emanating from the proposed change in tax policy. (See " Ways and Means Committee ," under " Committee Reports .") The jurisdictions of the Budget and Government Reform and Oversight Committees were revised. The Budget Committee was given oversight over the "budget process" rather that over solely the "congressional budget process." The Government Reform Committee was given jurisdiction over "government management and accounting measures, generally" rather than "budget and accounting measures, generally." (See " Jurisdiction .") The layover requirements for Budget Committee reports on budget resolutions were conformed to those of other committees for other legislation. (See " Committee Reports .") Those changes discussed in the section " Rules Changes Affecting the Chamber and Floor " were The definition of "Federal income tax rate increase" was limited to rate increases affecting only specified provisions of the Internal Revenue Code. The changes were meant to clarify that the requirement of a three-fifths vote to approve an income tax rate increase did not apply to provisions that merely increased revenues or effective tax rates. (See " Tax Legislation .") The Appropriations Committee was prohibited from reporting a measure, or the House from considering an amendment, that made the availability of funds contingent on the receipt or possession of information by the funding authority if that information was not already required by law, so-called made-known provisions and amendments. This kind of amendment had been used to legislate on appropriations bills, contrary to other House rules. (See " Appropriations Process .") The precedence of the majority leader's motion to rise and report over any Member's further motion to amend was enhanced. The change clarified that the precedence applied not just to Members' limitation amendments but to any amendment. (See " Appropriations Process .") The opportunity to offer a motion to strike an unfunded mandate provision from a bill (unless the motion was disallowed pursuant to a special rule) was clarified. The clarification was that the motion was solely for unfunded intergovernmental mandates, not for private sector mandates. (See " Unfunded Mandates .") 106th Congress In the absence of a concurrent resolution agreed to by Congress on the budget for FY1999, a separate order included in the rules package authorized the chair of the Budget Committee to publish budget allocations under Section 302(a) of the Congressional Budget Act in the Congressional Record, and stated that "those budget levels shall be effective in the House as though established by passage" of a budget resolution. Two technical changes were also included in separate orders. First, service limits on the Budget Committee were waived for the 106 th Congress (see " Budget Committee " above, under " Assignments and Size "). Second, when a bill or joint resolution was considered pursuant to a special rule, a point of order under Section 303 of the Congressional Budget Act (generally, first requiring adoption of a concurrent resolution on the budget before consideration of legislation with budgetary impact) would lie against text made in order as original text for the purpose of amendment or against text on which the previous question was ordered directly to passage, not just against the text of the measure named in the special rule. Several minor, technical changes conformed House rules to the Budget Enforcement Act of 1997. (Clauses 1, 2, and 4 of Rule X.) 107th Congress The rules mechanism providing for automatic engrossment and transmittal to the Senate of a joint resolution to increase the debt limit, known as the Gephardt rule after former Representative Richard Gephardt, was repealed. (Struck Rule XXIII, and made conforming changes in other rules.) (See " Public Debt Ceiling " above.) As described in the section " Rules Changes Affecting Committees ," rules changes required the Appropriations Committee to include in reports on general appropriations bills additional information on unauthorized appropriations—a statement of the last year for which expenditures were authorized, the level authorized for that year, the actual level of spending for that year, and the level of appropriations in the current bill. (See " Appropriations Committee " under " Committee Reports .") A separate order related to a point of order under Section 303 of the Congressional Budget Act was repeated (see " 106 th Congress ," immediately above). Two additional technical changes were included in separate orders. First, the word "resolution" in Section 306 of the Congressional Budget Act was interpreted to mean "joint resolution," and not a simple or concurrent resolution. Second, the separate order stated that a provision of or amendment to legislation prospectively establishing compensation for a federal office, to be appropriated annually, does not create entitlement authority under the Congressional Budget Act. 108th Congress143 In the absence of a concurrent resolution agreed to by Congress on the budget for FY2003, a separate order in H.Res. 5 established the provisions of H.Con.Res. 353 (107 th Congress) as having effect in the 108 th Congress until congressional agreement to a FY2004 budget resolution. The chair of the Budget Committee was also directed to submit allocations under Section 302(a) of the Congressional Budget Act, "Accounts Identified for Advance Appropriations," and an estimated unified surplus for printing in the Congressional Record . A separate order related to a point of order under Section 303 of the Congressional Budget Act was repeated (see " 106 th Congress " immediately above). Two additional separate orders were also repeated: The word "resolution" in Section 306 of the Congressional Budget Act was interpreted to mean "joint resolution," and a provision of or amendment to legislation prospectively establishing compensation for a federal office, to be appropriated annually, was not to be considered to be entitlement authority under the Congressional Budget Act. (See " 107 th Congress " immediately above.) Three provisions were described earlier in the section " Rules Changes Affecting Committees ": H.Res. 5 required the Ways and Means Committee to include in committee reports on measures amending the Internal Revenue Code a "macroeconomic impact analysis," also known as "dynamic scoring," by the Joint Taxation Committee. A macroeconomic impact analysis was defined as an estimate of "changes in economic output, employment, capital stock, and tax revenues expected to result from enactment of the proposal." The joint committee's analysis was also to include a statement of assumptions and data sources. The reporting requirement could be waived if the Joint Taxation Committee certified that such analysis was not calculable, or the chair of the Ways and Means Committee inserted an analysis in the Congressional Record prior to the measure's consideration by the House. (See " Ways and Means Committee " under " Committee Reports .") Two provisions of H.Res. 5 affected the Budget Committee's makeup. The membership of the Budget Committee was changed to include one member of the Committee on Rules, codifying action taken in the Republican Conference's early organization meetings. (See " Budget Committee " under " Assignments and Size .") In addition, the term limit for service as chair or ranking minority Member of the Budget Committee was codified to six years, equal to the term limitation for other standing committee chairs. (See " Chairmanships/Term Limitations .") Two rules changes were discussed earlier in the section " Rules Changes Affecting the Chamber and Floor ": H.Res. 5 reinstated the Gephardt rule. (Added as new Rule XXVII.) (See " Public Debt Ceiling .") H.Res. 5 also defined "tax or tariff provisions" vis-à-vis a general appropriation bill. Tax and tariff measures may not be reported from a committee not having jurisdiction over such a measure, and an amendment with tax or tariff provisions was not in order to a bill reported by a committee not having jurisdiction. The rules change provided that a tax or tariff measure "includes an amendment proposing a limitation on funds in a general appropriation bill for the administration of a tax or tariff." (Amended clause 5 of Rule XXI.) (See " Tax Legislation .") 109th Congress146 In the absence of a concurrent resolution on the budget for FY2004 agreed to by Congress, a separate order in H.Res. 5 established the provisions of S.Con.Res. 95 (108 th Congress) as having effect in the 109 th Congress until congressional agreement to a FY2005 budget resolution. The separate order related to a point of order under Section 303 of the Congressional Budget Act was repeated (see " 106 th Congress ," just above). Two additional separate orders were also repeated: The word "resolution" in Section 306 of the Congressional Budget Act was interpreted to mean "joint resolution," and a provision of or amendment to legislation prospectively establishing compensation for a federal office, to be appropriated annually, was not to be considered to be entitlement authority under the Congressional Budget Act. (See " 107 th Congress ," just above.) As described above in the section " Rules Changes Affecting Committees ," H.Res. 5 contained a provision that one member of the majority party and one member of the minority party were to be "designated" by the respective elected leaderships as members of the Budget Committee. The rule that was amended had previously required the members to be "from" the elected leaderships. (See " Budget Committee " under " Assignments and Size .") Rules Changes Affecting Administrationof the House Rules changes beginning in the 104 th Congress affected the structure of the House's administration and the relationships within it. Some offices were abolished, while others were created. Responsibilities were shifted, and accountability was increased. Modern practices, such as financial audits, were put in place, and traditional practices, such as requirements for distribution of printed materials, were reformed in light of changed conditions, such as the proliferation of versatile desktop information technology. Changes to the administration of the House have also been implemented in all Congresses since the 104 th Congress through other legislation, not covered here, including the annual legislative branch appropriations bills, and freestanding legislation, such as the House Administrative Reform Technical Corrections Act. Many changes in the administration of the House were taken at the initiative of the House leadership, the House Administration Committee or House Oversight Committee, the House Appropriations Committee, House officials, the House and Senate together, or legislative branch agencies. For example, in 1994, neither THOMAS nor the Legislative Information System existed, and the use of information technology was not ubiquitous in the House. The World Wide Web was in its infancy, and use of e-mail was still somewhat novel. The BlackBerry® personal digital assistant was first introduced in 1999. The commitment to using information technology in the House was not generally effected through changes to House rules or specific provisions in legislation, but through initiatives exercised in various fora, including committee reports on legislation, joint explanatory statements accompanying conference reports, and actions of the House Administration Committee not requiring House consideration. Again, this report analyzes the rules, special orders, and Speaker's announcements at the convening of a Congress and not all of the actions taken during a Congress. 104th Congress Some of the most wide-ranging changes implemented with the convening of the 104 th Congress affected the administration of the House. (See also, above, " Staff and Funding ," under " Rules Changes Affecting Committees .") House Officers In adopting its rules, the House abolished the position of the director of non-legislative and financial services and created the chief administrative officer, who would be elected by the House. The chief administrative officer (CAO) took over the duties of the abolished position and other duties as assigned by the Speaker or House Oversight Committee (formerly the House Administration Committee), and was made subject to the policy direction and oversight of the Speaker and House Oversight Committee. The rules resolution also abolished the Office of the Doorkeeper, and folded the doorkeeper's duties into the Office of the Sergeant at Arms. The rules resolution strengthened the accountability of House officers to the House Oversight Committee. All House officers were required to report semiannually to the committee with financial statements and an explanation of their office's operations, implementation of new policies and procedures, and future plans. In addition, officers were required to provide, within 45 days of the close of each semiannual period ending on June 30 or December 31, a report of the financial and operational status of each function under their jurisdictions. They were also instructed to cooperate with reviews and audits of financial records and administrative operations. The House inspector general was directed to conduct during the 104 th Congress, in consultation with the Speaker and the Committee on House Oversight, a "comprehensive audit of House financial records and administrative operations," and was authorized to contract with independent auditing firms to conduct the audit. The audit was to be reported, in accordance with then-House Rule VI, to the Speaker, the majority leader, the minority leader, and the chairman and ranking minority Member of the Committee on House Oversight. The inspector general's authority was broadened to cover audits of the financial and administrative functions of the House and joint entities, not just those under the former director of non-legislative and financial services. The inspector general was also required to report to the Standards of Official Conduct Committee any violations of House rules or laws by Members, officers, or employees of the House committed in the performance of their official duties. Other Administrative Changes With the abolition by the rules of the Post Office and Civil Service Committee, that committee's jurisdiction over franking and congressional mail regulations was transferred to the House Oversight Committee (see " 104 th Congress " under " Jurisdiction " above). The House Oversight Committee's Subcommittee on Administrative Oversight, created in the 102 nd Congress, was also abolished. Legislative service organizations (LSOs) were prohibited, and the House Oversight Committee was authorized to "take such steps as are necessary to ensure an orderly termination and accounting for funds" of LSOs then in existence. The rules package consolidated separate authorizations for statutory and investigative staff and for committee expenses into committee salary and expense accounts funded by a single, two-year (rather than annual) committee expense resolution. A new entity was created—an Office of Legislative Floor Activities in the Office of the Speaker—to assist the Speaker in his or her management of legislative activity on the House floor. The rules package also contained a special rule making in order the consideration of the Congressional Accountability Act ( H.R. 1 ), and setting the terms of its debate and amendment. The Congressional Accountability Act—applying 11 labor and antidiscrimination laws to Congress and the legislative branch and establishing the Office of Compliance as an independent entity within the legislative branch—became the first enactment of the 104 th Congress. 105th Congress The Speaker, in consultation with the minority leader, was directed to develop "through an appropriate entity of the House" a system of drug testing that could provide for testing of Members, officers, or employees. The chief administrative officer was made subject to the policy direction and oversight of only the House Oversight Committee. The Speaker was no longer also designated in the rule. The House authorized the inclusion of a committee reserve fund for unanticipated expenses in a primary expense resolution, to be allocated on the approval of the House Oversight Committee. The chair and ranking minority Member of the House Oversight Committee must jointly approve the amount of a proposed settlement between an employee complainant under the Congressional Accountability Act and the employing House office. Rule LI, Employment Practices, was repealed as obsolete, having been superseded by the Congressional Accountability Act. 106th Congress Three largely technical changes to the House rules were made in the 106 th Congress. First, a clarification was made that the Speaker appoints and sets the annual rate of pay for employees of the Office of the Historian. (Amended clause 7 of Rule II.) Second, the requirement that a House employee must perform duties commensurate with his or her compensation "in the offices of the employing authority" was amended to conform with federal statutes allowing telecommuting. (Amended clause 8 of Rule XXIV.) Finally, to conform the rules with changes in House officials' duties made earlier, "chief administrative officer" was substituted for "clerk" as the entity responsible for disbursing pay. (Amended clause 1 of Rule XXIV.) As noted earlier, the House Oversight Committee's previous name was restored: House Administration Committee. 107th Congress The House Administration Committee's responsibilities to examine House-passed bills, joint resolutions, and amendments and enrolled bills and joint resolutions were transferred to the clerk of the House. In cooperation with the Senate, the clerk examines bills and joint resolutions passed by both houses to ensure their correct enrollment, and presents enrolled bills and joint resolutions originated in the House to the President, after obtaining the signatures of the Speaker and the President of the Senate. The clerk then reports to the House the fact and date of a measure's presentment. (Amended clause 2 of Rule II and clause 4 of Rule X.) The clerk was also authorized to distribute certain documents and other materials in nonprint forms. References to "print ... ," "binding," and "mail" were struck from the rule listing the documents. (Amended clause 2 of Rule II.) The clerk, sergeant at arms, and chief administrative officer were made subject to the oversight of the House Administration Committee. In addition, only the inspector general is subject to the committee's policy direction. (Amended clause 4 or Rule X and clause 4 of Rule II.) Rules addressing responses to the legal process were clarified to indicate that they applied to both judicial and administrative subpoenas and to judicial orders. (Amended Rule VIII.) Rules Changes Affecting Ethics Standards With regard to ethics standards, the rules packages before the House at the beginning of each Congress since the 104 th Congress largely dealt with technical matters. Substantive changes were achieved at other times through House resolutions and new laws—many of them consequential and far-reaching—and through the parties' revisions of their own rules. The House Committee on Standards of Official Conduct also regularly issues advisory memoranda and provides other assistance interpreting the ethical standards applicable to Members, officers, and employees of the House. The ethics changes made in the rules package at the beginning of the 109 th Congress, however, proved controversial, and the House rescinded those changes and reinstated the text of the ethics rules from the 108 th Congress within four months. A dispute between the majority and minority over committee rules and staffing also delayed the organization of the Standards of Official Conduct Committee in the 109 th Congress. Again, this report analyzes the rules, special orders, and Speaker's announcements at the convening of a Congress and not all of the actions taken during a Congress. (For changes affecting the structure of the Ethics Committee, see " Structure and Organization " under " Rules Changes Affecting Committees .") 104th Congress Democrats sought to commit a special rule ( H.Res. 5 ) making in order the consideration of the Republican rules package ( H.Res. 6 ) and setting the terms of its consideration. The motion to commit H.Res. 5 contained instructions to report the resolution back forthwith with the addition of a new section to H.Res. 6 relating to a ban on gifts from lobbyists and limitations on Members' royalty income. The motion was defeated. At the conclusion of consideration of H.Res. 6 , Democrats then sought to commit H.Res. 6 to a select committee, with instructions to report the resolution back forthwith with the addition of new sections relating to a ban on gifts from lobbyists, limitations on Members' royalty income, and changes to several provisions of H.Res. 6 . The motion was defeated. The House later in the 104 th Congress, on November 16, 1995, agreed to H.Res. 250 prohibiting gifts to Members, officers or employees, except as provided for in the new rule created by the resolution. The House on December 22, 1995, agreed to H.Res. 299 , regulating Members' book contracts, royalties, and advances. 105th Congress A rules change in the 105 th Congress and an item included in the Speaker's announcements further regulated activities in the House chamber and in the rooms adjacent to the chamber. Under the rules change, Members, officers, employees, and others, such as former Members, entitled to admission to the House chamber or an adjoining room were proscribed from "knowingly" distributing a campaign contribution. The Speaker added to his announced policies for the 105 th Congress a policy that he and previous Speakers had stated at various times, but not since 1977 at the beginning of a Congress. The announcement confirmed the concordance of the words of then-Rule XXXII, clause 3, with its understanding by the Speaker and its enforcement by the House. The rule allowed former Members and other former officials access to the House floor unless they (1) had a personal interest in legislation pending before the House or reported from committee, or (2) were employed to lobby on legislation pending before the House, reported from committee, or under consideration by a committee or subcommittee. The announcement reiterated these prohibitions against access by former Members, indicated they applied to former Members whose employer was lobbying legislation, and stated that former Members could be prohibited from the House floor and adjoining rooms. Serving Members were exhorted to report violations by former Members to the sergeant at arms. A rules change created a Select Committee on Ethics to exist until January 21, 1997. Its members would be the members of the Standards of Official Conduct Committee who served in the 104 th Congress. The select committee was to complete the work of the Standards of Official Conduct Committee in the 104 th Congress and make any recommendations to the House on a statement from an investigative related to the official conduct of Speaker Newt Gingrich. 106th Congress A change included in the 106 th Congress rules package allowed lower-paid House employees to receive honoraria for activities not related to their official duties. (Amended clause 2 of Rule XXVI.) Another change applied provisions of the Code of Official Conduct to consultants. (Amended clause 14 of former Rule XXIV.) Procedures of the Standards of Official Conduct Committee included in H.Res. 168 were included in a separate order. The rules package also contained a special rule making in order the consideration of a resolution to amend recodified Rule XXVI, clause 5, the House gift rule. Subsequently, the House agreed to H.Res. 9 allowing the acceptance of a gift of less than $50 in value and of gifts from one source that were cumulatively valued at less than $100. A gift of less than $10 value would not count toward the $100 limit. 107th Congress The 107 th Congress House changed the Code of Official Conduct rule pertinent to the House's employment of spouses, strengthening or clarifying the meaning of 5 U.S.C. Section 3110 in relation to personal office and committee employment. Unless a spouse was being paid before the 107 th Congress, a Member could not employ his or her spouse in a paid position, and a committee employee could not be compensated if his or her spouse was a member of that committee. (Amended clause 8 of Rule XXIII.) The rules changes also contained technical corrections to the meaning of various terms, such as "officer," in the gift rule to ensure the rule covered all House employees. H.Res. 5 provided that consultants could not lobby the contracting committee or the members or staff of the contracting committee on any matter; lobbying other members or staff on matters outside the jurisdiction of the contracting committee was allowed. (Amended clause 14 of Rule XXIII.) The operating procedures of the Standards of Official Conduct Committee included in H.Res. 168 were again included in a separate order of the House. 108th Congress The rules changes for the 108 th Congress removed a prohibition related to outside earned income, affected accounting for the value of gifts of perishable food to a congressional office, and allowed reimbursement for transportation and lodging to attend a charitable event in certain circumstances. The practice of medicine was exempted from the restriction on professional services involving a fiduciary relationship. A Member, therefore, was allowed to earn outside income, including from the practice of medicine, of up to 15% of his or her congressional pay. (Amended clause 2 of Rule XXV.) The value of a gift of perishable food was to be allocated among the individual recipients of an office rather solely to the Member whose office received the gift. (Amended clause 5 of Rule XXV.) The prohibition on accepting reimbursement for transportation and lodging to attend a charitable event was waived if five conditions were met: the offer of free attendance was made by the charity benefitting from the event, the reimbursement was paid by that charity, the charity is a 501(c)(3) organization under the Internal Revenue Code, all net proceeds of the event are for the benefit of the charity, and the net proceeds are exempt from taxation under Section 501(a) of the Internal Revenue Code. Amended clause 5 of Rule XXV.) The rules changes also incorporated into the rules the procedures for the Standards of Official Conduct Committee that were part of H.Res. 168 agreed to in the 105 th Congress and that had existed as a separate order of the House in the 106 th and 107 th Congresses. (Added to clause 3 of Rule XI.) 109th Congress Some planned changes to House ethics procedures and standards were deleted from the rules package placed before the House shortly before House consideration. Other changes, however, were retained in H.Res. 5 . One change required a Member named in a complaint, or a Member whose official conduct was referenced in certain communications to or from the committee, to be notified before specified actions by the Standards of Official Conduct Committee. Once notified, the Member would then be able to submit written views or to request the creation of an adjudicatory subcommittee. A second change provided for the dismissal of a complaint after 45 days if an affirmative decision to establish an investigative subcommittee had not been made. A third change allowed a Member to have the same attorney as another Member or witness in an investigation. (Amended clause 3 of Rule XI.) Although Members are prohibited from maintaining unofficial congressional office accounts or using campaign funds to pay for office expenses such as information technology services, an earlier change in law allowed Members to use certain campaign funds for "handheld communications devices," such as BlackBerry® devices and cell phones. The rules change conformed the House rule (Rule XXIV, clause 1) to existing law, including the use of campaign funds for handheld communications devices (2 U.S.C. §59e(d)). Another rules change also conformed House rules to federal law (39 U.S.C. §3210) by proscribing a Member who is a candidate in a primary or general election from sending a franked mass mailing less than 90 days before the election. The rule previously contained a 60-day limit. (Amended clause 8 of Rule XXIV.) Another rules change permitted family members other than a spouse or child to accompany a Member on privately funded, official travel. (Amended clause 5 of Rule XXV.) Concluding Observations As stated earlier in this report, the House rules changes made in the 104 th Congress, and since, including changes affecting the organization of committees and the administration of the House, reflected a Republican frame of reference that was built over many years as the minority party. Republican criticisms of changes in the House made at the direction of the Democratic Caucus beginning after the 1974 election and continuing through the 103 rd Congress, the ideas of the Conservative Opportunity Society in the 1980s, the Republican '92 Group, the Republican rules package of the 103 rd Congress, the recommendations of the bipartisan Joint Committee on the Organization of Congress, the Contract with America, and other sources came together in the rules package the Republicans put before the House in the 104 th Congress. The Republican majority continued to draw on these antecedents in rules packages for subsequent Congresses. The extensive changes of the 104 th Congress were followed by incremental changes in the 105 th , 106 th , and 107 th Congresses. At the same time, a number of rules did not change, either at all or substantially. The great bulk of House rules was continued from Congress to Congress since the rules had been built up over decades to support the majority in its organization and operation of the House. After control of four Congresses, however, a confluence of events caused the Republicans to revisit the rules and some of the changes they had made. With the events of 9/11 and the anthrax attacks on Capitol Hill, publication of the 9/11 Commission report, the return of the federal budget deficit, a Republican President in the White House and Republican control of both houses of Congress, and a widening of Republican margins in the House and Senate, House Republicans made more extensive changes in House rules in the 108 th and 109 th Congresses and adapted to changed conditions. The Republican majority adjusted to the end of the first round of committee chair term limits, discontinued the Speaker's term limit, accommodated demands for additional subcommittees, created a Homeland Security Committee and altered other committees' jurisdictions vis-à-vis homeland security, realigned Appropriations Committee subcommittees to handle homeland security spending and then reorganized the subcommittees to better accommodate Republican spending priorities, implemented new analyses of tax legislation, grappled with the possibility of a terrorist attack that could kill or disable many Representatives, and picked their way through ethical breaches by both Democratic and Republican Members. Through actions intended to open up Congress, and especially the House—including the advent of THOMAS, putting documents online at committee and other websites, and "webcasting"—Congress allowed more citizens to know more, and to know more quickly, about Congress, and, concomitantly and unavoidably, readily gave lobbyists and political activists more knowledge and insight into Congress and policymaking. Committee and floor actions were increasingly accompanied by intense lobbying, grassroots communications, public relations, and coverage 24/7 by an array of traditional and new news and opinion outlets in a variety of media. Most Members also felt compelled to be in their districts three or four days every week, and many full weeks, making themselves available to their constituents. The cost of campaigns and the pressure to raise money for their parties, too, opened many Members to more contact with more people who became interested in an individual Member's actions. Congressional districts have become more politically homogeneous through demographic changes and redistricting, and fewer voters are registering by party, arguably leaving a more politically homogeneous set of voters voting in each party's primaries. Rules changes do not necessarily enable a majority to pass legislation, to keep all the party's Members together, to work smoothly with the minority, to achieve the same outcomes as the other body, or to overcome voter sentiments. Rules facilitate the majority's organization and operation of the House, but they do not dictate to party leaders and others how to run the House. In more recent Congresses, the Republican majority needed to accommodate a more assertive range of Republican Members' perspectives, and to deal with an emboldened minority. Consequently, the number of open—and modified open—special rules diminished and the number of structured rules increased, a third day for the consideration of legislation by suspension of the rules was added, fewer days were spent in session, more competition over jurisdiction between committees occurred, some measures passed by the House could not pass the Senate, and convening conferences between the chambers was sometimes problematic. Despite the extensive rules changes in the House since the 104 th Congress, the House remains one of the two independent political institutions of Congress, designed to be so by the Framers. Interest balances interest, as noted in The Federalist Papers (No. 10), and unless there is majority political will—not necessarily a party majority but a majority of Members of each house—to take an action, such as make a specific law, that action will not happen. One role of Congress is to make law, but its larger role is to winnow the proposals about what should be law—because some proposals are bad ideas or lack public support or offend a constituency or cost too much or are impractical or are for some other reason unable to generate the needed majorities. If rules—chamber rules, not House special rules—allow opportunities for all Members to participate at all stages of the legislative process, in both chambers, then the Framers' system would be viewed by many as working. As the 109 th Congress entered its closing months, it was a telling statistic that 60% of Representatives, Delegates, and the Resident Commissioner had not known another set of rules and operational frame of reference than the one that has existed since the 104 th Congress. Of the 438 Members of the House in August 2006, 265 sitting Members began their service in the 104 th or a later Congress—153 Republicans and 112 Democrats. Twenty-one Members, whose service began in the 103 rd Congress or before, left the House by retirement, resignation, or death during the 109 th Congress, and the House ultimately welcomed 60 new Members, elected during the 109 th Congress or in the 2006 election. The rules of the House do not exist to achieve a specific legislative result. They are available to all Members and to any majority or minority. Many factors besides party control, and the party's use of rules, affect the congressional environment. To look back in history, Speaker Thomas Bracken Reed could be said to have created the modern, majority-minority House with his rulings, but he could not have contemplated how a very strong Speaker like Joseph Cannon would use the Speakership to dominate the House. The Corrections Calendar was announced with great fanfare when it was created in 1995; it had long been moribund when it was terminated in the rules package for the 109 th Congress. The consideration of legislation under suspension of the rules was a minor, relatively infrequent procedure 40 years ago; motions to suspend the rules were now in order Mondays, Tuesdays, and Wednesdays when the House is in session. The Congressional Budget Act of 1974 called for two budget resolutions each year; the procedure was impractical and hugely time consuming and was abandoned. The House rules—the common language of the House—are very important components of governance, and they exist for all Members and all majorities and minorities to use.

One of the majority party's prerogatives is writing the House rules and using its majority status to effect the chamber's rules on the day the new House convenes. It is a feature of the House that it must adopt rules at the convening of each Congress. While each new House largely adopts the chamber rules that existed in the previous Congress, each new House also adopts changes to those rules. Institutional and political developments during the Democratic majority, particularly during the 103rd Congress, were a prelude to the rules changes made by the Republicans when they took control of the House in the 104th Congress. Rules changes made at the convening of the 104th Congress addressed most aspects of the committee system: decision-making autonomy, jurisdictions, internal committee procedures and structure, and staff. Rules changes for the 104th Congress and after also addressed most aspects of legislation deliberations on the House floor and organization of the chamber. For example, the minority was guaranteed the ability to offer the motion to recommit with instructions, commemorative legislation was banned, the names of signatories of discharge petitions were publicized, provisions were made for convening a House with a reduced membership due to a terrorist attack, and the Speaker was subjected to a term limit that was later repealed. Two of the eight goals of the Republicans' 1994 Contract with America dealt with budgetary legislation. House rules were changed to require a three-fifths vote to pass a federal income tax rate increase, and cost estimates replaced baselines as the preferred way of understanding the year-to-year changes in federal spending. Rules changes in the administration of the House were extensive. Offices were abolished and others created. Responsibilities were shifted and accountability clarified. Rules changes affecting ethical standards were largely technical, with most major changes taking place through freestanding and other legislation. The House rules changes made starting in the 104th Congress reflected a Republican frame of reference that was built over many years as the minority party. Most rules, however, did not change, either at all or substantially, since they had evolved over decades to support the majority in its organization and operation of the House. Rules changes do not necessarily enable a majority to pass legislation, to overcome voter sentiments, or to work smoothly with the minority. Rules facilitate the majority's organization and operation of the House; they do not dictate to party leaders and others how to run the House or what outcomes can be achieved. This report describes and analyzes only rules changes made on the opening day of a new Congress, but it references in footnotes selected other legislation and actions that also changed or affected House rules during the 104th Congress and during subsequent Congresses. This report is the first in a series on House rules changes at the beginning of a Congress. For changes in the 110th, 111th, and 112th Congresses, see CRS Report R42395, A Retrospective of House Rules Changes Since the 110th Congress, by [author name scrubbed] and [author name scrubbed]. This report will not be updated.

Introduction Since 2008, California has experienced more dry years than it has wet years. Drought conditions in California are currently "exceptional" and "extreme" in much of the state, including in prime agricultural areas of the Central Valley, according to the U.S. Drought Monitor (see Figure 1 ). Such conditions pose significant challenges to water managers who before this dry winter were already grappling with below-normal surface water storage in the state's largest reservoirs. Groundwater levels in many areas of the state also have declined due to increased pumping over the last three dry years. While rains in March improved the water year outlook somewhat—moving the year from the driest on record in terms of precipitation to date to the third-driest—water managers are concerned about how long this drought will last and its long-term impacts. Further, the short-term effects of the drought are also a concern. A relatively dry winter with little existing snowpack raises the question over whether water supplies will be refreshed later in the year. The extent of the drought in California has generated varied and widespread effects. Most of the San Joaquin Valley is in exceptional drought—the most intense level of drought reported by the Drought Monitor—and federal and state water supply allotments are at historic lows. Many farmers are fallowing lands and some are removing permanent tree crops. Cities and towns have also been affected, and the Governor of California has requested voluntary water use cutbacks of 20%. The drought has also affected fish and wildlife species and the recreational and commercial activities they support. Current drought conditions in California and much of the West have fueled congressional interest in drought and its effects on water supplies, agriculture, and ecosystems. Several bills have been introduced in the 113 th Congress to address different aspects of drought in California and other regions. Of these bills, S. 2198 (Emergency Drought Relief Act of 2014) has passed the Senate, and H.R. 3964 (Sacramento-San Joaquin Valley Emergency Water Delivery Act) has passed the House. This report summarizes these two bills, discusses similarities and differences between the bills, and analyzes how these bills could address issues and questions associated with the drought in California. Central to addressing the drought from a federal and state perspective is the coordinated operation of the federal Central Valley Project (CVP) and the State Water Project (SWP). Both projects collect and store water in reservoirs in northern California. They also divert water from the San Joaquin and Sacramento rivers delta confluence with San Francisco Bay (Bay-Delta) and pump water south to water users in central and southern California. While the CVP serves mostly agricultural water contractors, the SWP serves largely urban or municipal and industrial contractors; however, both projects serve some contractors of both varieties. The operation of this system has been of interest Congress since there is a federal nexus with respect to the CVP. Congress and the Administration have been involved in addressing CVP operations through manuals and procedures laid out by existing federal laws such as the Endangered Species Act (ESA, P.L. 93-205 , 16 U.S.C. §§1531-1543) and the Central Valley Project Improvement Act (CVPIA, Title 34 of P.L. 102-575 ). Summary of H.R. 3964 and S. 2198 H.R. 3964 H.R. 3964 was introduced on January 29, 2014, and entitled the Sacramento-San Joaquin Valley Emergency Water Delivery Act. It passed the House on February 5, 2014. H.R. 3964 is similar to H.R. 1837 (introduced in the 112 th Congress) with some notable additions. Below is a summary of each title in H.R. 3964 . Each title addresses a different aspect of California water policy. Title I . Central Valley Project Water Reliability. Overall, Title I would make numerous changes to Central Valley Project (CVP) management and operations, primarily by amending the Central Valley Project Improvement Act (CVPIA). Specifically, it would amend CVPIA to broaden the purposes for which water previously dedicated to fish and wildlife can be used; add to the purposes a provision "to ensure" water dedicated to fish and wildlife purposes is replaced and provided to CVP contactors by the end of 2018 at the lowest "reasonably achievable" cost; change the definitions of fish covered by the act; broaden the purposes for which the Central Valley Project Restoration Fund (CVPRF) monies can be used; reduce revenues into the CVPRF; mandate operation of CVP and SWP according to a1994 interim agreement, the Bay-Delta Accord; and mandate development and implementation of a plan to increase CVP water yield by October 1, 2018. Title II . San Joaquin River Restoration. Title II would direct the Secretary of the Interior to cease implementation of the San Joaquin River Restoration Settlement Agreement, which was agreed to in 2006 and was authorized under the San Joaquin River Restoration Settlement Act (SJRRS) in 2010. It would declare that this legislation satisfies all obligations of the Secretary and others to keep in good condition any fish below Friant Dam, including obligations under the California Fish and Game Code, the state public trust doctrine, and the federal ESA. It would also remove the salmon restoration requirement in the SJRRS that was authorized in P.L. 111-11 . Title III . Repayment Contracts and Acceleration of Repayment of Construction Costs. This title would direct the Secretary of the Interior, upon request from water contractors, to convert utility-type water service contracts to repayment contracts, and then allow accelerated repayment of those outstanding repayment obligations. Irrigation repayment obligations (net construction cost) for the CVP for 2012, the last year for which such data are readily available, total approximately $1.18 billion; municipal & industrial (M&I) repayment obligations for 2012, the last year for which such data are readily available, total approximately $121 million. Title IV. Bay-Delta Watershed Water Rights Preservation and Protection . Title IV would provide assurances of water rights protections for those with water rights senior to the CVP, including Sacramento River Valley Settlement Contractors. It would also direct a new shortage policy for certain north-of-Delta CVP water service contracts, which would aim to limit maximum reductions to these supplies. Title V. Miscellaneous . Title V declares that the unique circumstances of coordinated operations of the CVP and SWP "require assertion of Federal supremacy to protect existing water rights throughout the system" and that as such shall not set precedent in any other state. Title V also declares that nothing in the act shall "affect in any way" the State of California Proclamation of State Emergency and associated executive order issued by the governor on January 14, 2014. It would also adjust a Wild and Scenic River boundary, potentially allowing for increased storage at Exchequer Dam. S. 2198 S. 2198 , the Emergency Drought Relief Act of 2014, was introduced on April 1, 2014, and passed the Senate on May 23, 2014. S. 2198 contains eight sections and is largely (but not entirely) focused on addressing water supply and drought issues in California. The following points summarize the sections in the bill: Section 1 and 2 are the Table of Contents and Findings of the bill, respectively. The Findings state that the 2013-2014 drought in California fully satisfies the conditions needed for exercising emergency decision-making, analytical, and public-review requirements under four laws: (1) The Endangered Species Act, (2) The National Environmental Policy Act of 1969, (3) water control management procedures of the Corps of Engineers (Corps) under 33 U.S.C. §222.5, and (4) the Reclamation States Emergency Drought Relief Act of 1991 ( P.L. 102-250 ). Section 3 includes definitions of terms used in the bill. For example, the term Secretaries is to include the Secretaries of Agriculture, Commerce, and the Interior, and the Administrator of the Environmental Protection Agency. Section 4(a) would direct the Secretaries to provide the maximum quantity of water supplies possible to CVP and Klamath Project agricultural, municipal and industrial (M&I), and refuge service and repayment contractors; SWP contractors; and any other locality or municipality in the state of California. This would be done by approving, consistent with applicable laws and regulations, projects and operations to provide additional water supplies as quickly as possible, and based on available information, to address emergency conditions. Section 4(c) of S. 2198 contains 13 subsections that would direct the Secretaries to implement several specific project-related and operational actions largely in California for carrying out Section 4(a). As with Section 4(a), Section 4(c) states that all actions are to be accomplished consistent with applicable laws and regulations. A summary of the 13 subsections under Section 4(c) is below: Section 4(c)(1) would direct the Secretaries to ensure that the Delta Cross Channel Gates (Delta Gates) remain open to the greatest possible extent and timed to maximize peak tide flood periods and to provide water supply and water quality benefits. This action would be authorized for the duration of the drought emergency-declaration by the state. According to the section, this operation is to be consistent with the State Water Resources Control Board (SWRCB) order for a Temporary Urgency Change (TUC) in terms, in response to drought, effective January 31, 2014, as modified by subsequent orders. Section 4(c)(2)(A) would direct the Secretaries to collect data associated with the operations of the Delta Gates and the effect of operations on threatened and endangered species listed under the Endangered Species Act (ESA), water quality, and water supply. Section 4(c)(2)(B) would direct an assessment of the data collected, and require the Director of the National Marine Fisheries Service (NMFS) to make recommendations for changing the operations of the CVP and SWP, including, if appropriate, changes to reasonable and prudent alternatives in the BiOps issued by NMFS on June 4, 2009. The provision states that the changes should be likely to produce fishery, water quality, and water supply benefits. Section 4(c)(3)(A) would direct the Secretaries to implement turbidity control strategies that would allow for increased water deliveries while avoiding jeopardy to adult delta smelt at the SWP and CVP pumps. This would be done according to the FWS Delta smelt BiOp. Section 4(c)(3)(B) would direct the Secretaries to manage reverse flow in the Old and Middle Rivers (OMR) according to the FWS Delta smelt Biological Opinion (BiOp) dated December 15, 2008, and the NMFS BiOp for salmonids, dated June 4, 2009, to minimize water supply reductions for the CVP and SWP. Section 4(c)(4) would direct the Secretaries to adopt a 1:1 inflow to export ratio (I:E ratio) for increased San Joaquin River flows resulting from water transfers and exchanges, among other purposes. The flow would be measured at Vernalis on a three-day rolling average from April 1 through May 31each year, as long as the governor's drought emergency declaration is in effect. Section 4(c)(5) would direct the Secretaries to issue all necessary permit decisions under their authority for temporary barriers or operable gates in Delta channels to improve water quantity and quality for SWP and CVP South-of-Delta water contractors and other water users within 30 days of receiving a permit application from the state. According to this section, barriers or gates "should" provide species benefits and protection and in-Delta water quality and "shall" be designed so that formal Section 7 consultation under ESA would not be necessary. Section 4(c)(6)(A) would direct the head of the FWS and the Commissioner of the Bureau of Reclamation (Reclamation) to complete all necessary National Environmental Policy Act (NEPA) and ESA requirements, within 30 days of receiving a request for a permit, for final permit decisions on water transfers associated with voluntary fallowing of nonpermanent crops in the state of California. Section 4(c)(6)(B) would direct the head of FWS to allow "any water transfer request associated with fallowing" to maximize water supplies for non-habitat use, as long as the action would comply with federal law and regulations. Section 4(c)(7) would direct the Secretaries "under the existing authority of the Secretary of the Interior," to participate in, provide grants to, or provide funding for, pilot projects to increase water in reservoirs in regional river basins that are experiencing "extreme, exceptional, or sustained drought." These basins would have to directly affect the water supply of California and includes the Colorado River basin. Further, the Secretary (presumably the Secretary of the Interior), is to work with the "respective State" in regards to providing grants, participation, or funding to or for activities in the Upper Division of the Colorado River. (It is unclear if State refers to a state other than California.) Section 4(c)(8) would direct the Secretaries to maintain all rescheduled water supplies in San Luis Reservoir and Millerton Reservoir for the following year, unless unable to do so due to storage capacity limitations. Section 4(c)(9) would direct the Secretaries to "the maximum extent possible ... without causing land subsidence or violating water quality standards" meet contract water supply needs of CVP refuges through the use of water conservation measures, water conveyance facilities, and wells for groundwater resources. To accomplish these activities, the Secretaries would use funding available under the Water Assistance Program or WaterSMART Program of DOI. Further, Section 4(c)(9)(B) would redirect a quantity of water obtained from measures in subparagraph (A) from refuges to CVP contractors. Section 4(c)(10) would authorize the Secretaries to coordinate with the Secretary of Agriculture to create an agreement with the National Academy of Sciences to conduct a study on the effectiveness and environmental impacts of salt cedar biocontrol activities and their effect on increasing water supplies and improving habitat on the Colorado River in California and elsewhere. Section 4(c)(11) would direct that any WaterSMART grant funding allocated to California be made available on a "priority and expedited basis": (1) for emergency drinking and municipal supplies to meet minimum public health and safety needs; (2) to prevent loss of permanent crops; (3) minimize economic losses from drought; and (4) to provide conservation tools and technology with immediate water supply benefits. Section 4(c)(12) would direct the Secretaries to implement "offsite upstream projects" in the Delta and upstream Sacramento River and San Joaquin River basins in coordination with California Department of Water Resources and Department of Fish and Wildlife. Projects are to offset the effects of actions taken under this act on ESA listed species. Section 4(c)(13) would direct the Secretaries to use "all available scientific tools" to identify and implement any changes to the real-time operations of any Reclamation, state, and local water projects that could result in additional water supplies. Section 4(d) states that the provisions of Section 4 shall apply to all federal agencies that have a role in approving projects in Sections 4(a) and 4(c) of this bill. Thus, although not specifically mentioned, if the Corps of Engineers or another agency has a permitting or approval role in one of the projects that could be implemented under Section 4, the provisions of Section 4 would also apply to that agency. Section 4(e) would direct federal agencies, upon request of the state of California, to use "expedited procedures under this subsection" to make final decisions related to federal projects or operations that would provide additional water or address emergency drought conditions under Sections 4(a) and 4(c). Pursuant to Section 4(e)(2), after receiving a request from the state, the head of an agency referred to in Section 4(a), or the head of another federal agency responsible for reviewing a project, the Secretary of the Interior would be required to convene a "final project decision meeting" with the heads of all relevant federal agencies "to decide whether to approve a project to provide emergency water supplies." After receiving a request for resolution, the Secretary would be required to notify the heads of all relevant agencies of the request for resolution, the project to be reviewed, and the date of the meeting. The meeting must be convened within seven days of the request for resolution. Not later than 10 days after that meeting, Section 4(e)(4) would require the head of the relevant federal agency to issue a final decision on the project. The Secretary of the Interior is authorized to convene a final project decision meeting at any time, regardless of whether a request for resolution is requested under 4(e)(2). Section 5 would direct agencies responsible for "carrying out this act" to consult with the Council on Environmental Quality (CEQ) to develop "alternative arrangements" to comply with NEPA in accordance with existing regulations "during the emergency." Section 6 addresses California's use of monies in its State Revolving Fund (SRF) programs that assist wastewater and drinking water infrastructure projects, pursuant to the federal Clean Water Act (CWA) and the federal Safe Drinking Water Act (SDWA), respectively. The section would direct the Administrator of the EPA, when allocating SRF funds, to require that the state of California review and give priority to projects that will "provide additional water supplies most expeditiously to areas that are at risk of having inadequate supply of water for public health and safety purposes or to improve resilience to droughts." Further, the Director is to require the state to review and prioritize funding for such projects, direct the EPA Administrator to expedite review of Buy American waiver requests, if such requests are submitted, and authorize 40-year loan repayments to the SRFs. The bill would provide that nothing in Section 6 authorizes EPA to modify existing state-by-state funding allocations, funding criteria, or other requirements related to the CWA and SDWA SRF programs for the state of California. Section 7 states that if the bill were to be enacted, it would not preempt any California state law in effect on the date of such enactment, including area-of-origin, or other water rights protections. Section 8 states that authorities under Section 4(a); Section 4(c), subsections (1) through (6), (8) and (9), and (11) through (13); Section 5; and Section 6 would permanently expire when the governor of the state suspends the drought emergency declaration. Comparison of H.R. 3964 and S. 2198 H.R. 3964 and S. 2198 share the objective of increasing water supplies for agricultural and urban users. The bills, however, largely differ in their approach to achieve this objective. This section summarizes and provides analysis of selected similarities and differences between the bills. H.R. 3964 and S. 2198 have few similarities in their specific approaches to addressing drought conditions in California; however, to different degrees, they both aim to provide more water for users that receive water from the CVP and SWP. The primary thematic similarity among the bills is to authorize or direct activities to increase water supplies for users, while, in some cases, decreasing or meeting the minimum water needs of the environment (e.g., fish and wildlife, and water quality). The duration of these changes varies. In some cases, they would be authorized only in times of a declared drought or decreased water supplies, and in other cases, these activities would be authorized permanently under all conditions. H.R. 3964 primarily aims to increase water deliveries to California's CVP contractors, particularly those south of the Delta, who have seen reductions in deliveries since passage of the CVPIA in 1992. The bill would potentially ease some restrictions on CVP and SWP water operations and would allow more water to be available for users resulting from those changes. The bill would likely result in greater water deliveries by preempting some federal and state laws, including fish and wildlife protections and other CVP operational mandates tied to the coordinated operations of the CVP and SWP. It is unclear what impacts such changes would have on other water users in the state. H.R. 3964 would establish the 1994 Bay Delta Accord (Accord) as a basis for operation of the CVP and SWP pumps in the Delta, rather than current (and evolving) in-Delta water quality standards and proscriptions included in federal biological opinions (BiOps). These standards and restrictions impose water flow restrictions that appear to be a contributing factor to reduced pumping and water availability in the Delta. S. 2198 would direct the Secretaries of selected federal agencies to provide the maximum quantity of water supplies possible to CVP and other water users in the state of California by approving, consistent with applicable laws and regulations, projects and operations to provide additional water supplies as quickly as possible. Although activities are to be consistent with laws and regulations, presumably including those regarding the environment, S. 2198 provides direction to federal agencies to maximize water supplies within such constraints. This juxtaposition makes it difficult to understand the potential effect of the proposed legislation. It would appear to fall to the implementing agency to decide what actions are both in compliance with S. 2198 directives to increase storage while remaining consistent with law and regulations. It is not clear for example how or when agencies would determine the effects of providing "maximum water supplies" on species viability and water quality. Such effects may not be apparent, quantifiable, or known for several years into the future. Conversely, agencies and water users may not agree that an agency's actions adequately implement the legislations direction to provide "maximum water quantities." While some observers believe that agencies should not maximize water supplies to the detriment of species in the long term, others are advocating relaxation of some laws and regulations, or meeting minimum standards of environmental laws while maximizing water supplies. Selected Similarities Between H.R. 3964 and S. 2198 While the two bills take significantly different approaches to increasing the reliability of water supply during dry years, some similar issue areas and provisions in the bills lend themselves to comparison. A summary of some selected provisions are provided below: H.R. 3964 and S. 2198 would provide authority to expedite water transfers with different conditions. H.R. 3964 would direct the Secretary to facilitate and expedite water transfers and prohibit environmental or mitigation requirements as a condition to transfers. S. 2198 would not waive environmental requirements for water transfers, but instead would set a limit on the number of days for making a final permit decision. Specifically, S. 2198 would direct the head of the FWS and the Commissioner of Reclamation to complete all necessary NEPA and ESA requirements, within 30 days of receiving a request for a permit, for final permit decisions on water transfers associated with voluntary fallowing of nonpermanent crops in the state of California. The bill would also direct the head of FWS to allow "any water transfer request associated with fallowing" to maximize water supplies for non-habitat use, as long as the action would comply with federal law and regulations. Both bills address NEPA so as to address the objective of streamlining the permit process or in some cases bypassing the federal permit process, although they do so in different ways. For example, H.R. 3964 states that compliance with the California Environmental Quality Act shall suffice for compliance with NEPA for filing of a Notice of Determination or a Notice of Exemption for any project related to the CVP or delivery of water from the CVP. Further, H.R. 3964 would not require Reclamation to cease or modify federal actions or activities related to any project of the CVP or water delivery from the CVP due to the pending completion of any judicial review of a determination made under NEPA. S. 2198 would direct agencies responsible for "carrying out this act" to consult with the Council on Environmental Quality (CEQ) to develop "alternative arrangements" to comply with NEPA in accordance with existing regulations "during the emergency." In addition, as noted above S. 2198 would require final permit decisions to be made within 30 days under the NEPA process. Both bills would direct rescheduled water supplies in the San Luis Reservoir to be held for use in the following year by water users. Specifically, H.R. 3964 would direct the Secretary of the Interior to allow certain south-of-Delta water service or repayment contractors to reschedule unused CVP water for storage and subsequent use in the following year. The bill includes timelines and conditions, including that such rescheduling shall not interfere with CVP operations in the contract year into which the water has been rescheduled. Similarly, S. 2198 would require the Secretary of the Interior to hold all rescheduled water supplies in San Luis Reservoir and Millerton Reservoir for the following year, unless unable to do so due to storage capacity limitations. These directions appears to be consistent with the approach of Reclamation in recent years in making available rescheduled water, subject to available storage and that year's CVP operations. Both bills aim to increase water supplies in reservoirs either by authorizing potential increases in water storage capacity or by authorizing the implementation of projects that would increase water in existing reservoirs. For example, H.R. 3964 would authorize the Secretary to partner with local joint power authorities and others in pursuing storage projects (e.g., Sites Reservoir, Upper San Joaquin Storage, Shasta Dam and Los Vaqueros Dam raises) authorized for study under CALFED ( P.L. 108-361 ), but would prohibit federal funds to be used for this purpose or for financing and constructing the projects. S. 2198 would direct federal agencies to participate in, provide grants to, or provide funding for pilot projects to increase water in reservoirs in regional river basins that are experiencing "extreme, exceptional, or sustained drought." Both bills appear to acknowledge and incorporate some state actions into their directives. H.R. 3964 states that nothing in the act shall "affect in any way" the Proclamation of State Emergency and associated Executive Order (Emergency Order) issued by Governor Brown on January 17, 2014, or the authorities granted by the Proclamation. Further, H.R. 3964 would not limit the authority provided by the Proclamation to allow the SWRCB to modify standards or operational constraints adopted to implement the Bay-Delta Accord so as to make additional water supplies available to service areas during a state of emergency. S. 2198 would authorize actions to ensure that the Delta Gates remain open to the maximum extent possible, consistent with the operational and monitoring criteria specified in the SWRCB Temporary Urgency Change Petition Order. Further, S. 2198 states that it will not preempt any state laws, including area of origin and other water rights protections. Selected Differences Between H.R. 3964 and S. 2198 There are considerably more differences than similarities between H.R. 3964 and S. 2198 . The differences hinge on the fundamental approach the bills take towards providing and allocating water supplies for users. S. 2198 generally provides authority to approve projects and actions to maximize water supplies for users within existing laws and regulations; whereas H.R. 3964 would amend existing laws that in some cases would preempt state and federal law to re-allocate water supplies and achieve its objectives. Some examples of the most prominent provisions that would amend federal law to address water conveyance and supplies for users under H.R. 3964 include the following: Title I of H.R. 3964 addresses many provisions of the CVPIA, including provisions that would potentially decrease the amount of project water for fish and wildlife purposes, alter enhancement and mitigation activities, reduce water transfer limitations, repeal tiered pricing formulas, and change other restoration and mitigation provisions. For example, H.R. 3964 would direct the Secretary of the Interior to facilitate and expedite water transfers and prohibit environmental or mitigation requirements as a condition to transfers. Section 108 of H.R. 3964 would prohibit "any" state or federal law (including the public trust doctrine and possibly certain California water rights laws) from reducing water supplies beyond those allowed in the Bay-Delta Accord and declaring a federal supremacy over water management to "protect existing water rights throughout the system." This approach would create standards for delivering water supplies that would not be limited by other laws that could diminish these supplies (e.g., environmental laws such as ESA and state water quality regulations). Title II of H.R. 3964 would repeal much of the authority to implement the San Joaquin River Restoration Settlement (SJRRS) under P.L. 111-11 . For example, Section 201 of H.R. 3964 directs the Secretary of the Interior to "cease any action" to implement the stipulated Settlement Agreement on San Joaquin River Restoration. The bill would also amend the San Joaquin River Restoration Settlement Act's purpose to be restoration of the San Joaquin River, instead of implementation of the Settlement Agreement. Further, it would remove several provisions from P.L. 111-11 that would authorize physical restoration of the San Joaquin River such as channel and structural improvements. The section would also modify Friant Dam operations to address Restoration Flows. Significantly, the bills would also differ in the duration of some of the provisions that would be authorized. H.R. 3964 's changes to laws and operations would persist after the drought declaration is lifted; whereas S. 2198 has termination clauses for several selected provisions that would end when the current drought declaration has been lifted. Both bills contain provisions that address certain issues that are not covered in the other Chamber's bill. For example, H.R. 3964 would make extensive changes to implementation of federal reclamation law under CVPIA, the contracting provisions under the 1939 Reclamation Project Act, restoration efforts under the San Joaquin River Restoration Settlement Act, and state and federal relationships under Section 8 of the Reclamation Act of 1902. The bill would also alter the way the state of California implements its own state laws with regard to operation of the CVP and SWP and non-native fisheries. S. 2198 does not address these issues directly, and would instead focus efforts on several mandated actions that are not directly addressed in H.R. 3964 . These actions would affect water conveyance and supplies in the Delta and include, altering the operations of the Delta gates, adopting a 1:1 inflow to export for increased San Joaquin River flows, and implementing strategies to control turbidity at pumps, among other things. (See bill summaries for more details.) Potential Issues for Congress Drought conditions in California and proposed state and federal solutions to address them under H.R. 3964 and S. 2198 raise several issues and questions that might be of interest to Congress. Many of these issues relate to the central question of how to increase water supplies for users while sustaining environmental and other conditions in a manner that satisfies existing or altered federal and state laws. A background discussion of selected key questions and the issues they generate is provided below. How much water would be delivered to users under each bill? The objective of both bills is to increase water deliveries and reliability for users; in particular water users south of the Delta. Neither bill contains assurances for delivering a certain amount of water, nor quantifies an amount of additional water to be generated by activities authorized in each respective bill. Based on this uncertainty, some might question how much more water might be delivered to users by each bill if enacted? S. 2198 contains broad language that would direct agencies to maximize water supplies and approves pilot projects for increasing water stored in water stressed areas. It is uncertain how much water could be delivered to users from specified projects authorized under S. 2198 and other projects that are not. Further, S. 2198 would provide federal agencies with broad discretion to conduct operations that would maximize water use while still adhering to state and federal laws and regulations. It is unclear how changes to this authority would affect how much water would be delivered to users since the amount would be based on federal actions yet to be documented. H.R. 3964 would implement several measures that would redirect water from fish and wildlife uses, among others, to agricultural and municipal users. However, quantifying the amount of additional water for users if H.R. 3964 is enacted is difficult. For example, one of the bill's most significant changes would be to set the 1994 Bay Delta Accord as the operational guide for the CVP and the SWP, while also waiving federal ESA regulations and other laws pertaining to the operation of the CVP and SWP. This would set maximum restrictions on water exports from the Delta depending on the time of year and guarantee a reliable supply of water for certain stakeholders, among other things. However, the exact amount of additional water made available in accordance with this change would depend on a number of factors. For instance, while H.R. 3964 appears to waive implementation of the ESA as it pertains to operations, the Accord included a section that authorized operational flexibility to comply with federal ESA regulations. It is unclear if the ESA provisions regarding operational flexibility would be applicable if H.R. 3964 were enacted. Under a separate provision, the Accord protected water users from losing water supplies to support future listings of species under ESA. According to the Accord, the protection of species that are listed after the Accord shall result in no additional water cost relative to the Bay-Delta protections embodied in the Plan and will, to the maximum extent possible, use the flexibility provided within Section 4(d) of the ESA. Additional water needs will be provided by the Federal government on a willing seller basis financed by Federal funds, not through additional regulatory re-allocations of water within the Bay-Delta. It is unclear if this provision in the Accord would reflect the listing of species after the bill would be enacted or would date back to when the Accord was written in 1994. In summary, the Accord provided water supply reliability as well as discretion to export water to users. H.R. 3964 would further these advantages by making operations not subject to ESA or any other law pertaining to the CVP and SWP. H.R. 3964 also includes several other provisions that would be likely to increase water deliveries for users, but are difficult to quantify. For example, H.R. 3964 would provide replacement water for CVP contractors for water dedicated for fish and wildlife purposes, approves the development of a plan to increase CVP yield, and would authorize non-federal construction of water storage projects. What would be the short- and long-term environmental effects of each bill? Both bills support reallocating water supplies to users from environmental considerations. Under H.R. 3964 , some laws and regulations that dedicate water supplies for environmental uses would be exempted, thus allowing federal agencies to supply more water to users. For example, the provision to operate the CVP and SWP under the Bay-Delta Accord, without regard to ESA, would benefit some water users, but environmental stakeholders may contend that the loss of ESA regulations will harm listed species in the region. Requirements for operational flexibility and planning for sustaining endangered and threatened fish species in the Delta would appear to be lowered as it relates to pumping by H.R. 3964 . Operations under the bill are to strictly adhere to the prescripts in the Bay-Delta Accord; however laws pertaining to operations (including ESA) would be disregarded under H.R. 3964 . On the other hand, some might contend that the existing Biological Opinions also do not allow enough operational flexibility for water supply purposes, and that restrictions to date have not had a meaningful impact on species (including those that were already declining). If pumping operations maximize water exports to users under the guidelines proposed by H.R. 3964 , lower water supplies for fish and the ecosystem could have short and long term environmental consequences, although the extent of these consequences is currently unknown. Some may argue that the environmental damage from the change will be minimal, and would be tempered by the benefits of greater water deliveries to some agricultural and municipal users affected by the drought. Under S. 2198 , the Secretaries would be directed to maximize water supplies in project development and operations while the California governor's drought declaration is in effect. Some might question if the actions in this section and the broad direction to maximize water supplies for users might have unintended or long-term consequences for species in the Bay-Delta. For example, projects and actions might meet the minimum requirements under law for addressing species and water quality, but not account for long term effects. Indeed, some contend that if managers were required to maximize water supplies in implementing projects and actions under 103(b), their discretionary flexibility to make decisions would be narrower. Therefore, maximizing water supplies would appear to benefit water users under drought conditions; the long term effects on other factors such as species viability, recreation, and water quality would be unclear. What are other long-term ramifications of each bill? Longer-term consequences of the proposed bills may be of interest to Congress. Provisions under H.R. 3964 would be in effect beyond the current drought, and would continue in perpetuity absent future changes to the statute. As discussed above, this could have long-term environmental effects that change the scope of water planning in the Bay-Delta region. For example, some have argued that if ESA and state protections in the Bay-Delta are removed as proposed, there would be no incentive to implement the BDCP, a habitat conservation plan currently under development. Further, the bill, if enacted, would set some precedents. For example, the waiver of ESA and state laws in order to provide increased water deliveries for federal contractors would be a significant departure from other approaches that defer to state laws and federal environmental statutes such as ESA. Some might use this provision as an example and justification for proposing exceptions to ESA guidelines on a species by species basis. H.R. 3964 would also elevate the supply and use of natural resources as a priority over species concerns, which could have ramifications beyond the water-use arena. S. 2198 would largely be applicable during the current drought declaration (with few exceptions), thereby reducing its long-term effects. However, some might contend that its directive to maximize water use when contemplating actions taken under existing law would also elevate resource use at the expense of the environment. Even though environmental laws and regulations would have to be followed, it appears that S. 2198 would encourage federal agencies to meet the minimal requirements for the environment under applicable laws. How would activities under each bill be funded? Neither S. 2198 nor H.R. 3964 has specifically authorized new appropriations to fund activities authorized under the bill. S. 2198 would use existing authorities for funding under other laws to fund certain projects and activities, and in some cases provisions under S. 2198 would re-direct or re-prioritize activities under existing authorities to address drought-related activities. H.R. 3964 largely authorizes changes under existing laws for operations, activities, and procedures to generate water for users, and would redirect funding from some sources. There is less emphasis placed on implementing projects and activities in H.R. 3964 compared to S. 2198 . In some cases under H.R. 3964 , funding is assigned to water districts, such as funding for the pilot program to protect native anadromous fish is directed to water districts. Additionally, the bill would require certain studies that could eventually result in the construction of projects (and, potentially, federal funding requirements) in the future. Are there potential precedent-setting provisions under these bills? There are some potential precedent-setting provisions in both bills that might be of interest to Congress. Both bills elevate the need to supply additional water to users in comparison to other uses (e.g., environment and recreation). The directive to maximize water supplies for users under S. 2198 as a priority over other considerations (e.g., water quality or habitat conservation) might cause some to describe the provision as precedent-setting since it lowers the discretionary flexibility of agencies and prioritizes one resource need over others during a time of water shortage. Others might counter this notion by stating that other factors such as water quality and species needs are addressed in other laws and regulations that S. 2198 is not changing. Essentially, agencies would have to balance the new directives with parameters prescribed in existing law and regulations, yet do so with less flexibility. The long-term effects of S. 2198 itself would be tempered since most of its provisions will sunset after the drought declaration in California is lifted. However, some might view the directive to maximize water supplies for users for actions specified within BiOps as precedent setting. Even if regulations in the BiOps are followed, any discretionary flexibility provided to agencies to manage water supplies would be narrowed because they would directed to maximize water supplies for users. These directives could eventually be significant during other water supply shortages, especially during times of drought. H.R. 3964 contains several potential precedent-setting provisions. Similar in theme to S. 2198 , H.R. 3964 would prioritize water supplies for users over other competing uses. The policy mechanisms used to achieve this objective differ from S. 2198 . For example, the waiver of ESA and state laws in order to provide increased water deliveries for federal contractors would be a significant departure from previous approaches that defer to state laws and federal environmental statutes such as ESA, NEPA, and the Clean Water Act, and may attract attention despite Section 501 of the bill, which notes that nothing in the act shall serve as precedent for other states. Specifically, some might contend that provisions under H.R. 3964 that waive certain federal ESA provisions for the region could set a precedent for addressing ESA on a species by species basis, or region by region basis. Further, H.R. 3964 would prohibit "any" state or federal law (including the public trust doctrine) from reducing water supplies beyond those allowed in the Bay-Delta Accord and declaring a federal supremacy over water management to "protect existing water rights throughout the system." All of these changes are significant, and could hypothetically be a model for similar legislation in other areas.

California is experiencing serious water shortages due to widespread drought. Even though much of the state is served by two large water infrastructure projects that store water for future use—the federal Central Valley Project (CVP) and the State Water Project (SWP)—both projects have had to reduce water deliveries to the farmers and communities that they serve. Many water users have received no water from the CVP and SWP this year and are supplementing surface water supplies with groundwater. Some water basins are experiencing overdraft of local aquifers (i.e., extracting of more ground water than will be replenished over time). The dry hydrological conditions, in combination with regulatory restrictions on water being pumped from the Sacramento and San Joaquin Rivers Delta confluence with San Francisco Bay (Bay-Delta) to protect water quality and fish and wildlife, have resulted in historic water supply cutbacks for senior water rights users in some areas. The effects are widespread and are being felt by many economic sectors. The extent and severity of the drought is also taking its toll on fish and wildlife resources and has increased concern for wildfires. California also experienced severe water supply shortages during a three-year drought, which lasted from 2008 – 2010 and during a five-year drought from 1987 to 1992. Several bills have been introduced in the 113th Congress to address California water supply and drought in particular. This report discusses the similarities and differences between two bills that have been passed by their respective chambers: H.R. 3964, which passed the House on February 5, 2014; and S. 2198, which passed the Senate on May 22, 2014. H.R. 3964 and S. 2198 have few similarities in their specific approaches to addressing drought conditions in California; however, to different degrees, they both aim to provide more water for users that receive water from the CVP and SWP. The primary thematic similarity shared between the bills is to authorize or direct activities that would attempt to increase water supplies for users while, in some cases, decreasing or meeting the minimum water needs of the environment (e.g., fish and wildlife, and water quality). The duration of the authorization for these activities varies under each bill. In some cases, activities aimed to increase water supplies are authorized in times of a declared drought or decreased water supplies, and in other cases, these activities are authorized permanently without conditions. The differences between the bills hinge on the approach the bills take towards allocating water supplies for users. S. 2198 would authorize the approval of projects and actions to maximize water supplies for users within existing laws and regulations; whereas H.R. 3964 would amend laws, and in some cases, pre-empt state and federal law to re-allocate water supplies and achieve its objectives. A short-term issue for Congress is how to address the drought, and in particular, demands for more water from the CVP and SWP without jeopardizing the continued existence of several fish species, degrading water quality, or overriding state water rights allocations. A long-term issue for Congress is how to improve the supply and reliability of federal water deliveries and stabilize, and potentially restore, the aquatic ecosystems upon which water and power users and diverse economies depend upon. Efforts to address the long-term water and environmental needs of the state have been focused, in part, on the Bay Delta Conservation Plan (BDCP). However, the BDCP is controversial and if approved is expected to take years, if not decades, to implement. In the meantime, questions continue to be raised about annual Bay-Delta pumping levels and their adequacy in providing water supply to state and federal contractors and their effects on fish and wildlife, particularly on threatened and endangered species.

Overview India is a federal republic of more than one billion inhabitants. The bulk of executive powerrests with the prime minister and his or her cabinet (the Indian president is a ceremonial chief of statewith limited executive powers). Most of India's prime ministers have come from the country'sHindi-speaking northern regions and, until 2004, all but one had been upper-caste Hindus. (2) The 543-seat Lok Sabha(People's House) is the locus of national power, with directly-elected representatives from each ofthe country's 28 states and seven union territories. A smaller upper house, the Rajya Sabha (Councilof States), may review, but not veto, most legislation, and has no power over the prime minister orthe cabinet. National and state legislators are elected to five-year terms. The previous nationalelection was held in October 1999. Although India's political stage is crowded with numerousregional and caste-based parties, recent years have seen an increasingly dyadic battle between twomajor parties that vie for smaller allies in a system that now requires coalitional politics (no partyhas won a national election outright since 1984). Since 1998, the Bharatiya Janata Party (BJP) hadled a ruling National Democratic Alliance (NDA) coalition of more than 20 parties working underthe leadership of Prime Minister Atal Bihari Vajpayee. The October 1999 Lok Sabha electionssolidified the BJP's standing. The key opposition party during this time was the CongressParty. (3) During April and May 2004, India held a four-phase national election to seat a new LokSabha. The NDA called elections six months early in an apparent effort to capitalize on perceivedmomentum from positive economic news and from three convincing state-level victories overCongress in December 2003. Some 380 million Indians cast ballots at nearly 700,000 pollingstations. When results were announced on May 13, nearly all observers and participants -- includingPrime Minister Atal Vajpayee -- were surprised by the upset defeat of the NDA, and by asimultaneous resurgence of the Congress Party led by Sonia Gandhi, the Italian-born widow offormer Prime Minister Rajiv Gandhi, which had forged strategic and unprecedented alliances withpowerful regional parties. On May 18, Gandhi stunned her supporters by declining the position ofprime minister in a new United Progressive Alliance (UPA) coalition government, insteadnominating her party lieutenant, Oxford-educated economist Manmohan Singh, for the job. AsFinance Minister from 1991-1996, Singh was the architect of major Indian economic reform andliberalization efforts. On May 22, the widely-esteemed Sikh became India's first-ever non-HinduPrime Minister. Poll results also were notable for the best-ever showing of a leftist alliance led by theCommunist Party of India (Marxist), which won a total of 62 seats, nearly all of them from WestBengal and Kerala. Although this Left Front is not part of the new UPA government, it is supportingthe UPA from outside. Investor fears that a new coalition government including communists mightcurtail or halt India's economic reform and liberalization process apparently led to huge losses in thecountry's stock markets: Bombay's benchmark Sensex index lost 11% of its value on May 17, thesecond-largest daily loss ever, and the value of India's largest companies reportedly declined by some$40 billion over seven days, with state-owned businesses slated for public sale taking the greatesthits. Market recovery began after Congress Party leaders offered assurances that the newgovernment would be "pro-growth, pro-savings, and pro-investment." (4) Numerous analysts weighed in on the meaning of the complex electoral results. A longtradition of anti-incumbency was only partly apparent in 2004, as many states re-elected sittingparliamentarians. It also is notable that the BJP-led coalition received slightly more total votes thandid the Congress-led alliance. However, huge reversals for the incumbent NDA-allied TeluguDesam Party of the Andhra Pradesh state -- as well as for the BJP, which fell from 181 seats inparliament to only 138 -- were seen by many as evidence that India's rural poor were not persuadedby the NDA's "India Shining" campaign that sought to highlight the country's economic gains(Andhra Pradesh's capital, Hyderabad, has been touted as an information technologyboom-town (5) ). It may bethat voters found the NDA insufficiently attentive to the core issues of " bijli, sadak, pani " (power,roads, water) and voiced a rejection of neo-liberal economic reforms that were seen to benefit India'smiddle- and upper-classes only. (6) Other analysts saw in the results a rejection of the Hindu nationalism associated with the BJP(just days after a December 2002 state election victory in Gujarat, the BJP's president declared thathis party would "duplicate the Gujarat experience everywhere" as it represented a "mandate for the[Hindutva] ideology" (7) ). Sonia Gandhi's foreign origin had become a key point of criticism for these groups and it is likelythat her decision to pass on the prime ministership was in part a result of her not wanting to becomea subject of controversy, as Hindu nationalist groups had threatened to launch a nationwide protestcampaign if she took the prime ministership. It also is widely held that Gandhi's action was drivenby a perceived interest in establishing circumstances in which her son Rahul, who ran for and wona parliamentary seat for the first time this year, can assume the family "dynasty" mantle later in thedecade. (8) Key Parties Indian National Congress The dynastic Congress Party of Jawaharlal Nehru, his daughter, Indira Gandhi, and her son,Rajiv, had dominated India's political stage for 45 of its first 56 years of independence, but did nothold the prime ministership after May 1996. Never before had Congress been out of power in NewDelhi for such a long period (although it continued to hold power in 11 states). After 1998,Congress's national leader was Rajiv's widow, the Italian-born Catholic Sonia Gandhi, who took topolitics only with reluctance. Factors in the decline of support for Congress included neglect of itsgrassroots political organizations by the leadership, a perceived lack of responsiveness to such majorconstituent groups as Muslims and lower castes, the rise of regional and issue-based parties, andallegations of widespread corruption involving party leaders. Gandhi herself, while enjoying theloyalty of most party leaders, came under fire for allegedly poor campaign skills and for her foreignorigins. In the wake of three surprise state-level losses in December 2003, Gandhi called on India'ssecular forces to close ranks in resisting the BJP's "development" emphasis, insisting that it wasmerely a cover for the BJP's ongoing "agenda of hatred and divisiveness." Motivated by a belief thatsecular forces would hang together or be hanged separately, Congress began actively seekingalliance partners. (9) Manyanalysts had argued that Gandhi represented a net liability for the party, (10) a long-running andcontentious debate that likely was settled by the outpouring of affection for her in May 2004. Still,some analysts are concerned that Gandhi's significant and "extra-constitutional" influence bodespoorly for the future stability both of the UPA and of the Congress Party, itself. (11) The new Prime Minister'stop four cabinet ministries (Home, External Affairs, Defense, and Finance) are being headed byCongress stalwarts. Bharatiya Janata Party The BJP, associated with Hindu nationalist groups, had enjoyed rapid success in nationalpolitics. Riding a crest of rising Hindu nationalism, it increased its strength in Parliament from onlytwo seats in 1984 to 181 seats 1999. Some observers hold elements of the BJP, as the political armof the extremist Hindu nationalist organization Rashtriya Swayamsevak Sangh (RSS or NationalVolunteer Force), responsible for the outbreaks of serious communal violence in which a mosquewas destroyed at Ayodhya and some 3,000 people were killed in anti-Muslim rioting in Bombay andelsewhere. While in power, the BJP worked -- with limited success -- to change its image fromright-wing Hindu nationalist to conservative and moderate, although anti-Muslim riots in BJP-runGujarat in early 2002 again damaged the party's national and international credentials. In general terms, the BJP has comprised a moderate wing focused on governance anddevelopment, and a hardline wing more concerned with "emotive" issues related to Hindunationalism. Former PM Atal Vajpayee is viewed as the leading moderate, while former Deputy PMand current BJP parliamentary leader Lal Advani fronts the hardline faction. Advani, who steeredthe BJP's 2004 electoral strategy, has widely been viewed as heir-apparent to Vajpayee, but Advani'sclose ties to the RSS and Vishwa Hindu Parishad (VHP or World Hindu Council), and pastinvolvement in communal conflict (especially the 1992 destruction of the Babri Mosque and ensuingviolence), have denied him the widespread popularity enjoyed by Vajpayee. (12) Because the BJP did notplay the "Hindutva card" in recent state elections, its impressive December 2003 victories in threeof four contested states were viewed as a triumph of the politics of development associated withVajpayee. Still, national election results were widely viewed as a serious blow to the Hindunationalist project. (13) BJP leaders attributed their setback to complacency and overconfidence. Hindu nationalistsblamed the NDA's defeat on an alleged betrayal of the Hindutva cause by the BJP; one top leadercalled for the creation of a new party to "look after the interest of Hindus" (BJP leaders such asAdvani equate Hindutva with nationalism). (14) The long-standing rift between moderates and hardliners cameto the fore in a June debate over the possible removal from power of the controversial Chief Ministerof Gujarat, BJP notable Narendra Modi. Vajpayee himself suggested that Modi should go, but hewas swiftly rebuked by the RSS chief in a sign that the BJP is likely to maintain a more hardlineposition while in opposition. (15) Selected Election Results Source: Election Commission of India; "The Big Picture," Hindu (Madras), May 20, 2004. Left Front Although the Communist Party of India (Marxist) seated the third largest number ofparliamentarians in 2004, its vote bank is almost wholly limited to West Bengal and Kerala (the LeftFront coalition holds about 11% of all Lok Sabha seats). Communist parties have in the past beenbitter rivals of the Congress in these states, but a mutual commitment to secularism appears to havemotivated their cooperation against the BJP in 2004. Early alarm was sounded that the influence ofcommunists in New Delhi might derail India's economic reform efforts, however, Indian industrialleaders have sought to assure foreign investors that Left Front members are not "Cuba-stylecommunists," but can be expected to support the UPA reform agenda. The communist ChiefMinister of West Bengal has himself actively sought corporate investment in his state. (16) Regional Parties The power of regional and caste-based parties has become an increasingly important variablein Indian politics; the most recent poll saw such parties receiving nearly half of all votes cast. Neverbefore had the Congress Party entered into pre-poll alliances at the national level, and numerousanalysts attributed Congress's success to precisely this new tack, especially thorough arrangementswith the Bihar-based Rashtriya Janata Dal and Tamil Nadu's Dravida Munnetra Kazhagam. (17) The influence of large andsmaller regional parties, alike, is seen to be reflected in the UPA's ministerial appointments, and inits professed attention to rural issues and center-state relations. (18) Economic, Foreign, and Security Policy Prime Minister Singh has insisted that development will be a central priority of the UPAgovernment, with reforms aimed at reducing poverty and increasing employment. He alsoemphasizes that privatization is not part of UPA ideology and that major public sector concerns willnot be sold off. The appointment of Harvard-educated lawyer and economic reformer PalaniappanChidambaram to head the Finance Ministry, and a UPA Common Minimum Program (CMP)emphasizing economic growth and increased investment, have been welcomed by most businessinterests, even if the pace of privatization and labor reform efforts may slower. The UPA's firstbudget, released on July 8, generally was lauded by Indian industrial groups as "progressive andforward-looking." (19) The budget calls for a major increase in defense expenditures, up 27 percent over the previous year. Both Prime Minister Singh and his new External Affairs Minister, career diplomat NatwarSingh, have given indications that their initial foreign policy focus will be on India's immediateneighbors. This may mean a deeper diplomatic engagement in the Sri Lankan conflict, along withmore energetic efforts to assist the Nepali government in its struggle with communist rebels. Perhaps most significantly, the India-Pakistan peace initiative begun in April 2003 suffered noapparent damage from the change of government in New Delhi, with both sides insisting that theprocess will continue. The UPA has indicated that it will make the 1972 Simla Agreement betweenIndia and Pakistan the basis of its relationship with Islamabad, even as it will abide by all subsequentaccords. (20) Since thenew government was seated, India and Pakistan have agreed to increase bilateral counternarcoticscooperation; to establish a hotline to reduce the threat of accidental nuclear war; to continue mutualnotifications of missile launches; to return their respective embassies to full strength; and tore-establish consulates in Bombay and Karachi. New National Security Advisor J.N. Dixit has beenassigned to take the lead role in relations with China, replacing his predecessor, Brajesh Mishra, andthe world's two most populous countries have vowed to bolster defense and trade ties while movingforward on efforts to resolve outstanding territorial disputes. (21) India also agreed toincrease bilateral defense ties with Japan through periodic ministerial-level interaction. The new Prime Minister has vowed to repeal the controversial 2002 Prevention of TerrorismAct that some have called a tool for discrimination against religious minorities and oppositionpolitical figures. Statements about the necessity of preventing a repeat of the communal violenceseen in Gujarat in 2002 have encouraged those who hope that a secularist, left-leaning governmentwill do more to both oppose such divisiveness and bring to justice those who encourage it throughlawless means. (22) Itremains unclear how the UPA intends to address roiling separatist violence in several of India'snortheastern states. On military issues, the UPA states an intent to hasten India's modernizationefforts and to maintain a "credible nuclear weapons program" while pursuing confidence-buildingmeasures with its "nuclear neighbors." (23) India-U.S. Relations It is as yet unclear how, if at all, the Congress-led government might differ from itspredecessor in terms of relations with the United States. Many of Prime Minister Singh's toplieutenants were steeped in the non-alignment policies of the Congress Party during the Cold War. External Affairs Minister Natwar Singh and National Security Advisor J.N. Dixit have in the pastbeen highly critical of such issues as U.S. involvement in Iraq, U.S. nonproliferation policy, and U.S.designation of Pakistan as a "major non-NATO ally." Their criticisms often went far beyond similarconcerns raised by the outgoing BJP-led alliance. (24) The Congress-led government continues to state that it has noplans to contribute Indian troops for service in Iraq, although U.S. officials are reportedly seekingto "overcome" Indian reservations. (25) The possible influences of communist parties have added toconcerns that New Delhi may become at least somewhat more critical of and less cooperative withthe United States on bilateral and global issues. However, early statements from the UPA, includingsections of its Common Minimum Program, indicate that the Congress-led government will seek"closer engagements and relations" with the United States, even as it will "oppose all attempts atunilateralism" in world affairs. A June meeting of the U.S.-India Defense Policy Group -- the firstbetween high-level U.S. officials and the UPA government -- and a five-day India-United Statesconference on space science and commerce in Bangalore brought joint statements that cooperativebilateral relations will continue. (26)

U.S. relations with India depend largely on India's political leadership. India's 2004 nationalelections ended governance by the center-right coalition headed by Prime Minister Atal BihariVajpayee and brought in a new center-left coalition led by Prime Minister Manmohan Singh. Following the upset victory for the historically-dominant Indian National Congress Party led bySonia Gandhi, Gandhi declined the post of Prime Minister in the new left-leaning United ProgressiveAlliance (UPA) coalition government, instead nominating her party lieutenant, Oxford-educatedeconomist Manmohan Singh, for the job. As Finance Minister from 1991-1996, Singh was thearchitect of major Indian economic reform and liberalization efforts. On May 22, thewidely-esteemed Sikh became India's first-ever non-Hindu Prime Minister. The defeated BharatiyaJanata Party now sits in opposition at the national level, led in Parliament by former Deputy PrimeMinister Lal Advani. A coalition of communist parties supports the UPA, but New Delhi'seconomic, foreign, and security policies are not expected to be significantly altered. The newgovernment has vowed to continue close and positive engagement with the United States in all areas. This report, which will not be updated, provides an overview of the elections, key parties, and U.S.policy interests.

Overview The Administration has requested $19.025 billion for NASA in FY2017. This amount is 1.3% less than the FY2016 appropriation of $19.285 billion. The House bill would provide $19.508 billion. The Senate bill would provide $19.306 billion. See Table 1 . Unusually, the FY2017 request includes $763 million in mandatory funds. The Administration explains this as follows: The President believes that arbitrary funding caps are harmful to the economy and the Nation. Although the recent Bipartisan Budget Act provided important relief from sequester cuts, the constrained top line for discretionary funding, especially in FY 2017, has made it difficult to appropriately fund important national priorities, including research and development. In the FY 2017 Budget, the President proposes fully-paid-for one-year mandatory funding to accelerate progress in Science, Aeronautics, Space Technology, and Exploration, as well as additional multi-year mandatory funding for Aeronautics to support research and development for low carbon emission aircraft, including associated transportation systems, as part of a multi-agency effort to enable a 21 st century clean transportation system. Typically, NASA receives no more than a few million dollars per year of mandatory funding. In FY2015, for example, it received $2 million for Space Operations from the Spectrum Reallocation Fund and $1 million from the Science, Space, and Technology Education Trust Fund. The discretionary portion of the FY2017 request, $18.262 billion, would be 5.3% less than the FY2016 appropriation. The House and Senate bills include no mandatory funding. There is no authorized level for NASA appropriations in FY2017. The most recent authorization act (the NASA Authorization Act of 2010, P.L. 111-267 ) authorized appropriations through FY2013. The NASA Authorization Act for 2016 and 2017 ( H.R. 2039 , ordered reported by the House Committee on Science, Space, and Technology in April 2015, but not yet reported) the NASA Transition Authorization Act of 2016 ( S. 3346 , passed by the Senate on December 10, 2016), and the NASA Transition Authorization Act of 2016 ( H.R. 6531 , introduced December 20, 2016) include proposed authorization amounts for FY2017. Science The FY2017 request for the Science Mission Directorate is $5.601 billion, an increase of 0.2% from FY2016. Within this total, funding for Earth Science, Astrophysics, and Heliophysics would increase, while funding for Planetary Science and the James Webb Space Telescope would decrease. As shown in Table 1 , the House bill would provide $4 million less than the request, while the Senate bill would provide $206 million less. Relative to the request, the House bill would shift more than $300 million from Earth Science to Planetary Science. In contrast, most of the Senate bill's decrease would be in Planetary Science. Within Earth Science, the request includes $131 million (up from $100 million in FY2016) for the Landsat-9 land imaging satellite. Launch is anticipated "as early as" 2021. NASA previously proposed the Thermal Infrared Free Flyer, a lower-cost satellite intended to reduce the risk of a gap in data availability prior to the launch of Landsat-9. Congress rejected funding for the Thermal Infrared Free Flyer in the FY2016 appropriations cycle, and the mission is not included in the FY2017 request. The House report directs NASA to prioritize funds for Landsat-9 and to evaluate commercially available data in the event of a data gap in the Landsat program. The Senate report recommends the requested amount for Landsat-9 and directs NASA to provide a plan detailing the technical and schedule progress needed for a 2020 launch date. Within Planetary Science, the request includes $50 million (down from $175 million in FY2016) for a mission to Jupiter's moon Europa. Although a mission to Europa was a high priority of the 2011 National Research Council (NRC) decadal survey of planetary science, the NRC expressed reservations about its anticipated cost. For several years, Congress has appropriated more for formulation of a Europa mission than NASA has requested. As directed by the Consolidated Appropriations Act, 2016, NASA's FY2017 congressional budget justification includes a five-year estimate of the funding required assuming a 2022 launch (see Table 2 ). The justification states that "the notional outyear profile in the Budget may support a launch as early as the late 2020s, assuming the mission concept and scope remain stable.... Acceleration of the launch to 2022 is not recommended, given potential impacts to the rest of the Science portfolio." The House report recommends at least $260 million for Europa orbiter and lander missions, with the orbiter launch no later than 2022 and the lander launch no later than 2024. The Senate report calls for "an expeditious launch and reduced travel time" in order to maximize the scientific return of a Europa mission, but it does not specify a funding level or a launch date. It directs NASA to provide a report on options for the mission "to assist the Committee in evaluating potential mission configurations." Aeronautics The FY2017 request for the Aeronautics Research Mission Directorate is $790 million, an increase of 23.5% from FY2016. The request includes New Aviation Horizons (NAH), a new initiative of experimental aircraft and systems demonstrations. NAH projects on subsonic aircraft would receive $100 million in mandatory funding from the President's proposed 21 st Century Clean Transportation Plan. An additional $56 million in mandatory funding would fund a low-boom supersonic flight demonstrator. As shown in Table 1 , the House bill would provide $78 million less than the request for Aeronautics, while the Senate bill would provide $189 million less. The House committee's recommendation includes $61 million (of discretionary funds) for a low-boom flight demonstrator. The House and Senate committee reports both direct NASA to work with the Federal Aviation Administration on research related to the integration of unmanned aerial systems in the National Airspace System. Space Technology The FY2017 request for the Space Technology Mission Directorate is $827 million, an increase of 20.4% from FY2016. Space Technology was first established as a separate account in FY2011. Each year since then, the Administration has proposed to increase Space Technology funding. Congress has provided increases each year except FY2014, but always less than the Administration's request. Proposed mandatory funding of $136 million would account for almost all of the requested increase in FY2017. The bulk of the mandatory funding would support technology demonstration missions, including the Restore-L satellite servicing mission for which Congress appropriated $133 million in FY2016. As shown in Table 1 , the House bill would provide $88 million less than the request for Space Technology, but more than the FY2016 appropriation, while the Senate bill would provide the FY2016 amount. The Senate committee report recommends $130 million for Restore-L. The House and Senate committee reports both identify nuclear propulsion research and a small launch technology demonstration platform as funding priorities. Human Exploration and Operations The Human Exploration and Operations Mission Directorate (HEOMD) is funded by two appropriations accounts: Exploration and Space Operations. The FY2017 request for Exploration is $3.337 billion, a decrease of 17.2% from FY2016. The request for Space Operations is $5.076 billion, an increase of 0.9%. As shown in Table 1 , the House and Senate bills would both provide significantly more than the request for Exploration and somewhat less than the request for Space Operations. Exploration The Exploration account primarily funds development of the Orion Multipurpose Crew Vehicle and the Space Launch System (SLS) heavy-lift rocket, the capsule and launch vehicle mandated by the NASA Authorization Act of 2010 for future human exploration beyond Earth orbit. The account previously also funded development of a commercial crew transportation capability for U.S. astronaut access to the International Space Station (ISS), but Congress transferred this activity to Space Operations in FY2016. Within Exploration, the FY2017 request for Orion, the SLS, and related ground systems (known collectively as Exploration Systems Development) is $2.860 billion, a decrease of 22.3% from FY2016. The bulk of the reduction would be for SLS launch vehicle development, which would receive $1.263 billion, down 35.2% from $1.950 billion in FY2016. According to NASA, the SLS program remains on track for a first test flight carrying Orion but no crew (known as EM-1) in November 2018. The launch readiness date for the first flight of Orion and the SLS with a crew on board (known as EM-2) continues to be FY2023. The increases for Exploration in the House and Senate bills, relative to the request, would fund the SLS at the FY2016 level (in the House bill) or higher (in the Senate bill). The House and Senate reports both recommend funding for development of the SLS Exploration Upper Stage (EUS)—$250 million and $300 million, respectively—which is not included in the Administration request. The House report specifies that none of the funds in the House bill are for the Asteroid Redirect Mission, which was first proposed in the FY2014 budget and which has faced ongoing opposition in Congress. Space Operations The Space Operations account primarily funds operational human spaceflight: the ISS, transportation of crew and cargo to and from the ISS, and formerly the space shuttle program. It also funds the Space and Flight Support program, which consists of launch site operations, space-to-ground communications, and other support activities. Because Congress gave limited direction about how the FY2016 appropriation for Space Operations should be allocated, it is difficult to determine how the allocation of the FY2017 request compares to FY2016. The FY2017 budget is the first to highlight Space Transportation (to and from the ISS) as a top-level item within Space Operations. In previous budgets, the cost of U.S. commercial cargo flights to the ISS and payments to Russia for Soyuz flights carrying ISS crews were subcategories within the ISS budget. Meanwhile, the program to develop a U.S. capability for commercial transportation of ISS crews was funded in the Exploration account. These functions are now combined in the request for Space Transportation. The House and Senate bills would provide $186 million less and $125 million less, respectively, than the request for Space Operations. For the most part, the committee reports do not specify how the recommended funding should be allocated. However, the Senate report does note that its total includes $1.185 billion for Commercial Crew, the same as the request. Orion and SLS vs. Commercial Crew The balance of funding between Exploration Systems Development and the Commercial Crew program has been contentious. Before the FY2017 request, recent Administration budgets proposed to decrease funding for Exploration Systems Development while increasing funding for Commercial Crew. NASA argued that the amounts it requested for the Commercial Crew program were necessary to maintain the scheduled availability of commercial crew transportation to the ISS starting in 2017. It noted that without a U.S. commercial capability, it would need to pay Russia for additional Soyuz flights (although it has also stated that it will likely purchase some additional Soyuz flights in any case). Meanwhile, NASA officials stated that the schedule for the EM-1 test flight would be difficult to accelerate, even with additional funding, because it depends on technical requirements such as engineering design and manufacturing schedules and the need for adequate testing. Congressional supporters countered that the Orion and SLS programs were not receiving the funds they needed, and many saw this pattern as demonstrating a difference in human spaceflight priorities between Congress and the Administration. Congress has generally appropriated less than the Administration's request for Commercial Crew and more for Exploration Systems Development. In the FY2017 request, the Administration is again requesting a reduction for Exploration Systems Development, especially the SLS, but it appears to be requesting approximately the FY2016 amount for Commercial Crew (although the FY2016 allocation of Space Operations funds is not yet clear). The House and Senate bills would again provide more than the request for Exploration Systems Development, but the Senate bill would provide the requested amount for Commercial Crew. The House report does not specify a recommended allocation for Commercial Crew. Education The FY2017 request for the Office of Education is $100 million, a decrease of 13.0% from FY2016. Programs of particular congressional interest include the National Space Grant College and Fellowship Program ($24 million), the Experimental Program to Stimulate Competitive Research (EPSCoR, $9 million), and the Minority University Research Education Program (MUREP, $30 million). Note that not all NASA education activities are managed or funded by the Office of Education. For example, the request for Astrophysics in the Science Mission Directorate includes $25 million for science, technology, engineering, and mathematics (STEM) education. However, recent Administration initiatives to consolidate and reorganize STEM education activities across the government (see CRS In Focus IF10229, The Changing Federal STEM Education Effort , by Heather B. Gonzalez) appear to have reduced NASA's efforts outside the Office of Education. Most notably, the previous Science Mission Directorate policy, under which 1% of all Science mission funding was allocated to education and public outreach, is no longer in effect. As shown in Table 1 , the House and Senate bills would both provide more than the request for the Office of Education: $115 million and $108 million, respectively. Within these totals, both would provide the FY2016 amounts for Space Grant ($40 million), EPSCoR ($18 million), and MUREP ($32 million). For education activities in the Science Mission Directorate, the House report recommends $37 million, while the Senate report recommends $42 million. Other Accounts The three remaining NASA appropriations accounts fund cross-cutting, supporting, and oversight activities. The FY2017 request for Safety, Security, and Mission Services, which funds management and operations at the NASA centers and NASA headquarters, is $2.837 billion, an increase of 2.5% from FY2016. In part, this increase reflects the transfer of funding from other accounts to support the consolidation of NASA information technology services. The request for Construction and Environmental Compliance and Remediation is $420 million, an increase of 7.9%. The request for the Office of Inspector General is $38 million, an increase of 1.9%. The House and Senate recommendations for these accounts are shown in Table 1 .

The National Aeronautics and Space Administration (NASA) was created in 1958 by the National Aeronautics and Space Act (P.L. 85-568) to conduct civilian space and aeronautics activities. It has four mission directorates. The Science Mission Directorate manages robotic science missions, such as the Hubble Space Telescope, the Mars rover Curiosity, and satellites for Earth science research. The Aeronautics Research Mission Directorate conducts research and development on aircraft and aviation systems. The Space Technology Mission Directorate develops technologies for use in future space missions, such as advanced propulsion and laser communications. The Human Exploration and Operations Mission Directorate is responsible for human spaceflight activities, including the International Space Station and development efforts for future crewed spacecraft. In addition, NASA's Office of Education manages formal and informal education programs for school children, college and university students, and the general public. While Congress is generally supportive of most NASA programs, government-wide fiscal constraints make funding decisions challenging. The Administration has requested $19.025 billion for NASA in FY2017. This amount is 1.3% less than the FY2016 appropriation of $19.285 billion. Unusually, the FY2017 request includes $763 million in mandatory funds. The House bill (H.R. 5393) would provide $19.508 billion. The Senate bill (S. 2837) would provide $19.306 billion. Neither bill includes mandatory funding. The FY2017 request for the Science Mission Directorate is $5.601 billion, an increase of 0.2% from FY2016. Within this total, funding for Earth Science, Astrophysics, and Heliophysics would increase, while funding for Planetary Science and the James Webb Space Telescope would decrease. The House bill would provide $5.597 billion for Science, while the Senate bill would provide $5.395 billion. Within these totals, the bills differ considerably in their allocation of funding between Earth Science and Planetary Science. The FY2017 request for the Aeronautics Research Mission Directorate is $790 million, an increase of 23.5% from FY2016. The request includes New Aviation Horizons (NAH), a new initiative of experimental aircraft and systems demonstrations. The House and Senate bills would provide $712 million and $601 million, respectively, for Aeronautics. The FY2017 request for the Space Technology Mission Directorate is $827 million, an increase of 20.4% from FY2016. The House and Senate bills would provide $739 million and $687 million. For the Human Exploration and Operations Mission Directorate, the FY2017 request for Exploration is $3.337 billion, a decrease of 17.2% from FY2016, while the request for Space Operations is $5.076 billion, an increase of 0.9%. The Exploration request includes $1.263 billion, a decrease of 35.2%, for Space Launch System launch vehicle development. Funding for the Commercial Crew program (formerly requested in Exploration) is combined with funding for operational cargo and crew transport to the International Space Station in a new Space Transportation item within Space Operations. The House bill would provide $4.183 billion for Exploration, including $2.000 billion for SLS development, and $4.890 billion for Space Operations. The Senate bill would provide $4.330 billion for Exploration, including $2.150 billion for the SLS, and $4.951 billion for Space Operations. The FY2017 request for the Office of Education is $100 million, a decrease of 13.0% from FY2016. The House and Senate bills would provide $115 million and $108 million, respectively. The request would reduce funding for the National Space Grant College and Fellowship Program, the Experimental Program to Stimulate Competitive Research, and the Minority University Research Education Program. Both bills would fund these programs at their FY2016 levels.

Introduction Congressional concern about mercury in the environment has greatly increased in recent years due to emerging scientific evidence that exposure to low levels of mercury may harm the developing nervous systems of young children. At higher levels of exposure, mercury is known to be a potent neurotoxin. People in the United States are exposed to mercury primarily by eating large, predatory fish. Risks of health problems for people who consume mercury in fish have caused wide public concern and prompted the U.S. Environmental Protection Agency (EPA) and the Food and Drug Administration (FDA) to issue consumer alerts, warning women of child-bearing age and young children to avoid certain fish altogether and to limit the number of meals for other fish. Numerous legislative proposals in the 109 th Congress aim to reduce levels of mercury in the environment—in consumer products, in solid waste, in utility and other emission sources, and in surface water. Most of these proposals focus on sources of mercury emissions to air, because atmospheric mercury deposition accounts for most of the mercury in U.S. freshwater lakes and streams. At least five proposals target emissions from coal-fired electric utilities, because they are thought to be the last remaining major uncontrolled source of mercury emissions. These various proposals and a final regulation promulgated by the U.S. Environmental Protection Agency (EPA) on March 15, 2005, differ in how much and how soon emission reduction would be required, as well as in the extent to which reductions would be distributed geographically across the United States. Analysis of the competing policy proposals for reducing mercury emissions raises questions about the urgency of a need for emission controls, the likelihood that they will reduce mercury contamination of fish, and the possibility that overall reductions might be achieved at the expense of local "hot spots" of mercury contamination. To answer such questions requires an understanding of the sources, fate, and toxicity of mercury in the environment—an understanding that is growing quickly as the results of numerous scientific studies are being reported. This CRS report provides background information about mercury, and summarizes recent scientific findings. It discusses the sources (i.e., natural versus industrial, historic versus modern) and chemical forms of mercury in the environment; how mercury moves through the environment and concentrates in fish (i.e., the fate of mercury); and the risks to human health and wildlife of mercury exposure through fish consumption. Each of these major sections of the report aims to summarize scientific evidence relevant to specific arguments and questions that have emerged in the policy context. For example, the section on mercury in the environment addresses the question "Are utility emissions deposited locally or regionally, or do they rise to merge with the global atmospheric mercury pool?" For information about specific regulatory proposals to reduce environmental mercury, see CRS Report RL32868, Mercury Emissions from Electric Power Plants: An Analysis of EPA ' s Cap-and-Trade Regulations ; CRS Issue Brief IB10137, Clean Air Act Issues in the 109 th Congress , both by [author name scrubbed]; or CRS Report RL31908, Mercury in Products and Waste: Legislative and Regulatory Activities to Control Mercury , by [author name scrubbed] (pdf). Sources of Mercury in the Environment Mercury is a natural element, a silver-colored, shiny, liquid metal that is found in a variety of chemical forms in rocks, soil, water, air, plants, and animals. Sometimes mercury occurs in its elemental, relatively pure form, as a liquid or vapor, but more commonly mercury is found combined with other elements in various compounds, which may be inorganic (e.g., the mineral cinnabar, a combination of mercury and sulfur) or organic (e.g., methylmercury). Natural forces move mercury through the environment, from air to soil to water, and back again. Volcanoes and deep sea vents release tons of mercury to the atmosphere and oceans. Mercury in the air falls to earth with dust, rain, and snow. Mercury evaporates from the oceans, leaves of plants, and other surfaces back into the air. Depending on geologic and meteorologic conditions, the relative amounts of mercury in the atmosphere, surface water, or soil may vary from one year, decade, century, or millennium to another. During the past 500 years or so, human activities have released mercury from its relatively stable and water-insoluble form (cinnabar) in rocks and soil through mining, fossil fuel combustion, and other activities, and so have increased the portion of mercury that is actively cycling through the atmosphere, surface waters, plants, and animals as it changes chemical and physical form. Released mercury may enter the air, persist in the atmosphere and travel great distances or be deposited locally, dissolve in water droplets, settle back onto the land or water, re-enter the air (i.e., be re-emitted), be buried in lake or ocean sediments, or be taken into plants and animals. The generally accepted estimate is that roughly three to five times as much mercury is mobilized today as was mobile before industrialization. However, the author of one recent study argues that the mercury deposited from the atmosphere today is at least 10 times the amount of mercury that was being deposited 500 years ago. In 1995, about 1,913 metric tons (roughly 2,104 U.S. tons) of mercury were newly emitted globally as a result of stationary combustion, metal production, cement production, and waste disposal. Roughly another 514 metric tons (565 U.S. tons) were emitted from other human sources, including chlor-alkali plants, gold production, and mercury uses. Thus, 2,427 metric tons (2,670 U.S. tons) of mercury were released due to human activities in 1995, according to recent estimates. These and other mercury emissions from human activities (past and present) account for at least 50% and perhaps as much as 75% of current, annual, global mercury emissions from all sources (including natural sources), but a large, unknown portion of those mercury emissions is due to past rather than current human activities, according to EPA estimates. The most recent estimates of global, natural mercury emissions range between roughly 1,600 and 3,200 metric tons (1,960 and 3,520 U.S. tons) per year. People have released mercury to the environment primarily through mining and smelting of minerals, burning of fossil fuels (e.g., coal, oil, and diesel fuel), use and disposal of mercury, certain industrial processes (e.g., chlorine production and cement production), and burning of municipal and medical wastes. In some parts of the world such activities are increasing, but in the United States, annual mercury emissions are decreasing. Most of the largest and most direct sources of U.S. mercury releases to water and air have been eliminated. Among the remaining U.S. industrial sources, coal-fired electric utilities are the most important, accounting for about 40% of current U.S. mercury releases. Three estimates of U.S. national emissions are presented in Table 1 . The first two estimates were made by EPA for the National Emissions Inventory. CRS added 12 tons of emissions from gold mines to the EPA emission inventory that was conducted for 1995, at the suggestion of EPA. EPA was unaware of the emissions from that source at the time the inventory was conducted. The "other" category encompasses emissions from various unidentified industries, including most iron and steel mills. EPA advised CRS to note that there are some sources not accounted for in the 1999 EPA inventory, such as iron and steel production using mercury-contaminated scrap, which probably accounts for 7-10 tons of emissions per year. These emissions are not included in the "other" category. EPA also does not include mobile source emissions in its inventory, although these might be significant, because the agency is still developing an estimate. Since the time that EPA completed its 1999 inventory, the medical waste incinerator rules promulgated under the Clean Air Act have been fully implemented, which may have further reduced emissions from that source, and gold mining emissions have decreased due to a voluntary project. Chlorine production emissions also may have declined since the 1999 inventory, because some facilities closed, but one additional facility was identified and included in emission estimates by Seigneur et al., which appear in the third column. These latter estimates were calculated by researchers with Atmospheric & Environmental Research, Inc., and published in 2004, but represent emissions in the year 1998. It is not clear why the Seigneur estimates for 1998 emissions from waste incineration are so much larger than EPA estimates for emissions from that category in 1999. Seigneur included emissions from landfills and electric arc furnaces in the "other" category. The Electric Power Research Institute (EPRI) provided the estimates used in that article for utility emissions. Both the EPRI calculations and the EPA estimate for 1999 utility emissions were based on measurements of mercury content in coal and stack emissions that were collected for the year 1999, in response to an information collection request issued by EPA. Fate of Mercury Released to the Environment Transport, Deposition, Re-emission, and Transformation Chemical form generally determines the ease with which mercury moves through the air, water, and soil and over distances. For example, elemental mercury emissions may remain airborne for more than a year, traveling around the world as part of the so-called "global pool" of atmospheric mercury. About 95% of atmospheric mercury is elemental. Particulate and reactive gaseous mercury (both organic and inorganic) are found in the atmosphere in smaller amounts, because they travel shorter distances from the point of emission and are more quickly deposited. Reactive gaseous mercury typically is deposited within about 100 kilometers of the point of emission. Coal-fired electric utility emissions vary depending on the technology and coal used at each plant, but are roughly 50% elemental mercury, according to EPA. However, the chemical form of mercury emissions can and does change in the atmosphere, making it difficult to predict the fate of particular emissions, including utility emissions. Elemental mercury emitted to the atmosphere can attach to particles or change to a water-soluble form (i.e., a reactive gas) that more easily combines with other chemicals and deposits relatively quickly. Reactive, gaseous mercury is more likely to form (and to be deposited) in the presence of sunlight. This explains why measured concentrations of atmospheric mercury generally are lower during the day than they are at night. Mercury deposition in North America increases in spring and peaks in summer, according to data from the mercury deposition network. Higher summer deposition probably results, at least in part, from the increase in solar energy that is available to spark key chemical reactions (i.e., oxidation). For example, scientists have shown that in the lower layers of the atmosphere (i.e., roughly 400 meters of land or 1,000 meters of the ocean surface), elemental mercury gas may be quickly oxidized by bromine, chlorine, ozone, or hydroxide in the presence of sunlight, leading to local "mercury depletion events." In such cases, concentrations of elemental gaseous mercury in the atmosphere decrease rapidly as the oxidized forms of mercury are deposited to the surface in dry deposits (i.e., without the help of rain or snow). This has been observed during the summer in the Arctic and Antarctic regions, and over the oceans. Summer mercury deposition also might be a result of increased oxidation by ozone. Higher ozone concentrations occur in summer, also due to the action of sunlight. Mercury that is deposited onto plants or soil can be re-emitted to air, attached to soil, dissolved, washed away, buried, or ingested. It may again change chemical form. Mercury often attaches to soil particles, especially humus. Recent research indicates that soil may be a repository for the largest portion of mercury emitted in the past. Mercury may be delivered to surface water bodies by air, in soil, or in streams and rivers. For many isolated lakes, very large lakes, and the oceans, atmospheric deposition (wet and dry) accounts for the largest portion of mercury contamination. Mercury deposited or delivered to surface water may be re-emitted to air, remain suspended or dissolved in the water column, be deposited in sediments, or absorbed or ingested by living things. Re-emission rates from the ocean surface to air may be very large. For example, some experts believe that as much as 90% of the mercury deposited to the ocean surface might be re-emitted. Nevertheless, the concentration of mercury in the mixing layer of the deep oceans probably is increasing by a few percent per year. Mercury in the air eventually will fall back to land or surface water. A recent analysis of deposition data collected for both hemispheres indicates that total gaseous mercury increased in the late 1970s, peaked in the late 1980s, decreased somewhat until the mid-1990s, and has remained constant since then. At present, approximately 5,000 metric tons (5,500 U.S. tons) of mercury are deposited globally each year. Layered samples (known as cores) of glaciers and peat provide historical records of mercury deposits that clearly show the contemporary impact on land of major trends in mercury emissions. That is, cores record the historical rise in mercury emissions and deposition due to mining and industrialization. However, while such records inform us about relative changes in global, regional, and local emissions over a scale of years, even centuries, they provide little information about the precise relationship between particular emissions and particular deposits. This is because the path and time taken by emitted mercury to cycle through environmental media depends on its chemical form, as well as on physical conditions like height of emission, temperature, sunlight, wind speed and direction, humidity, and the presence of certain other substances, such as ozone. Atmospheric deposition tends to be greater in areas closer to emission sources and in locations with more rainfall. Thus, EPA has estimated that about 60% of mercury deposited in the United States is from local or regional U.S. sources, and deposition increases from west to east. Local or even regional deposition can result in areas of relatively high deposition, or "hot spots." Deposition of mercury in particular cases varies, however, depending on many factors, including regional and local climate and weather patterns, soil types, topography, vegetation, and local or regional sources of mercury emissions. Thus, mercury may be deposited near to or far from an emission source. The relative contribution of various sources to mercury deposition also can change over time. For example, the record of mercury deposition in ice cores from Fremont Glacier, Wyoming, shows peaks of high mercury deposition following volcanic eruptions in the northern and southern hemispheres, as well as during the California Gold Rush. Such cores are difficult to interpret, however, because they reflect local as well as global influences. Only a few ecosystems have been studied in sufficient detail to determine the sources of mercury contamination. However, additional information about emission sources and deposition is being gathered through monitoring and modeling across the continental United States, particularly as states undertake detailed analyses of steps needed to restore the quality of waters that are impaired by mercury. According to EPA, more than 700 bodies of water throughout the United States are listed as impaired by mercury; in most cases, the source of the mercury contamination is air deposition. To address these impairments, states are developing Total Maximum Daily Loads (TMDLs), which are plans to bring those waters into attainment with water quality standards. The Florida Everglades and Devil's Lake in Wisconsin were selected as pilot TMDL projects for mercury. Scientists studying the Florida Everglades have estimated that at least half of the mercury deposited in the Everglades is emitted locally, while between 5% and 29% is emitted regionally (from within the southeastern United States). The remainder derives from sources outside the United States. EPA has estimated that 80% of deposition to Pines Lakes, New Jersey, comes from U.S. sources. In contrast, almost all of the mercury found in remote regions of the Arctic is believed to have traveled from distant sources. Methylmercury Formation and Accumulation The most biologically significant transformation of mercury occurs in soil or sediments of lakes or streams, where bacteria (primarily sulfate-reducing bacteria) are capable of converting inorganic mercury to methylmercury. The significance of methylation is that relative to inorganic mercury, methylmercury is more easily absorbed by living tissues, more likely to be ingested in food, and much more toxic to animals. Methylmercury is easily absorbed by the digestive tract and accumulates in the bodies of fish and other animals, when it is ingested faster than it can be excreted. Because methylmercury tends to be stored in muscle tissue (i.e., the edible meat of fish and other animals), animals higher on the food chain tend to have higher levels of exposure. Predatory fish (e.g., walleye, large-mouthed bass, or tuna), fish-eating birds (e.g., loons, ospreys, or eagles), and fish-eating mammals (e.g., raccoons, otters, or mink) which top the longest food chains accumulate the greatest concentrations of methylmercury. In the Florida Everglades, methylmercury concentrations in fish are up to ten million times greater than concentrations of mercury in water. Inorganic mercury is not easily transferred through the food chain and does not concentrate to higher levels with each nutritional link. Generally, the more mercury that is added to an ecosystem, through direct discharge to water, runoff from the surrounding watershed, or deposition from air, the more mercury that will be found in fish. However, the rate of methylmercury formation and accumulation is highly variable, even within relatively small geographic areas, because it depends on many factors, in addition to the abundance of inorganic mercury. Recent research indicates that some ecosystems are particularly sensitive to relatively small mercury inputs, and are more likely to experience high rates of methylmercury production and accumulation. Sensitive ecosystems include low-alkalinity (i.e., low capacity for neutralizing acid) and humic lakes and streams (which are characterized by an abundance of dissolved, decomposed, plant or bacterial matter), wetlands, surface waters connected to wetlands, and waters linked to areas subjected to flooding. Methylmercury formation by sulfate-reducing bacteria and bioaccumulation is favored in ecosystems: that are oxygen-poor and acidic; that contain sulfate (the most common form of sulfur in surface waters), but not too much sulfide (the form of sulfur rendered by sulfate-reducing bacteria; and in which mercury is recently deposited, rather than older mercury. In a Wisconsin lake, researchers found that levels of both sulfate and mercury determined levels of production and bioaccumulation of methylmercury, and that "modest changes in acid rain or mercury deposition can significantly affect mercury bioaccumulation over short-time scales." In response to a significant decrease in mercury deposition between 1994 and 2000, methylmercury in yellow perch decreased by roughly 30% (5% per year). The link between industrial emissions and mercury levels in the oceans is less clear, because the role of the oceans in mercury cycling is poorly understood. On the one hand, significant quantities of reactive inorganic mercury are deposited in the oceans, and methylmercury is found in marine fish and their predators, sometimes at very high concentrations. And, although methylmercury levels are very low in the surface layer of the open oceans, concentrations are greater, perhaps as much as three-fold higher than they were prior to industrialization (assuming that insignificant amounts descended to the ocean depths). So we know that organic (methyl) mercury is formed in the oceans. What we do not know is where the mercury in ocean fish originated—in industrial emissions deposited to the oceans or in the natural reservoir of the ocean depths—nor where it was transformed into methylmercury. Some scientists believe that methylmercury probably is formed in the deep sediments of oceans or in the areas surrounding deep thermal vents in the ocean floor. In that case, they argue, deposition of atmospheric mercury cannot account for current methylmercury levels in ocean fish, given the relatively large size of the deep sea reservoir of mercury and the time it takes for the ocean depths to mix with the surface layers where fish feed, an estimated 400 years. If all the mercury deposited into the oceans due to human activities over the past hundred years were mixed into the ocean even to its greatest depths, the mercury concentration of ocean water would have increased only an estimated 1% to 10% over pre-industrial concentrations. Other scientists believe that sulfate-reducing bacteria form methylmercury in coastal sediments where it is taken up by tiny plants and animals at the bottom of aquatic food webs. Small fish and other animals feeding in near-shore waters concentrate the mercury, then venture far enough from shore to be prey for larger fish, seabirds, and mammals. At this time, not enough information is available to determine whether mercury levels in ocean fish and fish-eating marine mammals have increased or decreased over the past hundred years or so, much less whether levels rose and declined as a result of changes in atmospheric emissions. Although most scientists who study mercury agree that deposition of atmospheric mercury has increased, and therefore the total amount of mercury in the oceans probably has increased, particularly in the surface layer, and one study (described below) has found increased mercury levels in feathers of fish-eating seabirds, measurements of mercury in ocean water and fish are lacking or inconclusive. In part, this lack of data is due to the difficulty of measuring mercury: measurement of methylmercury has only been possible since about 1985, and past measurements of total mercury often were inaccurate because samples were so easily contaminated. A recent study that compared total mercury concentrations in yellowfin tuna captured in 1971 with methylmercury in yellowfin tuna caught in 1998, both in the vicinity of Hawaii, found no significant differences in mercury concentrations. However, the significance of these measurements is unclear, given the historical trend in atmospheric deposition, which peaked in the mid 1980s. Another study compared feathers over time from two kinds of fish-eating birds that live in the northern Atlantic Ocean. Feathers were obtained from museum specimens taken as long ago as 1885. The study found a significant increase in concentrations of methylmercury over time. Among birds that eat fish living near the ocean surface, concentrations of methylmercury in feathers increased at an estimated rate of 1.1% annually between 1885 and 1994. According to study authors, this increase is consistent with the estimated three-fold increases in concentrations of mercury in the atmosphere and surface oceans due to human industry over the same period of time. Among birds that eat fish living in a deeper, darker ocean layer, methylmercury concentrations increased at an estimated rate of 3.5 to 4.8% per year. Risks of Methylmercury Poisoning Toxicity of Methylmercury Methylmercury is highly toxic to the central nervous system of humans and many animals. The observed effects of toxic levels of exposure generally have been similar in laboratory animals, domestic pets, wildlife, and people. Typically, there is a lag time of weeks or even months between exposure to mercury and the onset of health effects. In human adults, absorbed methylmercury is dispersed throughout the body in blood and enters the brain, where it may cause structural damage. The physical lesions may lead to tingling and numbness in fingers and toes, loss of coordination, difficulty in walking, generalized weakness, impairment of hearing and vision, tremor, and finally loss of consciousness and death. At high levels of exposure, effects on the brain are easily observed and irreversible. Damage to the brain may exist, however, in the absence of these observable symptoms of toxicity. Nervous system damage (indicated by tingling and/or numbness in the fingers and toes) has been estimated to occur in about 5 % of adults whose hair is found to contain 50 parts of methylmercury per million parts of hair (ppm). This condition is predictive of more severe toxicity. Lower levels of exposure may have more subtle adverse impacts on coordination, ability to concentrate, and thought processes. Methylmercury readily crosses the placenta of pregnant women. Levels of methylmercury in the fetal brain are roughly five to seven times the levels in maternal blood. Compared to the adult brain, the fetal brain is more sensitive to methylmercury. In the fetus, methylmercury exposure can affect brain development, as evidenced during childhood by a child's ability to learn and function normally after birth. Human poisoning incidents in Iraq and Japan caused severely exposed children to be born with cerebral palsy and mental retardation, and in a few cases infants died. In Japan, poisoning occurred because local fish were poisoned by industrial mercury releases to Minamata Bay. The average mercury content of fish samples there ranged from 9 to 24 ppm. Recent research indicates that exposure to much lower levels of methylmercury also leads to developmental effects on cognitive development. There is general agreement that as little as 10 ppm methylmercury in maternal hair indicates a level of exposure that may produce prenatal effects. Some believe effects occur at even lower exposure levels. For example, a study of women and their infants in eastern Massachusetts indicated that there might be adverse effects when mothers have less than 3 ppm methylmercury in hair. At very low levels of exposure, effects may be very subtle, and detectable only on a population basis—for example, by an increase in the proportion of an exposed population that falls below a level of function defined as impaired. In response to a mandate from the U.S. Congress, EPA contracted with the National Research Council (NRC) to review available research on methylmercury toxicity. The NRC Committee issued a report in 2000. It concluded that scientific studies have demonstrated the sensitivity of the human fetus to pre-natal methylmercury exposure, and that the risk to women who eat large amounts of fish and seafood during pregnancy is "likely to be sufficient to result in an increase in the number of children who have to struggle to keep up in school." A study published in 2003 strengthened and extended the findings of the single major study of children which failed to find any adverse effects in children exposed to mercury before they were born. However, one NRC Committee member testified before a House subcommittee in November 2003 that although those findings had not been published at the time, they only confirmed results already considered and would not have led to a different Committee conclusion. This conclusion has since been confirmed in a peer-reviewed publication by four members of the original NRC committee. Human sensitivity to cardiovascular toxicity might be even greater than to developmental neurotoxicity, given recent research results. For example, a study of 1,833 Finnish men found that those who had at least 2 ppm of mercury in hair had twice the risk of acute myocardial infarction compared to men with less mercury in hair. ( Two ppm of methylmercury roughly corresponds to the upper 10 th percentile of current methylmercury exposure among adult men in the United States.) A follow-up study of the Finnish men also looked at levels of fish-derived fatty acids. Results suggested that the adverse effect of mercury exposure resulted from its interference with the protective effect of fatty acids in the fish. Men who ate fish appeared to benefit from a protective effect of the acids against heart disease, but among those with more than 2 ppm mercury in their hair the protective effect was reduced by half. Other studies generally are consistent with these results, but one major study failed to find an association between total mercury exposure (measured in toenail clippings) and cardiovascular disease. More research is needed to explore interactions among the various risk factors, fish-derived fatty acids, and mercury exposure with respect to heart disease. Environmental Methylmercury Exposure People may be exposed to mercury by eating or drinking, inhaling, or simply absorbing it through their skin. The level of recent (within a month or two) individual exposure to mercury may be determined based on measured concentrations of mercury in blood. For a slightly longer exposure history (e.g., over several months), mercury concentrations in human hair several inches from the scalp may be useful. However, there is no way to measure exposure that occurred more than a few years ago, because methylmercury breaks down in the bodies of animals, and both organic and inorganic mercury are excreted over time. Although rates of physiological processes vary widely among individuals, in general, people eliminate about half the mercury taken in within a period of roughly 44-80 days. In this way, mercury differs from many other pollutants such as lead, which may be measured in the bone or teeth years after exposure has ceased. If mercury exposure ends (because mercury is excreted) before a toxic amount of mercury has accumulated in the body, adverse health effects would not be expected to occur. However, effects would not necessarily subside after excretion, if a toxic level of exposure had occurred. The 1999-2002 National Health and Nutrition Examination Survey (NHANES) collected data on blood mercury levels for a representative sample of U.S. women of child-bearing age. The results for the first two years (1999-2000) are summarized in Table 2 . Because mercury is present in much lower levels in blood than in tissues such as hair, concentrations are expressed as parts of mercury per billion parts blood (ppb), by weight. Based on these data, the Centers for Disease Control and Prevention (CDC) concluded that mercury concentrations generally were low among women of child-bearing age and children in the U.S. population. These results were confirmed by data collected in 2001-2002. However, study authors noted that the survey was designed to gather baseline data, and that there were too few people interviewed to provide reliable estimates of blood mercury levels for individuals at the highest levels of exposure. In the United States, most people are exposed to mercury primarily through eating the flesh (muscle) of fish. People who eat a lot of predatory fish, such as bass, pike, tuna, or swordfish, which may be highly contaminated, may increase the risk of adverse health effects for themselves or, in the case of women who become pregnant, for any unborn children. Thus, NHANES 1999-2000 found that women who ate three or more servings of fish within a month had almost four times the level of mercury in their blood as women who ate no fish that month. Nevertheless, 95% of the 448 women who ate fish relatively frequently (at least three times during the previous 30 days) had blood mercury levels less than about 11 ppb. About 25% of the study population ate no fish or shellfish at all. Generally, their blood contained levels of mercury that were below 2 ppb. The amount of mercury in fish varies with the species, age, and size of the fish. Uncontaminated fish contain less than 0.01 ppm methylmercury in muscle, while very contaminated swordfish in U.S. waters have more than 3 ppm mercury. (Grossly contaminated fish in Minamata Bay, Japan, contained between 9 and 24 ppm mercury.) Even higher levels have been found where there is a local source of water pollution. Diverse species of fish differ in sensitivity to mercury. Significant toxic effects and death are associated in adult fish of various species with between 6 ppm (e.g., for walleyes) and 20 ppm (e.g., for salmon) in muscle tissue. However, individual fish within species also differ in sensitivity, and fish seem able to tolerate higher concentrations of mercury if it is accumulated slowly. In general, older, larger fish of the same species will have more mercury. Table 3 provides the average concentration found in recent years in selected species popular with American consumers. Concentrations are given in parts of mercury per million parts of fish (ppm). Freshwater fish are in italic type. Methylmercury levels in particular species of fish are highly variable, however, reflecting the chemistry and methylation potential of the bodies of water in which they live. Recommended Exposure Limits A key question for Congress is whether there is currently a potential for adverse health effects among individuals who regularly consume fish. Federal agencies have estimated the risk associated with methylmercury exposure at current levels of environmental (i.e., fish) contamination. Of particular relevance is the reference dose (RfD) set by EPA, which is discussed in some detail below. Because there has been some controversy surrounding the EPA RfD, it is compared to two other maximum allowable concentration levels established by federal agencies, the minimum risk level (MRL) set by the Agency for Toxic Substances and Disease Registry, and the Acceptable Daily Intake (ADI) level established by the Food and Drug Administration. As explained below, the apparent inconsistency among the FDA, ATSDR, and EPA estimates of a "safe" exposure level for methylmercury is primarily due to the agencies' diverse responsibilities and actions that are triggered when contamination is found to occur. EPA Reference Dose for Methylmercury The EPA Reference Dose (RfD) is a risk assessment tool, used to estimate daily intake levels of chemicals that are expected to be "without an appreciable risk of deleterious health effects," even if exposure persists over a lifetime. The risk associated with exposure to methylmercury above the RfD is uncertain, but likely to increase with increasing exposure levels. The RfD is intended to account for sensitive members of the human population, such as pregnant women and infants, but not individuals with unusual sensitivity due to conditions such as genetic disorders or severe illness. To calculate the RfD, EPA generally uses a "no observed adverse effect level" (NOAEL), which may be observed or estimated using a model. A NOAEL estimates the threshold level of exposure below which adverse effects do not occur. Then the RfD is established by dividing the NOAEL by uncertainty factors which account for the need to extrapolate from limited data sets to the general U.S. population. In 1985, EPA established its first RfD for people who eat methylmercury-contaminated fish at 0.3 micrograms of methylmercury (μg) per kilogram of body weight (kg bw ) per day. This is equivalent to about 126 μg of methylmercury per week (roughly the amount in two 7-ounce servings of fish containing 0.3 ppm mercury) for a person weighing 132 pounds. This dose is based on the lowest level of exposure that produced adverse effects on the nervous systems (i.e., numbness and tingling in the extremities) of adult Iraqis after they were poisoned by eating contaminated grain during 1971-1972 and adult Japanese who ate contaminated fish from Minamata Bay during the mid-1950s. Two years after EPA set its RfD, data were published showing adverse effects of maternal mercury exposure on the development of Iraqi children who were exposed in the womb. In 1995, EPA revised its RfD, basing it on these developmental effects. This second RfD of 0.1 μg/kg bw /day (42 μg per week for a person weighing 132 pounds) remains in effect. This level would be exceeded if a 132-pound person ate more than one fish meal per week, and the fish contained more than 0.21 ppm of mercury. To calculate the current RfD, EPA used a benchmark dose approach. The benchmark dose for methylmercury estimates the level of exposure that has a 5% chance of doubling the number of children (from 5% to 10% of the exposed population) who function at an abnormally low level on a standardized measure. In 1997, the benchmark dose calculated was 11 parts methylmercury per million parts maternal hair (ppm), by weight, based on all the adverse health effects observed in Iraqi children who were exposed to methylmercury before birth. The findings of other human studies as well as toxicity data collected from animals in scientific laboratories, supported the validity of the EPA calculated benchmark dose. Benchmark doses calculated based on data from studies of island populations with heavy seafood consumption produced similar values (11 to 17 ppm). EPA used the benchmark dose to conclude that consumption of 1.1 μg/kg bw /day of methylmercury probably was safe for the unborn children of women who ate contaminated grain in Iraq. At this level of mercury intake, Iraqi women who weighed an average of 60 kg (about 132 pounds) had about 11 ppm mercury in maternal hair and 44 μg methylmercury per liter of blood. (However, individual ratios of hair to blood concentrations varied widely.) EPA divided that daily dose (1.1 μg/kg bw /day) by an uncertainty factor of 10, accounting for the lack of data on reproductive effects and differences among individuals, to establish the RfD at 0.1 μg/kg bw /day. At this level of exposure, a mercury concentration of approximately 4 to 5 parts mercury per billion parts blood (ppb), by weight, and 1 part mercury per million parts of hair (ppm), by weight, would be expected to accumulate in an adult. According to EPA's independent advisory group, the Science Advisory Board (SAB), the1997 EPA RfD was strongly supported by multiple studies based on different ethnic populations and species, exposures, and developmental endpoints, all suggesting similar RfDs. However, the SAB advised EPA to consider an additional uncertainty factor to account for the need to extrapolate from the observed effects of an acute, short-term exposure to effects that might result from low-level, life-long exposure; the difficulty of detecting subtle population effects; and evidence from animal and human studies suggesting possible neurological degeneration in the elderly and high mercury exposure of the fetus compared to the mother's exposure. Soon after the results of long-term studies were published, the NRC recommended that EPA base its RfD on a evidence of chronic toxicity among island dwellers who were exposed to methylmercury through fish and other seafood. The NRC panel concluded in its 2000 report that there is a 5% chance that maternal exposure to1.0 μg/kg bw /day of methylmercury would double the proportion of children functioning at an abnormally low level. Mothers eating that amount of mercury (in contaminated fish), on average, would have about 12 ppm methylmercury in their hair (and 58 ppb in their blood); fetuses would be exposed to about 58 ppb in cord blood. Recent analyses indicate that these numbers may need to be revised to incorporate research results indicating that the relationship between cord blood and maternal mercury intake is highly variable. Based on the NRC report, EPA revised the RfD for methylmercury. The value of the RfD did not change from 0.1 μg/kg bw /day, but the basis for the RfD was updated using the most current data and analyses. This RfD is considered to be protective of all populations in the United States, including sensitive subpopulations. Based on that RfD, pursuant to section 304(a)(1) of the Clean Water Act, EPA established in 2001 a water quality criterion for methylmercury of 0.3 parts of methylmercury per one million parts of fish tissue (ppm). (This is the first time that EPA based a water quality criterion on a concentration of a pollutant in fish rather than in the water column.) EPA indicated that to protect consumers of fish and shellfish among the general population, this concentration of methylmercury in fish and shellfish tissue should not be exceeded. Agency for Toxic Substances and Disease Registry Minimum Risk Level The Agency for Toxic Substances and Disease Registry (ATSDR), a branch of the Public Health Service, has health-related authority under the Comprehensive Emergency Response, Compensation, and Liability Act (CERCLA, better known as Superfund). One of the agency's responsibilities is to study hazardous substances found at sites on the national priority list (NPL) and to publish and periodically update toxicological profiles of those most frequently found. In revising the toxicological profile for mercury, ATSDR evaluated available data and concluded in 1999 that they supported a Minimum Risk Level (MRL) for chronic exposure to methylmercury of 0.3 μg/kg bw /day. (This is the same as EPA's 1985 RfD.) ATSDR uses the MRL as a screening tool to determine when the risks posed by a hazardous waste site require additional study. Food and Drug Administration Action Level The Food and Drug Administration (FDA) established an action level in 1984 at a concentration of 1 ppm methylmercury in fish or seafood products sold through interstate commerce. At this level, the Acceptable Daily Intake for an adult in the general population is 0.42 μg/kg bw /day, slightly higher than 0.3 μg/kg bw /day, the RfD established by EPA in 1985. The FDA action level is based on the mid-point of the estimated range of the "lowest observed adverse effects level" (LOAEL), or 300 μg of methylmercury/day, at which level of exposure Japanese adults who ate contaminated fish experienced paresthesia (numbness and tingling in extremities). FDA divided this value by 10 to account for scientific uncertainties and to provide a margin of safety. FDA chose not to use the Iraqi data on the effects of fetal exposure as a basis for revising its action level, due to concerns about uncertainties (in contrast to the relative certainty of the health benefits of consuming fish.) The FDA action level is enforceable; the Administration may seize interstate shipments of fish and shellfish containing more than 1 ppm of methylmercury, and may seize treated seed grain containing more than 1 ppm of mercury. For the purpose of advising the general public about fish consumption, FDA has used EPA's RfD, recommending that women of child-bearing age avoid certain fish and limit consumption of other fish. The inconsistency among the FDA, ATSDR, and EPA estimates of a "safe" exposure level for methylmercury is more apparent than real: the differences are less than the uncertainty factor, and the reference levels serve different purposes. In addition, the EPA number assumes a lifetime of exposure, while the ATSDR level is for chronic exposure of 365 days or longer, and the FDA level is for consumption of particular fish. Table 4 consolidates the quantitative information provided above to facilitate comparisons among agencies. U.S. Fish Consumption, Methylmercury Exposure, and Health Risk By comparing methylmercury concentrations for popular fish ( Table 3 ) with federal guidelines ( Table 4 ), it is possible to assess the relative safety of eating different fish and shellfish. Table 5 provides estimates of the numbers of meals of fish with different average levels of contamination that one could eat without increasing methylmercury exposure beyond the EPA RfD. It is important to note, however, that these recommendations assume that the size of meals, the age and size of particular fish, and the age and size of the consumer are "average." Generally, if other factors are held constant, risks of poisoning increase to the extent that consumers are younger or smaller than average, eat larger amounts, or eat older and larger fish (and risks decrease if the reverse is true). For example, a fish lover who consumed one 7-ounce meal of freshwater fish (roughly 200 grams) containing 0.3 ppm of methylmercury (the level permitted by the EPA water quality criterion) seven days in a row could be exposed to ten times the level of EPA's RfD, a level equal to the benchmark dose level. But, because different fish contain different levels of methylmercury, daily consumption of 7 ounces of fish could result in much lower or much higher levels of methylmercury exposure, depending on the types of fish consumed. Average U.S. fish consumption is 7-14 ounces (200-400 grams) per month , according to EPA, when those who do not eat fish are included. On average, that level of fish consumption would expose fish eaters to 4 μg of mercury per day, a level below the RfD for anyone weighing more than 88 pounds (40 kilograms). Fish consumption rates in the United States are estimated annually by the National Marine Fisheries Service (NMFS). Rates are estimated based on total fish and shellfish in commerce (edible weight) divided by the total population in the middle of the census period. No adjustments are made for waste or spoilage of the fish or for people who do not eat fish. Sport-caught fish are not included. For 2002, NMFS estimated per person consumption at 15.6 pounds of fish. Of this quantity, 11 pounds were fresh or frozen, including 6 pounds of finfish and 5 of shellfish. Cured fish accounted for 0.3 pounds and canned fish for 4.3 pounds per capita. Seventy-seven percent of the fish consumed was imported. Consumption rate estimates are higher when only those who eat fish are considered. Unfortunately, data are limited. In the Mercury Study Report to Congress , EPA estimated that: 85% of adults in the United States consume fish and shellfish at least once a month with about 40% of adults selecting fish and shellfish as part of their diets at least once a week (based on food frequency data collected among more than 19,000 adult respondents in the NHANES III conducted between 1988 and 1994). This same survey identified 1-2% of adults who indicated they consume fish and shellfish almost daily. Data from NHANES 1999-2002 indicates that exposure to methylmercury is greater than the RfD for approximately 6% of women of child-bearing age. This percentage is based on four years of data; it is lower than was found by NHANES in the first two-year reporting period,1999-2000. However, a declining trend should not be inferred, because the difference is not statistically significant. At least two more years of data are needed to determine whether the apparent decline in blood mercury levels is a real trend. For study subjects who identified themselves as Asian, Pacific Islander, Native American, or multiracial, approximately 16% had levels greater than the reference level. Data for certain areas of the California coast indicate that although half of all consumers surveyed ate 21 grams per day or less, 5% of consumers ate more than 161 grams per day (more than 10 pounds per month) of fish that consumers caught themselves. At 0.3 ppm methylmercury, such consumers would be taking in about 48 μg per day of methylmercury, an amount close to the benchmark dose. Similarly, a 1988 study of Michigan anglers who eat the fish they catch found that they ate on average 45 grams of freshwater fish per day, but 5% of those surveyed ate 98 grams per day. That amounts to 1.5 pounds of fish per week per person, much more than is recommended for contaminated species of fish, but not an implausibly large amount. Table 6 illustrates the general relationship between plausible levels of fish consumption and methylmercury exposure for various segments of the U.S. population, assuming that fish contain methylmercury at the level of the water quality criterion established by EPA. In making choices about fish consumption, factors other than, or in addition to, methylmercury concentration should be considered. In particular, the health benefits of eating fish high in omega fatty acids are important, especially for cardiovascular health and fetal development. The benefits of fish consumption for the development of intellectual abilities in infants was supported recently by a study of 130 mother-child pairs. The study measured maternal fish consumption, hair mercury levels, and infant scores on tests of visual recognition memory (VRM) and found that VRM scores rose significantly with fish consumption, falling only when mercury levels in maternal hair rose above 1.2 ppm. The study authors concluded that pregnant women should eat at least two fish meals each week, but that they should choose fish species that tend to be high in fatty acids but low in mercury content. As shown below, lake trout and salmon would fit those requirements. Table 7 provides average mercury levels and relative fatty acid content for some popular fish. Wildlife Exposure and Health Effects Fish consumption also is the dominant pathway for wildlife exposure to methylmercury. Fish-eating predators in North America generally have relatively high concentrations of mercury. Toxic mercury levels have been found in individual mink, otters, loons, the Florida panther, and other U.S. birds and wildlife. However, it is not clear whether typical levels of environmental contamination are stressful for wildlife. Fish-eating birds annually eliminate much of their accumulated methylmercury when they form new feathers. Moreover, seabirds seem to be able to demethylate methylmercury, rendering it less toxic. Nevertheless, methylmercury exposure may harm sensitive species at levels found in certain local environments. Many scientists suspect that the immune system is weakened as a result of methylmercury exposure. The most likely adverse impact on birds of methylmercury exposure is impaired ability to reproduce. In common loons, which have been studied extensively, concentrations of mercury in blood correlate with mercury levels in the fish they eat. Mercury levels in loon blood increase from west to east in Canada, with the highest levels being found in southeast Canada. A recent study of mercury in 577 loon eggs collected across eight U.S. states from Alaska to Maine found a similar trend of increasing mercury concentrations from west to east. These blood and egg concentrations are consistent with the pattern of mercury deposition for North America (i.e., increasing from west to east). A study reported in 2003 declining egg volume, but no effect on fertility, with increasing mercury concentrations in New England. However, eggs were collected only if abandoned, which might have biased the results. Reduced egg laying has been associated with concentrations greater than 0.4 ppm methylmercury in prey fish. Mink and otter exposed over a long period of time to more than 1 ppm methylmercury in their diets exhibit classic signs of poisoning and may die. Higher concentrations cause earlier but similar health effects. Less than half that concentration is not lethal; data are lacking for more subtle effects on mink of mercury exposure. There are no field data indicating that the wildlife species most at risk (because they eat fish) currently are experiencing adverse health effects from mercury exposure. Conclusion Current scientific knowledge can inform the debate about competing legislative and administrative proposals to reduce mercury emissions from utilities, but it cannot provide firm answers to all of the specific questions that have been raised. Neither can science resolve policy controversies that revolve around value judgments, for example, questions about how urgent the need is for utility emission controls. However, recent scientific studies have provided potentially useful information for policy makers, about chemical changes to mercury emissions that may take place in the atmosphere; rates of mercury deposition to, and re-emission from, the earth's surface; the relationship between mercury emissions and mercury levels in freshwater fish in various specific ecosystems; and the potential effects of low level, chronic exposure to methyl mercury through fish consumption. Scientific studies have clearly demonstrated that levels of mercury in the atmosphere and in deposits to earth have at least doubled and probably tripled due to human activities, even in places that are remote from human influence. Although most of the largest and most direct U.S. sources of mercury releases to water and air have been controlled, and levels of U.S. mercury deposition are declining, levels of mercury in fish continue to be a concern. Electric utilities are the only uncontrolled major stationary source of U.S. mercury emissions. As a result, control of utility emissions might be the most direct step that could be taken to reduce mercury deposition in the United States. However, there are uncertainties in chemistry and transport, leading to current debates among policy makers. Local and regional emissions from various sources have caused mercury deposition to increase as much as tenfold in some locations, indicating that there is a possibility that local "hot spots" of mercury contamination might persist, despite overall reductions in mercury emissions. In sensitive experimental lakes and wetlands, when local and regional mercury emissions decreased, deposition decreased proportionately, and levels of methylmercury in freshwater fish dropped quickly. This indicates that controls on mercury emissions from electric power plants (particularly those plants with emissions that tend to be deposited locally) could lead to substantial reductions in deposition at some nearby hot spots. It remains to be determined whether there is a link between mercury emissions and mercury in ocean fish. However, scientists have shown that significant quantities of emitted mercury are deposited in the oceans; methylmercury is found in marine fish and predatory seabirds, sometimes at very high concentrations; and sulfate-reducing bacteria are active in coastal sediments. As yet unquantifiable but potentially significant risks from emissions exist, to people and wildlife locally, but also in areas distant from emission sources. Research continues to find evidence of subtle impacts on human health of low levels of methylmercury exposure, levels close to current levels of exposure for people who eat large amounts of certain large, predatory fish. In considering the potential adverse effects of mercury, however, the potential nutritional benefits of eating fish that are not heavily contaminated by mercury should not be overlooked.

Concern about mercury in the environment has increased in recent years due to emerging evidencehat exposure to low levels of mercury may harm the developing rvous systems of unborn children. At least five bills in the 109 th Congress aim to reduce mercury emissions from coal-fired electric utilities. The various proposals and a final regulation promulgated by the U.S. Environmental Protection Agency (EPA) on March 15, 2005, differ in how much and how soon emission reduction would be required, and in whether reductions would be achieved through controls at each plant or through a nationwide cap and trade system. The latter approach could allow individual plants to continue emitting current levels of mercury, potentially worsening conditions at nearby "hot spots." Analysis of competing proposals raises questions about the sources, fate, and toxicity of mercury in the environment. This CRS report provides background information about mercury and summarizes recent scientific findings. For information about regulatory proposals to reduce environmental emissions of mercury, see CRS Report RL32868, Mercury Emissions from Electric Power Plants: An Analysis of EPA ' s Cap-and-Trade Regulations , by [author name scrubbed]. Mercury is a natural element found in rocks, soil, water, air, plants, and animals, in a variety of chemical forms. Natural forces move mercury through the environment, from air to soil to water, and back again. Industrial activities have increased the portion of mercury in the atmosphere and oceans, and have contaminated some local environments. Coal-fired electric utilities are the largest single source of U.S. mercury emissions, according to EPA, but mobile sources also are important. The chemical form of mercury generally determines how it moves through the environment, but mercury can and does change form relatively rapidly where bromine and other oxidizing substances (e.g., ozone) are abundant. In soil or sediments of lakes, streams, and probably oceans (especially where water is oxygen-poor and acidic, and sulfate is present), bacteria convert inorganic mercury to more toxic methylmercury, which can accumulate in fish. Newly deposited mercury seems to be more readily converted than older deposits. People and wildlife who eat contaminated fish can be exposed to toxic levels of methylmercury. In people, methylmercury enters the brain, where it may cause structural damage. Methylmercury also crosses the placenta. The National Research Council has reported that the human fetus is sensitive to methylmercury exposure, and the current risk to U.S. women who eat large amounts of fish and seafood during pregnancy is "likely to be sufficient to result in an increase in the number of children who have to struggle to keep up in school." Some studies indicate that the cardiovascular system may be even more sensitive. Mercury concentrations generally are low, but the estimated safe blood-mercury level is exceeded in about 6% of U.S. women between the ages of 16 and 49 years. EPA and the Food and Drug Administration advise women of child-bearing age to avoid certain large fish, and to limit the amount eaten of other fish. In making choices about fish consumption, the health benefits of eating fish also should be considered. Fish-eating wildlife also are exposed to methylmercury, but it is not clear whether typical current levels of environmental contamination are harmful. This report will be updated as warranted by significant scientific discoveries.

Introduction The Defense Production Act of 1950, as amended (DPA), provides the President a broad set of authorities to ensure that domestic industry can meet national defense requirements. In the DPA, Congress has found that "the security of the United States is dependent on the ability of the domestic industrial base to supply materials and services for the national defense and to prepare for and respond to military conflicts, natural or man-caused disasters, or acts of terrorism within the United States." Through the DPA, the President can, among other activities, prioritize contracts for goods and services, and offer incentives within the domestic market to enhance the production and supply of critical materials and technologies when necessary for national defense. Since 1950, the DPA has been reauthorized over 50 times by Congress, most recently in 2009. The majority of DPA authorities will expire on September 30, 2014, unless reauthorized. This report examines some of the extensive history of the DPA, focusing primarily on its creation and most recent legislative reauthorization. This report also discusses the foremost active authorities of the DPA. Nevertheless, this report is not intended to evaluate all authorities of the DPA comprehensively. In discussing the major authorities of the DPA, this report explains how those authorities may have changed as a result of the most recent reauthorization of the law ( P.L. 111-67 , the Defense Production Act Reauthorization of 2009, henceforth referred to as "Reauthorization of 2009"). This report also identifies relevant delegations of the President's DPA authorities made in Executive Order (E.O.) 13603, National Defense Resources Preparedness . Finally, this report provides a brief overview of issues relevant to Congress and tracks legislation in the 113 th Congress to reauthorize the DPA. H.R. 4809 was reported out of the Committee on Financial Services in the House of Representatives on June 11, 2014. If enacted, H.R. 4809 would reauthorize the DPA for five years and would reform other provisions, as discussed later in the report. The report also discusses congressional considerations for expanding, restricting, or otherwise modifying the authorities provided by the DPA, either in conjunction with or separate from a reauthorization. History of the DPA Origin The DPA was inspired by the First and Second War Powers Acts of 1941 and 1942, which gave the executive branch broad authority to regulate industry during World War II. Much of this authority lapsed at the end of that war, but the beginning of the Cold War with the Soviet Union in the late 1940s and the North Korean invasion of South Korea in June of 1950 caused the Truman Administration to reconsider the need for stronger executive authority in the interest of national defense. A number of factors encouraged President Truman to propose such legislation. Both the armed services and the defense industry supporting the nation's effort during World War II had demobilized during the late 1940s after the cessation of hostilities. With the return of peace, the Administration cut back military expenditures significantly. President Truman accentuated these cuts by placing heavy reliance on atomic weapons to provide for the nation's defense. The perceived power of the atomic arsenal justified, in the eyes of the Administration, substantial cuts in expensive, manpower-intensive conventional military capabilities. This enabled the President to propose and Congress to pass much-reduced defense appropriations. In addition, the nation had recently experienced substantial economic and industrial turmoil. Demand for housing and consumer products, unleashed by the expiration of wartime economic controls, precipitated a series of postwar labor strikes. These reached their height in 1946 in a nationwide shutdown of passenger and freight rail service, leading President Truman to threaten to seize control of the railways and draft striking rail workers into the Armed Forces, placing them under military discipline. Though the presidential threats were never carried out, the strike served to illustrate the economic context in which the nation approached the Korean War. The original DPA, enacted on September 8, 1950, granted broad authority to the President to control national economic policy. Containing seven separate titles, the DPA allowed the President, among other powers, to demand that manufacturers give priority to defense production, to requisition materials and property, to expand government and private defense production capacity, to ration consumer goods, to fix wage and price ceilings, to force settlement of some labor disputes, to control consumer credit and regulate real estate construction credit and loans, to provide certain antitrust protections to industry, and to establish a voluntary reserve of private sector executives who would be available for emergency federal employment. Four of the seven titles (Titles II, IV, V, and VI), which were those related to requisitioning, rationing, wage and price fixing, labor disputes, and credit controls and regulation, terminated in 1953 when Congress allowed them to lapse. Committee Jurisdiction Though commonly associated with industrial production for the Department of Defense (DOD), the DPA currently lies within the jurisdiction of the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs. Prior to 1975, House rules did not permit simultaneous referral of bills to two or more committees. Precedents in both chambers did not allow divided or joint referrals, regardless of bill content. Instead, bills were assigned to committees based on the preponderance of their subject matter. Because much of the President's proposal dealt with economic policy, what became the Defense Production Act was assigned in 1950 to the House and Senate Committees on Banking and Currency (their successors are the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs). Although the parts of the act dealing with the requisitioning of materials, wages and prices, labor, and credit are no longer in force, these committees have retained jurisdiction. In addition to the standing committees of jurisdiction, the original statute created a Joint Committee on Defense Production. This committee was composed of selected members from the standing Committees on Banking and Currency of the Senate and House. This committee was intended to review the programs established by the DPA and advise the standing committees whenever they drafted legislation on the subject. The Joint Committee has not existed, in effect, since 1977 when salaries and expenses for the committee were last funded, although the provision in the DPA establishing the Joint Committee on Defense Production was only officially repealed in 1992. History of DPA Reauthorizations The DPA has been amended and reauthorized numerous times since its original enactment. Most notably, with the passage and enactment of P.L. 85-95, Congress reauthorized Titles I, III, and VII while allowing Titles II, IV, V, and VI of the DPA to expire in 1953. The Defense Production Act, like the War Power Acts that preceded it, included a sunset provision that has required periodic reauthorization and offered the opportunity for amendment. Congress passed the DPA in 1950 and has thus far reauthorized it 51 times, including many short-term "stop-gap" extensions. From time to time, the DPA has expired without Congress passing a law reauthorizing and extending the termination date of the DPA. However, in such circumstances, Congress has often ultimately passed a law retroactively setting the effective date for the law to the previous expiration date. Most notably, for example, the DPA expired on October 20, 1990, and was not reauthorized until August 17, 1991. However, upon passage of P.L. 102-99 , the effective date of the law was set to October 20, 1990. The DPA was most recently reauthorized by the 111 th Congress. Senators Christopher Dodd and Richard Shelby, who were the chairman and ranking Member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs in the 111 th Congress, introduced S. 1677 , the Defense Production Act Reauthorization of 2009, on September 16, 2009. The bill passed both chambers of Congress by September 23, 2009, and was signed into law by the President as P.L. 111-67 on September 30, 2009. Most of the authorities of the DPA would have terminated on the day that the reauthorization was signed into law. The Reauthorization of 2009 extended the majority of DPA authorities until September 30, 2014, at which time they will be terminated unless reauthorized once again. For more on the potential termination of DPA authorities after September 30, 2014, see the " Reauthorization of the DPA in the 113th Congress " section in this report. Major Authorities of the DPA This section provides summaries of the major authorities granted to the President in the three remaining active Titles of DPA. Each summary describes how the DPA authorities are delegated to Cabinet officials or other offices of the U.S. government in the recently issued Executive Order (E.O.) 13603, National Defense Resource Preparedness . The section highlights substantive changes made to these authorities in the Defense Production Act Reauthorization of 2009 (Reauthorization of 2009). This portion of the report identifies substantive changes contained in the Reauthorization of 2009 and E.O. 13603. It is not intended to comprehensively evaluate all authorities in the DPA. The information provided below is reviewed in Table A-2 in the Appendix for select provisions of the DPA. Table A-1 also provides a list of additional materials, information, and resources on various topics of the DPA that may be of use to Congress. General Scope of the DPA The DPA provides the President an "array of authorities to shape national defense preparedness programs and to take appropriate steps to maintain and enhance the domestic industrial base." [Italics added.] DPA authorities are tied to the definition of national defense , as the use of any major DPA authority must be interpreted to promote, support, or otherwise be deemed needed or essential for the national defense. National defense is defined in the statute as programs for military and energy production or construction, military or critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity. Such term includes emergency preparedness activities conducted pursuant to title VI of The Robert T. Stafford Disaster Relief and Emergency Assistance Act [42 U.S.C. §5195 et seq.] and critical infrastructure protection and restoration. Further reference can be made to Title VI of the Stafford Act for a definition of "emergency preparedness" activities. It states that emergency preparedness: means all those activities and measures designed or undertaken to prepare for or minimize the effects of a hazard upon the civilian population, to deal with the immediate emergency conditions which would be created by the hazard, and to effectuate emergency repairs to, or the emergency restoration of, vital utilities and facilities destroyed or damaged by the hazard. Therefore, the use of DPA authorities extends beyond shaping U.S. military preparedness and capabilities, as the authorities may also be used to enhance and support domestic preparedness, response, and recovery from hazards, terrorist attacks, and other national emergencies, among other purposes. In its original 1950 form, the DPA defined national defense as "the operations and activities of the armed forces, the Atomic Energy Commission, or any other department or agency directly or indirectly and substantially concerned with the national defense.... " Over the many reauthorizations and amendments to the DPA, Congress has gradually expanded the scope of the definition of national defense, and did so again in 2009. At that time, Congress included critical infrastructure assistance to any foreign nation and added homeland security to the definition. For more on the other definition changes to the DPA in the Reauthorization of 2009, see the section " Definitions of Key Terms in the DPA " of this report. The DPA also includes a full statement of policy and congressional findings, as set forth in the "Declaration of Policy." In 2009, Congress amended the declaration of policy by expanding the text to explicitly list natural disasters and terrorist attacks as being part of the national defense. The declaration was also amended to include "biomass" and "more efficient energy storage and distribution technologies" as forms of renewable energy to augment domestic energy supplies to further assure the adequate maintenance of the domestic industrial base. The Reauthorization of 2009 also often reordered or slightly reworded various clauses. Authorities under Title I of the DPA Priorities and Allocations Authority Section 101(a) of Title I of the DPA states: The President is authorized (1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and, for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contracts or orders by any person he finds to be capable of their performance, and (2) to allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defense. The priority performance authority allows the federal government to ensure the timely availability of critical materials, equipment, and services produced in the private market in the interest of national defense, and to receive those materials, equipment, and services through contracts before any other competing interest. Under the language of the DPA, a person (including corporations, as defined in statute) is required to accept prioritized contracts/orders, though regulations implementing Title I authorities provide practical exemptions to this mandate. The limited allowances for when a person is required to or may optionally reject a prioritized order can be superseded by the direction of the implementing federal department. In executing a contract under the DPA, a contractor is not liable for actions taken to comply with governing rules, regulations, and orders (e.g., prioritization requirements), including any rules, regulations, or orders later declared legally invalid. The government can also prioritize the performance of contracts between two private parties, such as a contract between a prime contractor and a subcontractor, if needed to fulfill a priority contract and promote the national defense. Title I also allows the President to allocate or control the general distribution of materials, services, and facilities. Allocation authority relates historically to the controlled materials programs of World War II, when the distribution of critical materials and resources had to be managed to maximize the production of goods needed in the war effort. This authority is rarely used today, and is currently only implemented for the Civil Reserve Air Fleet (CRAF) program, under which the DOD may augment its airlift capability with civilian aircraft during a national defense related crisis. There are several notable restrictions to the priorities and allocation authority. For example, it cannot be used for contracts of employment. Additionally, unless authorized by a joint resolution of Congress, the authority cannot be used for wage or price controls. Private persons are not required to assist in the production or development of chemical or biological weapons unless directly authorized by the President or a Cabinet secretary. Determinations and Delegations In statute, Title I priorities and allocation authority can only be used to "promote national defense." In E.O. 13603, the President further constrains that authority so that it "may be used only to support programs that have been determined in writing as necessary or appropriate to promote the national defense" by the either the Secretary of Defense, the Secretary of Homeland Security, or the Secretary of Energy, depending on the issue involved. Once a program is determined to promote the national defense, other Secretaries who have been delegated the priorities and allocation authority can use their authority for those pre-designated program purposes. E.O. 13603 provides for the delegation of the President's priorities and allocation authority to six different Cabinet Secretaries based upon their areas of expertise in different resource and material sectors. These resource areas are further defined in Section 801 of E.O. 13603. The delegation to the Cabinet Secretaries in E.O. 13603 did not differ from the earlier executive order, though the definitions of their assigned resource areas did change somewhat. Table A-3 in the Appendix summarizes this delegation of priorities and allocation authority. How Priorities and Allocations Changed in the Reauthorization of 2009 and E.O. 13603 The statutory language providing Section 101(a) priorities and allocation authority has existed, unaltered, since the original enactment of the DPA. However, in the Reauthorization of 2009, Congress added a rulemaking requirement to the statute. Congress mandated that all Cabinet Secretaries delegated priorities and allocation authority establish standards and procedures for its use. The statute further encourages these rules to be consistent and unified in nature, a recommendation made by the Government Accountability Office and endorsed by the reauthorization bill's principal sponsor. The necessary rules were required to be issued within 270 days from bill enactment, or the end of June 2010. Of the six departments delegated authority, three (Commerce, Energy, and Transportation) had issued final rules as of June 10, 2014. Though it has been periodically updated to conform to evolving practices and DPA statute, the Department of Commerce's (DOC's) rule establishing the Defense Priorities and Allocations System (DPAS) has existed in its current basic format since 1984. DOC is currently updating the DPAS to account for the Reauthorization of 2009. The Department of Agriculture has also issued a proposed rule. The Departments of Defense and Health and Human Services have not yet released rules in proposed or final form. Examples of Use The allocation authority has rarely been used by the government, but the authority to prioritize contracts is routinely employed by the DOD. In a typical year, DOD will assign a DPA priority to more than 300,000 contracts, representing more than 20% of the nearly 1.5 million contracts reported by the department and its subordinate military departments, agencies, and offices for FY2012. These prioritized contracts are typically issued under the DOC's delegated authority with respect to materials, services, and facilities, including construction materials, and under its regulations guiding the use of this authority. Some notable examples of DOD's use of Title I priorities authority include supporting the development of the Integrated Ballistic Missile Defense System and Mine Resistant Ambush Protected (MRAP) Vehicles. While the priorities authority is used far less frequently by other departments and agencies, it has been used for both the prevention of terrorism and natural disaster preparedness. For example, the Federal Bureau of Investigation has prioritized contracts in support of the Terrorist Screening Center program and the U.S. Army Corps of Engineers prioritized contracts in support of the Greater New Orleans Hurricane and Storm Damage Risk Reduction System program. Title I and Energy Title I also contains several provisions related to domestic energy. Section 101(c) authorizes the President to allocate and prioritize contracts for materials, equipment, and services to maximize domestic energy supplies in certain circumstances. This authority was used by the Department of Energy to ensure that emergency supplies of natural gas continued to flow to California utilities, helping to avoid threatened electrical blackouts in early 2001. However, Section 105 of the DPA restricts its authorities from being used to ration the end-use of gasoline without the approval of Congress. Section 106 of Title I, as amended, also designates energy as a strategic and critical material. This designation enables other authorities in the DPA, especially Title III authorities discussed below, to be used for policy decisions related to energy. However, prior to the Reauthorization of 2009, the DPA did not grant any new direct or indirect authority to the President to "engage in the production of energy in any manner whatsoever (such as oil and gas exploration and development, or any energy facility construction), except as expressly provided in sections 305 and 306 [50 U.S.C. App. §§2095 and 2096] for synthetic fuel production." This restriction designating "energy" as "strategic and critical material" was deleted in Section 5 of the Reauthorization of 2009. With that restriction eliminated, the specific exemption for synthetic fuel production became unnecessary, so the Reauthorization of 2009 also repealed several sections on the production of synthetic fuel. The issue of synthetic fuel production and the use of the DPA for energy production has an extensive history that is beyond the scope of this report. Authorities Under Title III of the DPA Title III authorities are intended to help ensure that the nation has an adequate supply of, or the ability to produce, essential materials and goods necessary for the national defense. Using Title III authorities, the President may provide appropriate financial incentives to develop, maintain, modernize, restore, and expand the production capacity of domestic sources for critical components, critical technology items, materials, and industrial resources essential for the execution of the national security strategy of the United States. The President is also directed to use Title III authorities to ensure that critical components, critical technology items, essential materials, and industrial resources are available from reliable sources when needed to meet defense requirements during peacetime, graduated mobilization, and national emergency. In the Reauthorization of 2009, Congress amended and replaced the full text of Title III, though the core purpose and content of the authorities remain principally the same. From an administrative standpoint, language was updated throughout Title III to comply with more modern legislative style and structure. Loan Guarantees and Direct Loans Sections 301 and 302 of Title III of the DPA authorize the President to issue loan guarantees and direct loans to reduce current or projected shortfalls of industrial resources, critical technology items, or essential materials needed for national defense purposes. Loan guarantees and direct loans can be issued to private businesses to help them create, maintain, expedite, expand, protect, or restore production and deliveries or services essential to the national defense. A direct loan is a loan from the federal government to another government or private sector borrower that requires repayment, with or without interest. A loan guarantee allows the federal government to guarantee a loan made by a non-federal lender to a non-federal borrower, either by pledging to pay back all or part of the loan in the instance that the borrower is unable to do so. These authorities, for instance, could be used to provide a loan, or to guarantee a loan, to a defense contractor that is responsible for the provision of critical services essential to the national defense when credit is otherwise unavailable in the private market. How Loan Authority Changed in the Reauthorization of 2009 According to Senator Christopher J. Dodd of Connecticut, the reauthorization bill's principal sponsor, the loan authorities provided in Sections 301 and 302 were updated in order to comply with the Federal Credit Reform Act of 1990. In general, these changes increased restrictions on the use of the authority by the President. For example, prior to the Reauthorization of 2009, Section 301 and 302 authorized the President to make loans and loan guarantees if an "industrial resource shortfall," which the direct loan or loan guarantee was intended to correct, had been identified in the President's annual budget submission to Congress (or amendment to the submission). Since reauthorization, the budget authority for guarantees and direct loans must be specifically included in appropriations passed by Congress and enacted by the President before they can be issued. Both before and after 2009, the President is allowed to waive the majority of restrictions on use of this authority during periods of national emergency declared by the President or Congress. Except in declared national emergencies, this statute also requires the President to determine that loan guarantees or direct loans meet a number of conditions before issuance. Perhaps most importantly, one of the conditions in using the loan authority is that the loan or loan guarantee is the most cost-effective, expedient, and practical alternative method for meeting the need. Prior to the reauthorization, the President had been required to determine that the ability of domestic industrial sources to produce a good or service was insufficient to meet the combined projected defense and non-defense demand. In other words, the President had been required to determine that there was an insufficient supply of a good before issuing a loan guarantee or direct loan. The Reauthorization of 2009 removed this requirement, but expanded the determination requirements for guarantee and direct loans to include provisions that may help ensure that the loan is repaid by the recipient. For example, the President is now required to determine that there is "reasonable assurance" that a recipient of a loan or loan guarantee will be able to repay the loan. Purchase, Purchase Commitments, and Installation of Equipment Section 303 of Title III grants the President an array of authorities to create, maintain, protect, expand, or restore domestic industrial base capabilities essential to the national defense. These authorities include, but are not limited to: purchasing or making purchase commitments of industrial resources or critical technology items; making subsidized payments for domestically produced materials; and installing and purchasing equipment for industrial facilities to expand their productive capacity. In general, Section 303 authorities can be used by the President to provide incentives for domestic private industry to produce and supply critical goods that are necessary for the national defense. The scope of Section 303 authorities allows for these incentives to be structured in a number of ways, including direct purchases or subsidies of such goods. Determination and Notification of an Industrial Base Shortfall Prior to using Section 303 authorities, the law requires the President to determine that there is a "domestic industrial base shortfall" for a particular industrial resource, material, or critical technology item that threatens the national defense. This determination includes finding that the industry of the United States cannot reasonably be expected to provide the capability for the good in a timely manner. The President is required to notify the committees of jurisdiction when such a determination is made and give the committees 30 days to comment if the cost of actions to remedy the shortfall is expected to exceed $50 million. The President is authorized to waive the determination and notification provisions in periods of national emergency or in situations that the President, on a non-delegable basis, determines the industrial base shortfall would severely impair national defense. How Section 303 Authority Changed in the Reauthorization of 2009 Expansion of Authorities Section 303(a)(1) of DPA provides an "In general" list of actions the President may take in order to meet the needs of the national defense. In the Reauthorization of 2009, Congress clarified the President's authority in Section 303(a)(1) to specifically state that the authorities may be used to "create, maintain, protect, expand, or restart domestic industrial base capabilities." Previously, this section only stated that the authorities could "assist in carrying out the objectives" of the DPA. More significantly, the Reauthorization of 2009 also expanded the list of authorized actions in the Section 303(a)(1) subsection to include providing for the "development of production capabilities" and "for the increased use of emerging technologies in security program applications and the rapid transition of emerging technologies." Likewise, Section 303(e) has long authorized the President to enhance productive capacity by directly procuring and installing manufacturing equipment in both government and privately owned industrial facilities. In the reauthorization, this authority was expanded to allow the President to provide for the modification or expansion of privately owned facilities, as well as the ability to sell and transfer equipment to privately owned industrial facilities. In addition, the statute now requires that the owner of an industrial facility receiving equipment from this subsection of authorities indemnify the federal government from certain liability claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. Determination and Notification Requirements While the Reauthorization of 2009 tightened restrictions on the use of Sections 301 and 302, it appears to have eased the use of Section 303 authorities. In order to use Section 303 authorities the President is required to make a determination that there is a "domestic industrial base shortfall" of a particular good before initiating action under the section. Prior to being struck from the statute by the 2009 reauthorization, the President's determination requirement under this section also included the conditions that purchases, purchase commitments, or other action pursuant to this section are the most cost effective, expedient, and practical alternative method for meeting the need; and the combination of the United States national defense demand and foreseeable nondefense demand for the industrial resource or critical technology item is not less than the output of domestic industrial capability, as determined by the President, including the output to be established through the purchase, purchase commitment, or other action. However, these two conditions were struck from the statute in the Reauthorization of 2009. In addition, the law previously contained a limitation on the amount of money that could be spent on actions to rectify a domestic industrial base shortfall. Prior to 2009, the actions that would cause aggregate spending in excess of $50 million needed to be specifically authorized by law. This was changed in the reauthorization, and the President is now allowed to initiate actions in aggregate of over $50 million after a waiting period of 30 days following notification to the committees of jurisdiction. Delegation of Section 301, 302, and 303 Authorities in E.O. 13603 In E.O. 13603, the "head of each agency engaged in procurement for national defense" is delegated the majority of the authorities of Sections 301, 302, and 303 of Title III of the DPA. These agencies are specifically identified in E.O. 13603. This delegation includes the ability to make all determinations not explicitly cited in the statute as being nondelegable. However, this delegation does not include the authority to encourage the exploration, development, and mining of strategic and critical materials and other materials. This authority is provided to the President in the statute, and is delegated only to the Secretaries of Defense and the Interior. E.O. 13603 offers a level of uniformity and clarity to the delegation of Title III authorities that was absent from previous executive orders. Under an earlier executive order that implemented the pre-2009 DPA, authorities had been delegated through a similar definition process, but were additionally tied to another executive order. The additional step of referring to another executive order for delegations was eliminated in E.O. 13603. Use of Title III Authorities According to the Defense Production Act Committee, the federal government has not used the loan authorities provided in Section 301 or Section 302 of Title III in more than 30 years. Rather, current projects are initiated under Section 303 of Title III of the DPA. There are approximately 28 current Title III research or procurement projects that are "focused on ensuring future U.S. production capabilities and maintaining U.S. technological leadership in critical markets." Examples include a "Lithium Ion Battery Production for Space Applications" and a "Lightweight Ammunition Production Initiative." These examples, like many other Title III projects, are meant to establish a domestic capacity to produce these advanced technologies deemed essential for national defense. Defense Production Act Fund The DPA contains a blanket authorization of appropriations needed to carry out all of its provisions and purposes. Title III of the DPA also establishes a Treasury account, the Defense Production Act Fund, that is available to carry out all of the provisions and purposes of Title III. The monies in the DPA Fund are available until expended. The DPA Fund is also used to collect all proceeds from DPA activities under Title III, such as the resale of DPA-procured commodities or products. However, the balance in the DPA Fund at the end of any fiscal year cannot exceed $750 million, excluding monies appropriated for that fiscal year or obligated amounts. The only substantive change made to the DPA Fund in the Reauthorization of 2009 was to increase this allowable annual balance for the Fund from $400 million to $750 million. Table 1 provides the appropriations to the DPA Fund between FY2010 and FY2014. It is possible for appropriations to the DPA Fund to be made in any of the bills providing funding to the numerous agencies delegated Title III authorities. However, all recent direct appropriations to the DPA Fund have come from appropriation bills for the Department of Defense (or the relevant division of an omnibus appropriations bill). Distinctively, as noted in Table 1 , in FY2014, the Department of Energy has been authorized to transfer up to $45 million to the DPA Fund from the overall appropriation to another account. The President is also required to designate a "Fund manager" to carry out general accounting functions for the fund. The Secretary of Defense has been delegated this responsibility in E.O. 13603. As the Fund Manager, the Secretary of Defense (or official to whom the authority is delegated) is responsible for the financial accounting of the fund, but does not necessarily have decision-making authority over the use of the fund. The designation of a Fund Manager did not change from E.O. 12919, as amended. Authorities Under Title VII of the DPA Title VII of the DPA contains an assorted mix of provisions that clarify how DPA authorities should and can be used, as well as additional presidential authorities. Significant provisions of Title VII, and how they have changed under the Reauthorization of 2009 or how delegations of the authority changed with the issuance of E.O. 13603, are summarized here. Special Preference for Small Businesses There are two provisions in the DPA directing the President to accord special preference to small businesses when issuing contracts under DPA authorities. Section 701 of Title VII reiterates and expands upon a requirement in Section 108 of Title I directing the President to "accord a strong preference for small business concerns which are subcontractors or suppliers, and, to the maximum extent practicable, to such small business concerns located in areas of high unemployment or areas that have demonstrated a continuing pattern of economic decline, as identified by the Secretary of Labor." These provisions were not amended in the Reauthorization of 2009, nor did the delegation of the authority change in E.O. 13603. Definitions of Key Terms in the DPA The DPA statute historically has included a section of definitions. Though national defense is perhaps the most important term, there are additional definitions provided both in current law and in E.O. 13603. Over time, the list of definitions provided in both the law and implementing executive orders has been added to and edited, and the Reauthorization of 2009 was no exception. Most notably, Congress added a definition for homeland security to place it within the context of national defense . Likewise, in issuing E.O. 13603, supplementary definitions were amended, added, and removed definitions that had been listed in E.O. 12919, as amended. Industrial Base Assessments To appropriately use numerous authorities of the DPA, especially Title III authorities, the President may require a detailed understanding of current domestic industrial capabilities and thereby need to obtain extensive information from private industries. Therefore, under Section 705 of the DPA, the President may "by regulation, subpoena, or otherwise obtain such information from ... any person as may be necessary or appropriate, in his discretion, to the enforcement or the administration of this Act [the DPA]." This authority has been delegated to the Secretary of Commerce in E.O. 13603. Though this authority has many potential implications and uses, it is most commonly associated with what the DOC's Bureau of Industry and Security calls "industrial base assessments." These assessments are often conducted in coordination with the Departments of Defense and Homeland Security, as well as the private sector, to "monitor trends, benchmark industry performance, and raise awareness of diminishing manufacturing capabilities." The statute includes a requirement that the President issue regulations to insure that the authority is used only after "the scope and purpose of the investigation, inspection, or inquiry to be made have been defined by competent authority, and it is assured that no adequate and authoritative data are available from any Federal or other responsible agency." However, no such regulation has been issued by the executive branch. Voluntary Agreements Normally, voluntary agreements or plans of action between competing private industry interests could be subject to legal sanction under anti-trust statutes or contract law. Title VII of the DPA authorizes the President to "consult with representatives of industry, business, financing, agriculture, labor, and other interests in order to provide for the making by such persons, with the approval of the President, of voluntary agreements and plans of action to help provide for the national defense." The President must determine that a "condition exists which may pose a direct threat to the national defense or its preparedness programs" prior to engaging in the extensive consultation process. Following the consultation process, the President or appropriate delegate may approve and commence the agreement or plan of action. Parties entering into such voluntary agreements are afforded a special legal defense if their actions within that agreement would otherwise violate antitrust or contract laws. Historically, the National Infrastructure Advisory Council noted that the voluntary agreement authority has been used to "enable companies to cooperate in weapons manufacture, solving production problems and standardizing designs, specifications and processes," among other examples. The Maritime Administration of the Department of Transportation manages the only currently established voluntary agreements in the federal government, the Voluntary Intermodal Sealift Agreement (commonly referred to as "VISA") and the Voluntary Tanker Agreement. These agreements are established to ensure that the maritime industry can respond to the mobilization and transportation requirements of the Department of Defense. There were two substantive changes to this voluntary agreement authority in the Reauthorization of 2009. First, in most circumstances, an individual with delegated authority must consult with the Attorney General or the Federal Trade Commission prior to finalizing the voluntary agreement. The revised statute now permits the finalization of a voluntary agreement without consultation with the Attorney General or Federal Trade Commission if the President determines, on a nondelegable basis, that it is needed to meet national defense requirements in the wake of a disaster that destroys or degrades critical infrastructure. Second, the reauthorization extended the maximum term length for each voluntary agreement, once it is established, from two years to five years. The delegation of voluntary agreement authority did not change substantively with the issuance of E.O. 13603. However, E.O. 13603 includes an explicit requirement that the Department of Homeland Security issue regulations on voluntary agreements in accordance with DPA statute. Nucleus Executive Reserve In Title VII of the DPA, the President is authorized to establish a volunteer body of industry executives, the "Nucleus Executive Reserve," or more frequently called the National Defense Executive Reserve (NDER). The NDER would be a pool of individuals with recognized expertise from various segments of the private sector and from government (except full-time federal employees). These individuals would be brought together for training in executive positions within the federal government in the event of an emergency that requires their employment. The historic concept of the NDER has been used as a means of improving the war mobilization and productivity of industries. The Reauthorization of 2009 amended the statute by removing a clause that allowed the President to grant some exemptions to criminal statutes to NDER participants. The head of any governmental department or agency may establish a unit of the NDER and train its members. No NDER unit is currently active, though the statute and E.O. 13603 still provide for this possibility. Units may be activated only when the Secretary of Homeland Security declares in writing that "an emergency affecting the national defense exists and that the activation of the unit is necessary to carry out the emergency program functions of the agency." Authorization of Appropriations Appropriations for the purpose of the DPA are authorized by Section 711 of Title VII. The only regular annual appropriation for the purposes of the DPA is made in the Department of Defense appropriations bill to the DPA Fund, though appropriations could be made in other bills. Prior to the Reauthorization of 2009, Section 711 contained a separate provision authorizing appropriations within a defined time period for Title III specifically. However, this separate provision was removed in 2009. Arguably, this separate authorization was redundant with the overall authorization of appropriation. Committee on Foreign Investment in the United States Another section of Title VII grants the President authority to review certain corporate mergers, acquisitions, and takeovers, and to investigate the potential impact on national security of such actions. The statute empowers the President to suspend these actions for any period he considers appropriate, or to prohibit transactions found to threaten impairment of national security. This is the so-called Exon-Florio Amendment, which designated a pre-existing interagency body, the Committee on Foreign Investment in the United States (CFIUS) chaired by the Secretary of the Treasury, as the entity through which the President acts. For example, CFIUS reviews resulted in President George H. W. Bush ordering the China National Aero-Technology Import & Export Corporation to divest itself of Seattle-based MAMCO Manufacturing in 1990 and in the approval by President George W. Bush of the acquisition of IBM's personal computer and laptop division by Chinese-owned Lenovo in 2005. Various CFIUS authorities are delegated by the President in E.O. 11858, Foreign Investment in the United States , originally issued in 1975, not in E.O. 13603. The Reauthorization of 2009 did not amend this authority. Defense Production Act Committee The Defense Production Act Committee (DPAC) is an interagency body established by the 2009 reauthorization of the DPA. The DPAC was created to advise the President regarding the effective use of DPA authorities. Comments made by Representative Melvin Watt during floor consideration of the 2009 bill suggest that part of the legislative intent in creating the DPAC may have been to elevate the policy discussions on the DPA to a Cabinet-level body. Congress exempted the DPAC from the requirements of the Federal Advisory Committee Act. The statute assigns membership in the DPAC to the head of each federal agency delegated DPA authorities, as well as the Chairperson of the Council of Economic Advisors. A full list of the members of the DPAC is included in E.O. 13603. The DPA also requires the President to designate one of the members as Chairperson of the DPAC. President Obama has appointed the Secretaries of Homeland Security and Defense to serve as the Chairperson on an annually rotating basis. The President is also required to appoint an Executive Director to the DPAC to support the Chairperson as needed. The current Executive Director is the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy. The only statutory responsibility of the DPAC is to provide an annual report that reviews the current use of DPA authorities, and provides recommendations for improving DPA implementation in the government or for amending DPA statute. This report is provided to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services. The first annual DPAC report, for the calendar year 2010, was submitted in August of 2011. The reports for calendar years 2011 and 2012 were combined and submitted to Congress on March 31, 2013. As of January 31, 2014, a DPAC report for the calendar year 2013 was not available to CRS. Impact of Offsets Report Offsets are industrial compensation practices that foreign governments or companies require of U.S. firms as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services as defined by the Arms Export Control Act (22 U.S.C. §2751, et seq.) and the International Traffic in Arms Regulations (22 C.F.R. §§120-130). In defense trade, such industrial compensation can include mandatory co-production, licensed production, subcontractor production, technology transfer, and foreign investment. The Secretary of Commerce is required to prepare and to transmit to the appropriate congressional committees an annual report on the impact of offsets on defense preparedness, industrial competitiveness, employment, and trade. Specifically, the report discusses "offsets" in the government or commercial sales of defense materials. The Reauthorization of 2009 moved this reporting provision to Title VII from Title III. The reporting provision did not change substantively in the move to Title VII. Issues for Congress Reauthorization of the DPA in the 113th Congress All DPA authorities in Titles I, III, and VII are scheduled to terminate on September 30, 2014, with the exception of four sections. As explained in Section 717 of the DPA, the sections that are exempt from termination are: 50 U.S.C. Appx. §2074, Section 104 of the DPA that prohibits both the imposition of wage or price controls without prior congressional authorization and the mandatory compliance of any private person to assist in the production of chemical or biological warfare capabilities; 50 U.S.C. Appx. §2157, Section 707 of the DPA that grants persons limited immunity from liability for complying with DPA-authorized regulations; 50 U.S.C. Appx. §2158, Section 708 of the DPA that provides for the establishment of voluntary agreements; and 50 U.S.C. Appx. §2170, Section 721 of the DPA, the so-called Exon-Florio Amendment, that gives the President and CFIUS review authority over certain corporate acquisition activities. In addition, Section 717(c) provides that any termination of sections of the DPA "shall not affect the disbursement of funds under, or the carrying out of, any contract, guarantee, commitment or other obligation entered into pursuant to this Act" prior to its termination. This means, for instance, that prioritized contracts or Section 303 projects created with DPA authorities prior to September 30, 2014, would still be executed until completion even if the DPA is not reauthorized. Similarly, the statute specifies that the authority to investigate, subpoena, and otherwise collect information necessary to administer the provisions of the act, as provided by Section 705 of the DPA, will not expire until two years after the termination of the DPA. If the DPA were to expire, there are other permanently authorized authorities that may serve as a partial substitute for the Title I priorities and allocations authority. Most prominently, Section 18 of the Selective Service Act of 1948 allows the President to place orders with any person for "articles and materials" and require that person to "give precedence" to that order above all others in the interest of national security. However, as has been discussed in congressional testimony by executive branch officials, this Selective Service Act authority is more limited than the DPA's priorities and allocations authority in that it only applies to orders of materials intended for the armed forces or atomic energy programs (instead of the broad national defense definition of the DPA), and that it does not offer liability protection for recipients of the prioritized orders (as is offered by Section 707 of the DPA). Additionally, through two more statutes, the President is authorized only in a time of war or when war is "imminent" to place priority orders for supplies necessary for the armed forces, or even assume full or partial control of factories producing such items, so long as persons are justly compensated for their loss. Frequently, Congress has elected to reauthorize the DPA by extending the termination date provided in Section 717 for a limited period, such as a year, without making significant amendments to the overall statute. In other circumstances, Congress has reauthorized the law by extending the Section 717 date for several years while also amending the other provisions of the law. In either circumstance, reauthorizations have typically been presented as discrete bills, though on occasion the DPA has been reauthorized through a provision in a larger legislative vehicle such as the National Defense Authorization Act. For a chronology of all laws reauthorizing the DPA since inception, see Table A-4 . The laws discussed above reauthorized the DPA by explicitly amending the termination clause in Section 717. It may also be possible to implicitly extend the DPA termination clause by appropriating funds for carrying out the provisions of the DPA that would be available after the termination date had been reached. For example, if appropriations for FY2015 were enacted which did not explicitly amend Section 717, but provided funds for activities conducted pursuant to the expiring provisions of the DPA, it is likely that this FY2015 appropriation would be read as implicitly suspending the September 30, 2014, termination date for the duration of the appropriated funds. Finding an implicit suspension would avoid creating a situation in which Congress would have made a meaningless appropriation of funds for purposes that cannot be fulfilled. In addition to a full-year FY2015 spending law, an implicit suspension of the termination date could also arise in the context of a shorter-term continuing resolution. However, in previous instances where a continuing resolution did not provide funds, either in the text of the resolution itself or as incorporated by reference, specifically for a program that would expire, no implicit suspension of that expiration date was found. The rationale for finding an implicit suspension of the termination clause appears to be strongest in scenarios where Congress appropriates funding that would not become available until after the termination date would have elapsed. For example, in the situation described in the previous paragraph, the hypothetical funding provided in a full-year FY2015 appropriation or a continuing resolution would become available at the beginning of FY2015, after the DPA provisions had sunset at the end of FY2014. The argument for implicit suspension of the termination date is not as strong where appropriations for DPA activities precede the termination date but the availability of those funds extend beyond it. For example, appropriations for DPA activities in preceding fiscal years are typically "available until expended." As "no-year" money, that temporal availability of those funds would theoretically extend beyond the termination date. However, GAO has previously opined that, in the case of a termination of authority, "no new obligations may be incurred after the termination date as a charge against the agency's appropriation even if funds remain from an appropriation made available to the agency prior to the termination date." H.R. 4809 H.R. 4809 passed the House under suspension of the rules on July 29, 2014. If enacted, Section 1 of the bill would reauthorize the expiring provisions of the DPA for five years, from September 30, 2014, to September 30, 2019. The remaining sections of the bill would reform existing provisions of the DPA. Section 2 of the bill would make several revisions to the Defense Production Act Committee (DPAC), which was established in the Reauthorization of 2009 and is currently authorized in Section 722 of the DPA. First, Section 2 would restate the general purpose of the DPAC. Originally, the committee was created to advise the President on the effective use of the full scope of authorities of the act. The bill would instead redirect this to coordination and planning for the use of Title I priorities and allocations authority within the executive branch. Notably, this proposed change would likely result in the abolishment of several "industrial capability assessment study groups" created under DPAC authority. Second, Section 2 would supersede the rotating chair system for the DPAC, which was established by presidential memorandum. Under the existing procedure, the Secretary of Defense and Secretary of Homeland Security rotate annually in the DPAC chair. Instead, the bill would direct the President to appoint as chair the "head of the agency to which the President has delegated primary responsibility for government-wide coordination of the authorities in this Act." As currently established in E.O. 13603 delegations, the Secretary of Homeland Security appears to be the most likely chair-designate, but the language of the proposed bill could allow the President to appoint another Secretary. Third, Section 2 of the bill would require the chair to appoint a person to coordinate all committee activities. Finally, Section 2 of the bill would revise the annual reporting requirements of the DPAC to emphasize Title I priority and allocation authority and to require the report to include updated copies of Title I-related rules. Section 3 of the bill accentuates the Title I rulemaking requirement first directed in the Reauthorization of 2009 by requiring delegated agencies with Title I authority to issue and annually review their final rules. Of the six departments to which the President delegated Title I authority, only three (Commerce, Energy, and Transportation) had issued final rules as of June 10, 2014. The Departments of Agriculture, Defense, and Health and Human Services have not yet completed final rules. Section 4 of the bill would revise the Title III, Section 303 authority of the DPA. First, Section 4(a) of the bill would require the President, on a non-delegable basis, to provide written explanatory materials on how actions taken under Section 303 would meet several presidential determinations required by law (that the actions are essential to the national defense and that sufficient commercial production and supply of the good would otherwise not be available). Current law allows these determinations to be delegated beyond the President. In recent practice, the Under Secretary of Defense for Acquisition, Technology, and Logistics has been responsible for making these determinations and for submitting signed explanatory materials to the committees of jurisdiction. Section 4(a) would also reinstitute two provisions, with minor revisions, that were removed from the law in the Reauthorization of 2009. In addition to the existing conditions in Section 303(a)(5) of the DPA that must be determined to be met before using Section 303 authorities, the President would be required to determine that the actions taken are "the most cost effective, expedient, and practical alternative method for meeting the need." Further, Section 4(a) of the bill would reinstitute another deleted provision. That provision required that, should the aggregate cost of planned actions taken to address an industrial base shortfall under Section 303 exceed $50 million, those actions must first be authorized by an act of Congress. This monetary limitation on action was removed from law in the Reauthorization of 2009 and replaced with a general notification to the committees of jurisdiction for projects estimated to cost more than $50 million. The proposed revision would require the President to both notify the committees of jurisdiction and obtain authorization in an act of Congress before taking actions in excess of $50 million to address a manufacturing capacity or supply shortfall. Section 4(b) of the bill would retroactively exempt any existing Title III project (i.e., one that has already been determined to meet requirements of the law) from the requirements of the proposed Section 4(a). In other words, if actions to address a shortfall for any existing project do not exceed $50 million currently, but ultimately do so in the future, that project would not require direct authorization from Congress. In their totality, the revisions made by Section 4 of the bill, if enacted, may partially limit exiting Section 303 authority. For example, if the bill is enacted as currently written, Congress would be able to refuse authorization to new Title III projects and actions that would push the aggregate cost above the $50 million threshold. However, the President would retain the ability to waive these requirements in periods of national emergency or if the actions are necessary to avert a shortfall that would severely impair national defense capability. Section 5 of the bill would revise the existing "such sums as necessary" authorization of appropriations found in Section 711 of Title VII of the DPA. Instead, the bill would authorize the appropriation of $133 million per fiscal year, starting in FY2015, to carry out the provisions and purposes of the Defense Production Act. Past appropriations to the DPA Fund are listed in Table 1 , which shows that the annual average direct appropriation to the DPA Fund between FY2010 and FY2014 was $127.7 million, with a high of $223.5 million in FY2013 and a low of $34.3 million in FY2011. Monies in the DPA Fund are available until expended, so annual appropriations may carry over from year to year if not expended. Considerations for Amending the Defense Production Act of 1950 In conjunction with or separate from a reauthorization bill, Congress could amend the DPA in order to extend, expand, restrict, or otherwise clarify the powers granted to the President in the DPA. For example, Congress could eliminate certain authorities altogether, such as the Section 710(e) authority underpinning the National Defense Executive Reserve. Likewise, Congress could expand the DPA to include new authorities to address novel threats to the national defense. In addition to addressing the specific authorities granted in Title I, Title III, and Title VII of the DPA, Congress may also consider other amendments to the DPA. Declaration of Policy The "Declaration of Policy" in the DPA describes the general intentions of the authorities it confers to the President. One option for Congress is to amend this section of the statute in order to expand, restrict, or clarify the overall purpose of the authorities. For instance, Congress could include further discussion on the specific circumstances under which it finds DPA authorities are appropriate for use by the President. Though this section serves as a guide for the overall use of DPA authorities, changes to the Declaration of Policy may not fully endow or deny the President's authorities covered in the titles of the DPA without also amending the DPA's other provisions. Rather than passing legislation to amend the text of the DPA, Congress could adopt a resolution clarifying the purpose of the DPA authorities. For example, one such resolution introduced in the 112 th Congress, H.Con.Res. 110 , states that is it the "Sense of Congress" that the DPA should not be used to "confiscate personal or private property, to force conscription into the Armed Forces on the American people, to force civilians to engage in labor against their will or without compensation, or to force private businesses to relinquish goods or services without compensation." However, "Sense of Congress" resolutions of this nature do not carry the force of law. Definitions Congress may wish to amend the definitions of key terms found in the DPA to shape the scope and use of the authorities, especially the definition of national defense . As an example, Congress could amend the definition of national defense to remove space from the definition, and as a result the President may be less able to use DPA authorities to support space-related projects. On the other hand, for example, Congress could amend the definition of national defense to specifically include counter-narcotics, cybersecurity, or organized crime. Doing so would more explicitly enable the use of DPA authorities to address these homeland security and national defense concerns. Appropriations to the DPA Fund Congress could increase or reduce future appropriations to the DPA Fund to manage the scope of Title III projects initiated by the President (see Table 1 for appropriations to the DPA Fund since FY2010). Use of the DPA Fund, however, is specific to Title III. Therefore, adjusting appropriations to the DPA Fund is unlikely to have an effect on the President's ability to exercise his authorities under the other titles of the DPA, unless Congress writes specific language in the appropriations statute changing the nature of the Fund itself or authorizing its used beyond a specific title. Within the scope of a reauthorization bill, Congress may wish to reintroduce of a separate provision in Section 711 of the DPA authorizing only certain appropriation amounts over a given time period for Title III or other DPA authorities. Likewise, Congress may wish to direct the usage of such funds more specifically, such as has been done recently in relation to advanced drop-in biofuels. Considerations for Oversight of Ongoing DPA Activities Expand Reporting or Notification Requirements Congress might be satisfied with the existing scope and use of DPA authorities by the President, but may wish to add more extensive notification and reporting requirements on the use of all or specific authorities in the DPA. Additional reporting or notification requirements could involve formal notification of Congress prior to or after the use of certain authorities in certain circumstances. For example, Congress may wish for the President to notify Congress (or the committees of jurisdiction) when the priorities and allocations authority is used on a contract over a certain dollar amount. Congress might also consider expanding the existing reporting requirements of Defense Production Act Committee (DPAC), to include semi-annual updates on the recent use of authorities or explanations about controversial determinations. Thus far, the DPAC has failed to regularly submit an annual report on time to the committees of jurisdiction, which may be limiting the ability of Congress to oversee the use of the DPA. Existing requirements could also be expanded from notifying/reporting to the committees of jurisdiction to the Congress as a whole, or to include other interested committees, such as the House and Senate Armed Services Committees. Additionally, Congress may consider reestablishing a select committee with a similar purpose as the Joint Committee on Defense Production that was repealed in 1992 by Congress. Rulemaking Requirements In the Reauthorization of 2009, Congress required agencies with delegated priorities and allocations authority under Title I of the DPA to issue final rules creating standards and procedures for the use of the authority. Similarly, a rulemaking requirement exists for the voluntary agreement authority in Title VII. Congress may wish to review the compliance with these existing rulemaking requirements, and potentially expand them for other authorities included in the DPA. For example, Congress may consider whether the President should promulgate rules establishing standards and procedures for the use of all or certain Title III authorities. Amend Authority Delegations Congress may consider limiting the use of certain DPA authorities to specific departments and agencies. To do so, Congress could amend the President's delegation of DPA authorities, superseding those made in E.O. 13603, by amending the statute to assign specific authorities to individual Cabinet Secretaries as opposed to the President. Further, Congress could expand the use of the legislative clause "on a nondelegable basis" to ensure that the authority is not delegated beyond the person identified in the statute. In considering these options, Congress may determine that the use of some authorities by certain agencies is appropriate and necessary for the national defense, but not for others. Appendix. Additional Resources and Summary Tables There are many government-sponsored websites, reports, and guides that discuss various aspects of the Defense Production Act in depth that may be of interest to Congress. Table A-1 provides a list of some of these resources.

The Defense Production Act (DPA) of 1950 (P.L. 81-774, 50 U.S.C. Appx §2061 et seq.), as amended, confers upon the President a broad set of authorities to influence domestic industry in the interest of national defense. The authorities can be used across the federal government to shape the domestic industrial base so that, when called upon, it is capable of providing essential materials and goods needed for the national defense. Though initially passed in response to the Korean War, the DPA is historically based on the War Powers Acts of World War II. Gradually, Congress has expanded the term national defense, as defined in the DPA, so that it now includes activities related to homeland security and domestic emergency management. The scope of DPA authorities extends beyond shaping U.S. military preparedness and capabilities, as the authorities may also be used to enhance and support domestic preparedness, response, and recovery from natural hazards, terrorist attacks, and other national emergencies. The current authorities of the DPA include, but are not limited to: Title I: Priorities and Allocations, which allows the President to require persons (including businesses and corporations) to prioritize and accept contracts for materials and services as necessary to promote the national defense. Title III: Expansion of Productive Capacity and Supply, which allows the President to incentivize the domestic industrial base to expand the production and supply of critical materials and goods. Authorized incentives include loans, loan guarantees, direct purchases and purchase commitments, and the authority to procure and install equipment in private industrial facilities. Title VII: General Provisions, which includes key definitions for the DPA and several distinct authorities, including the authority to establish voluntary agreements with private industry; the authority to block proposed or pending foreign corporate mergers, acquisitions, or takeovers that threaten national security; and the authority to employ persons of outstanding experience and ability and to establish a volunteer pool of industry executives who could be called to government service in the interest of the national defense. The authorities of the DPA are generally afforded to the President in statute. The President, in turn, has delegated these authorities to department and agency heads in Executive Order 13603, National Defense Resource Preparedness, issued in 2012. While the authorities are most frequently used by, and commonly associated with, the Department of Defense, they can be, and have been, used by numerous other executive departments and agencies. The DPA lies within the jurisdiction of the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs. Nearly all DPA authorities will terminate on September 30, 2014, though a few, such as the Exon-Florio Amendment (which established government review of the acquisition of U.S. companies by foreigners) and anti-trust protections for certain voluntary industry agreements, have been made permanent. Since 1950, the DPA has been reauthorized over 50 times, though significant authorities were terminated from the original law in 1953. Congress last reauthorized the DPA in 2009 (P.L. 111-67, the Defense Production Act Reauthorization of 2009). This reauthorization amended some of the current DPA authorities and extended the termination of the act by five years. H.R. 4809, as passed by the House under suspension of the rules on July 29, 2014, would reauthorize the DPA until September 30, 2019. Among other changes, H.R. 4809 would reform the purpose and structure of the Defense Production Act Committee (DPAC), emphasize an existing rulemaking requirement for Title I priorities and allocations authority, and restore several limitations on the President's Title III authorities that were removed in the Defense Production Act Reauthorization of 2009. The bill would also authorize appropriations for the carrying out of the provisions and purposes of this act in the amount of $133 million every fiscal year beginning in FY2015.

Overview The Pacific Islands region, also known as the South Pacific or Southwest Pacific, presents Congress with a diverse array of policy issues. It is a strategically important region that encompasses U.S. Pacific territories. U.S. relations with Australia and New Zealand include pursuing common interests in the Southwest Pacific, which also has attracted Chinese diplomatic attention and economic engagement. Congress plays key roles in approving and overseeing the administration of the Compacts of Free Association that govern U.S. relations with the Marshall Islands, Micronesia, and Palau (also referred to as the Freely Associated States or FAS). The United States has economic interests in the region, particularly fishing. The United States provides foreign assistance to Pacific Island countries, which are among those most affected by climate change, particularly in the areas of climate change adaptation and mitigation. The Southwest Pacific covers 20 million square miles of ocean and 117,000 square miles of land area (roughly the size of Cuba). The region includes 14 sovereign states with approximately 9 million people, including three countries in "free association" with the United States—the Marshall Islands, Micronesia, and Palau. Papua New Guinea (PNG), the largest country in the Southwest Pacific, constitutes 80% of region's land area and 75% of its population. (See Table 1 .) The region's gross domestic product (GDP) totals around $32 billion (about the size of Albania's GDP). Per capita incomes range from lower middle income (Solomon Islands at $2,000 per capita GDP) to upper middle income (Nauru and Palau at $14,200). According to many analysts, since gaining independence during the post-World War II era, many Pacific Island countries have experienced greater political than economic success. Despite weak political institutions and occasional civil unrest, human rights generally are respected and international observers largely have regarded governmental elections as free and fair. Of 12 Pacific Island states ranked by Freedom House for political rights and civil liberties, eight are given "free" status, while Fiji, Papua New Guinea, and the Solomon Islands—the three largest countries in the region—are ranked as "partly free." Most Pacific Island countries, with some exceptions such as Fiji, Papua New Guinea, and the Solomon Islands, have limited natural and human resources upon which to launch sustained development. Many small atoll countries in the region are hindered by lack of resources, skilled labor, and economies of scale; inadequate infrastructure; poor government services; and remoteness from international markets. In addition, some areas also are threatened by frequent weather-related natural disasters and rising sea levels related to climate change. Regional Organizations The Pacific Islands Forum (PIF), which was known as the South Pacific Forum until 1999, seeks to foster cooperation between member states. It is comprised of 18 states and territories. The PIF's 16 states are Australia, Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, the Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. Its two territories are French Polynesia and New Caledonia. The PIF Secretariat is located in Suva, Fiji. Key issues addressed by the PIF include climate change, regional security, and fisheries. American Samoa, Guam, and the Northern Marianas have observer status with the PIF. The Melanesian Spearhead Group (MSG), founded in 1986, includes the following Melanesian countries and organizations: Fiji, the Kanak Socialist Liberation Front (FLNKS) of New Caledonia, Papua New Guinea, the Solomon Islands, and Vanuatu. The MSG seeks to have "common positions and solidarity in spearheading regional issues of common interest, including the FLNKS cause for political independence in New Caledonia." In 2015, the MSG granted the United Liberation Movement for West Papua observer status and Indonesia associate member status. The Pacific Islands and U.S. Interests On the whole, the United States enjoys friendly relations with Pacific Island countries and has benefitted from their support in the United Nations. This is especially true of the Freely Associated States, particularly Palau, which in 2014 reportedly voted with the United States 90% of the time. (See " Compacts of Free Association " below.) The United States has worked with Australia, the preeminent power in the Southwest Pacific, to help advance shared strategic interests, maintain regional stability, and promote economic development, particularly since the end of the Cold War in the early 1990s. New Zealand also has cooperated with U.S. initiatives in the region, been a major provider of foreign aid, and helped lead peacekeeping efforts. France and Japan also maintain significant interests in the region. China has become a diplomatic force, major source of foreign aid, and leading trade partner in the Southwest Pacific. In addition, more recently, other nations, including Russia, India, and Indonesia, have made efforts to expand their engagement in the region. The Pacific Islands generally can be divided according to four spheres of influence, those of the United States, Australia, New Zealand, and France. The American sphere extends through parts of the Micronesian and Polynesian subregions. (See Figure 1 .) In the Micronesian region lie the U.S. territories Guam and the Northern Mariana Islands as well as the Freely Associated States. In the Polynesian region lie Hawaii and American Samoa. U.S. security interests in the Micronesian subregion, including military bases on Guam and Kwajalein Atoll in the Marshall Islands, constitute what some experts call a defensive line or "second island chain" in the Pacific. The first island chain includes southern Japan, Taiwan, and the Philippines. Some analysts in China have viewed the island chains as serving to contain China and the Chinese navy. The region also was a key strategic battleground during World War II, where the United States and its allies fought against Japan. Australia's interests focus on the islands south of the equator, particularly the relatively large Melanesian nations of Papua New Guinea, which Australia administered until PNG gained its independence in 1975, the Solomon Islands, and Vanuatu. New Zealand has long-standing ties with its territory of Tokelau, former colony of Samoa (also known as Western Samoa), and the Cook Islands and Niue, two self-governing states in "free association" with New Zealand. Australia and New Zealand often cooperate on regional security matters such as peacekeeping. France continues to administer French Polynesia, New Caledonia, and Wallis and Futuna. U.S. policymakers have emphasized the importance of the Pacific Islands region for U.S. strategic and security interests. In testimony before the Subcommittee on Asia and the Pacific of the House Committee on Foreign Affairs, former Deputy Assistant Secretary of State Matthew Matthews emphasized the changing strategic context of the Pacific Islands region: The Pacific Island region has been free of great power conflict since the end of World War II, we have enjoyed friendly relations with all of the Pacific island countries. This state of affairs, however, is not guaranteed.... Our relations with our Pacific partners are unfolding against the backdrop of shifting strategic environment, where emerging powers in Asia and elsewhere seek to exert a greater influence in the Pacific region, through development and economic aid, people-to-people contacts and security cooperation. There is continued uncertainty in the region about the United States' ... willingness and ability to sustain a robust forward presence. During the hearing, then-Chairman of the Subcommittee on Asia and the Pacific former Representative Matt Salmon stated that the countries of the region deserve U.S. attention "for the important roles that they play in regional security, as participants in international organizations, and as the neighbors to our own U.S. territories of American Samoa, Guam and the Commonwealth of the Northern Mariana Islands." Some analysts have expressed concerns about the long-term strategic implications of China's growing engagement in the region. Other experts have argued that China's diplomatic outreach and economic influence have not translated into significantly greater political sway over South Pacific countries, and that Australia, a U.S. ally, remains the dominant power and provider of development assistance in the region. Some observers also have contended that Chinese military assistance and cooperation in the region remain modest compared to that of Australia, and that China has not actively sought to project "hard power." U.S. Policies in the South Pacific Broad U.S. objectives and policies in the region have included promoting sustainable economic development and good governance, addressing the effects of climate change, administering the Compacts of Free Association, supporting regional organizations, projecting a presence in the region, and cooperating with Australia and regional aid donors. Other areas of concern and cooperation include combating illegal fishing, supporting peacekeeping operations, and responding to natural disasters. Areas of particular concern to Congress include overseeing U.S. policies in the Southwest Pacific and the administration of the Compacts of Free Association; regional foreign aid programs and appropriations; approving the U.S.-Palau agreement to provide U.S. economic assistance through 2024; and supporting the U.S. tuna fleet. The Obama Administration asserted that as part of its "rebalancing" to the Asia-Pacific region, it had increased its level of engagement in the Southwest Pacific, including expanding staffing and programming and increasing the frequency of high-level meetings with Pacific leaders. Other observers contended that the rebalancing policy had not included a corresponding change in the level of attention paid to the Pacific Islands region. U.S. diplomatic outreach to the region includes the following: In 2011, then-President Obama met with Pacific Island leaders on the margins of the Asia Pacific Economic Cooperation (APEC) Leaders Meeting. In 2012, Hillary Clinton attended the Pacific Islands Forum annual summit, the first Secretary of State to do so, in the Cook Islands, where she noted U.S. assistance to the region and highlighted three U.S. objectives: trade, investment in energy, and sustainable growth; peace and security; and women's empowerment. In 2013, then-Secretary of State John Kerry met with Pacific Island leaders at the United Nations and pledged to work with the region to address climate change. In 2014, then-Secretary Kerry visited the Solomon Islands following devastating floods there. In 2015, then-President Obama met with leaders of Kiribati, the Marshall Islands, and Papua New Guinea at the Paris Climate Conference. In September 2016, then-Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel led a U.S. delegation to the 28 th Pacific Islands Forum in Pohnpei, Micronesia. Main topics of discussion included climate change, management and conservation of fisheries and other marine resources, sustainable development, regional economic integration, and human rights in West Papua. Foreign Assistance The region depends heavily upon foreign aid. In terms of official development assistance (ODA) as defined by the Organization for Economic Cooperation and Development (OECD), which focuses on grant-based assistance, OECD members Australia, New Zealand, the United States, France, and Japan are the principal aid donors in the Southwest Pacific. Major multilateral sources of ODA include the World Bank's International Development Association and the Asian Development Bank. According to the OECD, in 2014, the most recent year for which full data are available, the leading aid donors committed ODA to the region as follows: Australia, $850 million; New Zealand, $374 million; the United States, $277 million; France, $126 million; and Japan, $107 million. Although the United States remains one of the largest providers of ODA to the region by some measures, U.S. assistance remains concentrated among the Freely Associated States. China has become a major source of foreign assistance, but Chinese aid differs from traditional ODA due to its heavy emphasis on concessional loans and infrastructure projects (see " China's Foreign Assistance and Trade " below). The U.S. government administers foreign assistance to Pacific Island countries through the U.S. Agency for International Development (USAID) Office for the Pacific Islands (based in the Philippines) and Pacific Islands Satellite Office (based in Papua New Guinea). U.S. foreign assistance activities include regional environmental programs; military training; disaster assistance and preparedness; fisheries management; HIV/AIDS prevention, care, and treatment programs in Papua New Guinea; and strengthening democratic institutions in Papua New Guinea, Fiji, and elsewhere. U.S. assistance also aims to help strengthen Pacific Islands regional fora. USAID has partnered with Pacific Islands regional organizations to carry out a five-year program to coordinate responses to the adverse impacts of climate change. Through the Coastal Community Adaptation Program, USAID supports local-level climate change interventions in nine Pacific Island countries. The United States supports natural disaster mitigation and response capabilities and weather and climate change adaptation programs in the Marshall Islands and Micronesia, two low-lying atoll nations, and elsewhere in the Pacific Islands region. USAID's Regional Development Mission-Asia (RDM/A) carries out several environmental programs in the region, particularly in Papua New Guinea. The United States conducts International Military Education and Training (IMET) programs related to peacekeeping operations, strengthening national security, responding to natural and man-made crises, developing democratic civil-military relationships, and building military and police professionalism in Fiji, Papua New Guinea, Samoa, and Tonga. The Obama Administration requested $1 million in Foreign Military Financing (FMF) for FY2016 for a regional program to promote peacekeeping activities, English language capabilities, and professionalism in the military. (See Table 2 .) For FY2017, U.S. assistance aims to expand engagement with the PIF and other regional bodies to improve democratic development and governance in the region. South Pacific Tuna Treaty Funding provided pursuant to the South Pacific Tuna Treaty (SPTT) constitutes a major source of U.S. assistance to some Pacific Island countries. Under the SPTT, in force since 1988, Pacific Island parties to the treaty provide access for U.S. tuna fishing vessels to fishing zones in the Southwest Pacific, which supplies one-third of the world's tuna. In exchange, the American Tunaboat Association pays licensing fees to Pacific Island parties to the treaty. In addition, as part of the agreement, the United States provides economic assistance to the Pacific Island parties totaling $21 million per year. In January 2016, the United States temporarily withdrew from the agreement, arguing that the terms were "no longer viable" for the U.S. tuna fleet. The U.S. fleet argued that it could no longer pay quarterly fees due to sharply declining prices for tuna and competition from other countries, some of which was illegal. U.S. boats resumed fishing in the region in March 2016 but with fewer fishing days allotted than in 2015. Talks to renegotiate the SPTT resulted in an agreement in principle in June 2016 that aims to "establish more flexible procedures for commercial cooperation between Pacific Island Parties and US industry." Compacts of Free Association Congress plays roles in approving and overseeing the administration of the Compacts of Free Association that govern U.S. diplomatic, economic, and military relations with the Marshall Islands, Micronesia, and Palau. U.S. economic commitments to the Freely Associated States—totaling nearly $200 million in FY2015 —are administered by the Department of the Interior. The Compact of Free Association Review Agreement, signed by the United States and the Republic of Palau in 2010, awaits congressional approval. Since 2000, the Republic of the Marshall Islands has unsuccessfully sought additional compensation for damages related to U.S. nuclear testing on Marshall Islands atolls during the 1940s and 1950s. Background In 1947, the Marshall Islands, the Federated States of Micronesia, Palau, and the Northern Marianas, which had been under Japanese control during part of World War II, became part of the U.S.-administered United Nations Trust Territory of the Pacific Islands. In the early 1980s, the Marshall Islands and Micronesia rejected the option of U.S. territorial or commonwealth status and instead chose free association with the United States. Compacts of Free Association were negotiated and agreed by the governments of the United States, the Marshall Islands, and Micronesia, and approved by plebiscites in the Trust Territory districts and by the U.S. Congress in 1985 ( P.L. 99-239 ). Congress approved the Compact with Palau in 1986 ( P.L. 99-658 ), which Palau ratified in 1994. The Compacts were intended to establish democratic self-government and to advance economic development and self-sufficiency through U.S. grant and federal program assistance, and to further the national security of the Freely Associated States (FAS) and the United States in light of Cold War geopolitical concerns. Under the Compacts, the FAS are sovereign nations that conduct their own foreign policy, but the United States and the FAS are subject to certain limitations and obligations regarding international security and economic relations. The United States is obligated to defend the Freely Associated States against attack or threat of attack. The United States may block FAS government policies that it deems inconsistent with its duty to defend the FAS (the "defense veto"), and it has the prerogative to reject the strategic use of, or military access to, the FAS by third countries (the "right of strategic denial"). The United States also may establish military bases in the FAS, and the Marshall Islands is home to a premier U.S. military facility (the Ronald Reagan Ballistic Missile Defense Test Site [RTS], also known as the Kwajalein Missile Range). The Freely Associated States and their citizens are eligible for various U.S. federal programs and services. FAS citizens are entitled to reside and work in the United States and its territories as "lawful non-immigrants" and are eligible to volunteer for service in the U.S. armed forces. Several hundred FAS citizens serve in the U.S. military and roughly 12 FAS citizens serving in the U.S. armed forces died in the Iraq and Afghanistan war efforts. The Marshall Islands, Micronesia, and Palau were members of the U.S.-led coalition that launched Operation Iraqi Freedom in 2003. The FAS economies depend heavily on U.S. support. The Department of the Interior provides direct economic or grant assistance to the FAS. Its Office of Insular Affairs is responsible for administering the Compacts. The Compacts with the Marshall Islands and Micronesia provided economic assistance totaling roughly $2.5 billion between 1987 and 2003, including payments for damages and personal injuries caused by U.S. nuclear testing on Marshall Islands atolls during the 1940s and 1950s. In December 2003, the Compacts were amended in order to extend economic assistance for another 20 years and establish trust funds that aim to provide sustainable sources of government revenue after 2023. Projected U.S. grant assistance and trust fund contributions to the Marshall Islands for the 2004-2023 period total $629 million and $235 million, respectively. Projected grant assistance and trust fund contributions to Micronesia for the same period total $1.4 billion and $442 million, respectively. Palau: Compact of Free Association Review Agreement In 1986, the United States and Palau signed a 50-year Compact of Free Association. The Compact was approved by the U.S. Congress but not ratified in Palau until 1993 (entering into force on October 4, 1994). The U.S.-Palau Compact provided for 15 years of direct economic assistance, the construction of a 53-mile road system, a trust fund, services of some U.S. federal agencies such as the U.S. Postal Service and the National Weather Service, and eligibility for some U.S. federal education, health, and other programs. Between 1995 and 2009, U.S. assistance totaled over $850 million, including grant assistance, road construction, and the establishment of a trust fund ($574 million), Compact federal services ($25 million), and discretionary federal program assistance ($267 million). Under the Compact, direct economic assistance was to terminate in 2009 while annual distributions from the trust fund were to increase, to help offset the loss of economic assistance. However, Palauan leaders and some U.S. policymakers argued that continued assistance to Palau beyond 2009 was necessary. Furthermore, the value of the Compact trust fund fell from nearly $170 million to $110 million in 2008-2009 due to the global financial crisis, although it rebounded and was valued at approximately $184 million in 2015. In September 2010, the United States and Palau agreed to renew Compact economic assistance, but it awaits approval by Congress. (See Table 3 .) The 2010 accord provided for $215.75 million in direct economic assistance over an additional 15-year period (2011-2024). According to some estimates, U.S. support, including both direct economic assistance and projected discretionary program assistance, would total approximately $427 million between 2011 and 2024. In addition, the agreement committed Palau to undertake economic, legislative, financial, and management reforms. Although there has been bipartisan support for continued assistance, Congress has yet to approve the renewal agreement, also known as the Compact of Free Association Review Agreement, largely for budgetary reasons. From FY2010 to FY2016, the U.S. government continued annual direct economic assistance to Palau at 2009 levels ($13.1 million), pending congressional approval of the 2010 agreement and resolution of funding issues. Other U.S. assistance pursuant to the agreement, however, remained unfunded. During the 114 th Congress, two bills were introduced in support of the agreement to extend Compact assistance to Palau. S. 2610 , A Bill to Approve an Agreement Between The United States and the Republic of Palau, would not significantly alter total U.S. economic assistance to Palau from the levels specified in the 2010 renewal agreement, although the assistance would be allocated in different increments due in part to the delay in implementing the agreement. H.R. 4531 , To Approve an Agreement Between the United States and the Republic of Palau, and for Other Purposes, would provide an additional $31.8 million as well as reschedule U.S. assistance. In addition, the conference report ( H.Rept. 114-840 ) to accompany S. 2943 , The National Defense Authorization Act for Fiscal Year 2017, included the following statement: "The conferees believe that enacting the Compact Review Agreement is important to United States' national security interests and, as such, believe that the President should include the Compact Review Agreement in the Fiscal Year 2018 budget request." Marshall Islands Nuclear Test Damages Claims From 1946 to 1958, the United States conducted 67 atmospheric atomic and thermonuclear weapons tests on the Marshall Islands atolls of Bikini and Enewetak. In 1954, "Castle Bravo," the second test of a hydrogen bomb, was detonated over Bikini atoll, resulting in dangerous levels of radioactive fallout upon the populated atolls of Rongelap and Utrik. Between 1957 and 1980, the residents of the four northern atolls returned to their homelands (Rongelap and Utrik in 1957; Bikini in 1968; and Enewetak in 1980). However, the peoples of Bikini and Rongelap were re-evacuated to other islands in 1978 and 1985, respectively, after the levels of radiation detected in the soil were deemed unsafe for human habitation. Although diving and tourist facilities have operated on Bikini on and off since 1996, and the U.S. government had declared some parts of Rongelap safe for human habitation following a $45 million cleanup effort, neither atoll has been resettled. Some experts claim that remediation techniques, primarily replacing surface soil in populated areas and adding potassium chloride fertilizer to agricultural areas, has made resettlement possible, although most of the displaced people have refused to return. U.S. Nuclear Test Compensation The Compact of Free Association established a Nuclear Claims Fund of $150 million and a Nuclear Claims Tribunal (NCT) to adjudicate claims. Investment returns on the Fund were expected to generate revenue for personal injury and property damages awards, health care, resettlement, trust funds for the four atolls, and quarterly distributions to the peoples of the four atolls for hardships suffered. In all, the United States reportedly has provided over $600 million for nuclear claims, health and medical programs, and environmental cleanup and monitoring. The Compact deems the Nuclear Claims Fund as part of a "full and final settlement" of legal claims against the U.S. government. However, the Fund was depleted by 2009 and was not sufficient to cover the NCT's awards of $96 million to approximately 2,000 individuals for compensable injuries. In addition, the Tribunal awarded, but was unable to pay, approximately $2.2 billion to the four atoll governments for remediation and restoration costs, loss of use, and consequential damages. Marshall Islands Legal Actions The Marshall Islands government and peoples of the four most-affected atolls long have argued that greater U.S. compensation was justified for loss of land, personal injuries, and property damages. They have claimed that the nuclear tests caused high incidences of miscarriage, birth defects, and weakened immune systems, as well as high rates of thyroid, cervical, and breast cancer. In addition, some experts contend that more than a dozen Marshall Islands atolls, rather than only four, were affected. Some experts have disputed the Marshall Islands claims, pointing to some earlier studies. In September 2000, the government of the Republic of the Marshall Islands (RMI) submitted to the U.S. Congress a Changed Circumstances Petition requesting additional compensation of roughly $1 billion for personal injuries, property damages, public health infrastructure, and a health care program for those exposed to radiation. The Petition based its claims upon the "changed circumstances" provision of Section 177 of the Compact, arguing that "new and additional" information, such as greater radioactive fallout than previously known or disclosed and revised radiation protection standards, constituted "changed circumstances" and that existing compensation was "manifestly inadequate." In November 2004, the George W. Bush Administration released a report evaluating the Petition, Report Evaluating the Request of the Government of the Republic of the Marshall Islands Presented to the Congress of the United States of America , concluding that there was no legal basis for considering additional compensation payments. In April 2006, the peoples of Bikini and Enewetak atolls filed lawsuits against the United States government in the U.S. Court of Federal Claims seeking additional compensation related to the U.S. nuclear testing program. The court dismissed both lawsuits on August 2, 2007. The U.S. Court of Appeals for the Federal Circuit upheld the lower court ruling on January 30, 2009, finding that Section 177 of the Compact removed U.S. jurisdiction. In April 2010, the Supreme Court declined to hear the case. In April 2014, the RMI filed suits in the United States and the International Court of Justice in the Hague against the United States and eight other nuclear powers, claiming their failure to meet their obligations toward nuclear disarmament under Article VI of the Nuclear Non-Proliferation Treaty. The lawsuits did not seek compensation but rather action on disarmament. On February 3, 2015, a federal court in California dismissed the RMI suit against the United States, on the grounds that the RMI lacked standing to bring the case and that the case was resolvable by the political branches of government rather than the courts. China's Growing Influence Some policymakers, including Members of Congress, have expressed concerns about China's growing influence in the region. China has become a growing political and economic actor in the Southwest Pacific, and some observers contend that it aims to promote its interests in a way that potentially displaces the influence of traditional actors in the region such as the United States, Australia, and New Zealand. In the view of one analyst, "China clearly does seek to become at least a leading power in the Western Pacific and perhaps the leading power in the Western Pacific." One expert reports that China's principal strategic activity in the region is signals intelligence monitoring. Toward this end, China reportedly has regularly sent vessels to the region that both track satellites and ballistic missiles and also gather intelligence. Other analysts argue that Beijing does not consider the South Pacific to be of key strategic importance, and note that Australian assistance remains significantly larger than that provided by Beijing. Some believe that although many Pacific Island leaders say they appreciate China's economic engagement and diplomatic policy of "non-interference" in domestic affairs, the region maintains strong ties to Australia and the West that are rooted in shared history and culture as well as migration. Beijing's engagement in the region has been motivated largely by a desire to garner support in international fora and find sources of raw materials. According to some analysts, China began to fill a vacuum created by waning U.S. attention following the end of the Cold War. While the United States does not maintain an embassy in several Pacific Islands countries, for example, Beijing has opened diplomatic missions in all eight of the Pacific Island countries with which it has diplomatic relations. China-Taiwan "dollar diplomacy," in which the two entities competed for official diplomatic recognition through offers of foreign aid, has been a declining factor since the late 2000s. China's Foreign Assistance and Trade China is one of the top providers of foreign assistance in the Southwest Pacific, providing $150 million in foreign assistance per year on average during the past decade. China has held two China-Pacific Island Countries Economic Development and Cooperation Forums (2006 and 2013), where Chinese officials announced large aid packages, including pledges of preferential loans ($376 million in 2006 and $1 billion in 2013). In November 2014, Chinese President Xi Jinping travelled to Fiji to establish a strategic partnership between China and eight Pacific Island countries. China also has provided support to the Pacific Islands Forum and has helped finance some of the organization's activities and initiatives. Despite China's rise, Australia remains the dominant foreign aid donor in the region. Between 2006 and 2014, Australia reportedly provided approximately $7.7 billion in foreign aid to the region, compared to the United States ($1.9 billion), China ($1.8 billion), New Zealand ($1.3 billion), Japan ($1.2 billion), and France ($1.0 billion). In terms of grant-based aid, China's foreign assistance is relatively small. Unlike other major donors, which provide mostly grant assistance, nearly 80% of Chinese aid reportedly has been provided in the form of preferential loans, generally to finance infrastructure projects that use Chinese companies and labor. China's foreign assistance to the Southwest Pacific, like its economic assistance to many other regions, largely consists of concessional loans, infrastructure and public works projects, and investments in the extraction of natural resources. Papua New Guinea is the largest Pacific recipient of Chinese aid, having received 35% of Chinese assistance to the region. Other major recipients include Fiji, Vanuatu, and Samoa. China's foreign assistance has resulted in 218 projects since 2006, including Chinese-built roads, sea ports, airports, hydropower facilities, mining operations, hospitals, government buildings, educational facilities, sports stadiums, and other public works. Other Chinese assistance areas include public health, education, fisheries conservation, the environment, and financial support for Fiji's elections in 2014. Recent, smaller forms of aid reportedly include rowing machines for Samoa, water supply systems for small towns in Tonga, and quad bikes for Cook Islands legislators. Beijing also reportedly has provided modest military equipment and training to Fiji, Papua New Guinea, and Tonga. Some observers have criticized Chinese assistance, arguing that some infrastructure projects are poor in quality and that some Chinese loans and aid activities lack transparency and exacerbate corruption, increase debt burdens, or harm the environment. Other concerns are that some Chinese economic projects and investments do not employ local labor or that they are not directly aimed at reducing poverty. Some experts contend that Chinese aid has reduced the regional influence of Australia, the United States, and European countries, while others dispute this contention. Another issue is the relatively recent influx of Chinese traders and shop owners in some urban areas, which reportedly has caused resentment among some native residents. China is a major trading partner in the region, surpassing even Australia, and has economic interests in the following sectors: energy production (hydro power and gas), mining, fisheries, timber, agriculture, and tourism. (See Table 3 .) The largest Chinese investment project is the $1.6 billion Ramu Nickel mine in Papua New Guinea. China also has become a major source of tourists and is the only non-Pacific Island nation to be a member of the South Pacific Tourism Organization. Australia, New Zealand, and Other External Actors The United States has relied upon Australia, and to a lesser extent New Zealand, to help advance shared strategic interests, maintain regional stability, and promote economic development in the Southwest Pacific. Australia has played a critical role in helping to promote security in places such as Timor-Leste, which gained its independence from Indonesia following a 1999 referendum that turned violent, the Solomon Islands, and Bougainville, which is part of Papua New Guinea. The 2016 Australia Defence White Paper articulates Australia's approach to the South Pacific: The South Pacific region will face challenges from slow economic growth, social and governance challenges, population growth and climate change. Instability in our immediate region could have strategic consequences for Australia should it lead to increasing influence by actors from outside the region with interests inimical to ours. It is crucial that Australia help support the development of national resilience in the region to reduce the likelihood of instability. This assistance includes defence cooperation, aid, policing and building regional organisations.... We will also continue to take a leading role in providing humanitarian and security assistance where required. New Zealand's Pacific identity, derived from its geography and growing population of New Zealanders with Polynesian or other Pacific Island ethnic backgrounds, as well as its historical relationship with the South Pacific, undergirds its relationship with the region. The June 2016 New Zealand Defence White Paper articulates New Zealand's ongoing interest in the South Pacific: Given its strong connections with South Pacific countries, New Zealand has an enduring interest in regional stability. The South Pacific has remained relatively stable since 2010, and is unlikely to face an external military threat in the foreseeable future. However, the region continues to face a range of economic, governance, and environmental challenges. These challenges indicate that it is likely that the Defence Force will have to deploy to the region over the next ten years, for a response beyond humanitarian assistance and disaster relief. New Zealand will continue to protect and advance its interests by maintaining strong international relationships, with Australia in particular, and with its South Pacific partners, with whom it maintains a range of important constitutional and historical links. New Zealand works closely with Pacific Island states on a bilateral and multilateral basis. It has played a key role in promoting peace and stability in the Southwest Pacific in places such as Timor-Leste, the Solomon Islands, and Bougainville, and Papua New Guinea. Approximately 60% of New Zealand's foreign assistance goes to the Southwest Pacific. In September 2015, Wellington pledged to increase foreign assistance to the region by $100 million to reach a total of $1 billion in expenditures over the next three years. New Zealand also has provided development and disaster assistance to the region. In 2015, New Zealand's then-Prime Minister John Key reaffirmed New Zealand's support for the Pacific Islands Forum and sustainable South Pacific economic development, including for sustainable fisheries. An estimated $2 billion worth of fish is taken legally from the waters of the 14 PIF countries, with an additional $400 million worth of fish thought to be taken illegally each year. France France's decision to stop nuclear testing in the South Pacific in 1996 opened the way for improved relations with the region. Although much of France's regional military presence was withdrawn following its decision to stop nuclear testing, France continues to have a military presence that reportedly includes 2,800 personnel and 7 ships, including surveillance frigates and patrol vessels. France is also a member of the Quadrilateral Defense Coordination Group, along with the United States, Australia, and New Zealand, which seeks to coordinate maritime security in the South Pacific. France recently signed a $39 billion deal to provide 12 new submarines to the Australian Navy. Other External Actors Other external actors are becoming more active in the Southwest Pacific. Russia reportedly has sent a shipment of weapons with advisors to help train the Fijian military in the use of recently delivered equipment. India reportedly is exploring the possibility of establishing a satellite monitoring station in Fiji. Indonesia, too, has become more interested in the region, often with regards to its relations with the Melanesian countries. Indonesia has been a dialogue partner of the Pacific Islands Forum since 2001. Indonesian objectives related to the PIF include repositioning Indonesia's foreign policy towards a "look east policy" and getting "closer to the countries of the Pacific region," maintaining "the integrity of the unitary Republic of Indonesia," and improving the "image of Indonesia." The PIF and Melanesian countries have criticized human rights abuses in West Papua, Indonesia, which has a large, ethnically Melanesian indigenous population. Alleged human rights violations include the harassment of human rights groups and arbitrary arrests of independence activists. Some Melanesian countries have supported self-determination for West Papua and its inclusion in the Melanesian Spearhead Group. Indonesia has responded that it is a democratic country that is committed to human rights. It has resisted "interference in its domestic affairs" and in 2015 refused to accept a PIF fact-finding mission to investigate human rights violations. Climate Change and Other Environmental Issues Pacific Island countries have sought international support for helping them to cope with the impacts of climate change, reduce greenhouse gas (GHG) emissions, and increase renewable energy use and energy efficiency. U.S. assistance efforts in the region have focused on climate change adaptation and strengthening governmental capacity to attract international financing and successfully implement environmental programs. Many experts view the Pacific Islands as highly vulnerable to the effects of climate change and other environmental problems, such as sea level rise, ocean acidification, invasive species, and extreme weather events. These environmental issues can have adverse effects on agriculture, drinking water supplies, fisheries, and tourism. A report by the U.S. Fish and Wildlife Service states Climate change presents Pacific Islands with unique challenges including rising temperatures, sea-level rise, contamination of freshwater resources with saltwater, coastal erosion, an increase in extreme weather events, coral reef bleaching, and ocean acidification. Projections for the rest of this century suggest continued increases in air and ocean surface temperatures in the Pacific, increased frequency of extreme weather events, and increased rainfall during the summer months and a decrease in rainfall during the winter months. Some areas of the region lie only 15 feet above sea level, and if sea levels continue to rise as projected, Kiribati, Tokelau, and Tuvalu may be uninhabitable by 2050. Some experts predict that many Pacific Islanders face displacement over the coming decades. Kiribati reportedly is buying land in Fiji in case its population needs to relocate. Much of the Republic of the Marshall Islands is less than six feet above the sea, and some experts say that rising sea levels may make many areas of the country unfit for human habitation in the coming decades . Bikini Islanders, with the support of the U.S. Department of the Interior, have asked to be allowed to resettle in the United States. They claim that Kili and Ejit, the islands to which Bikini Islanders were relocated before and after the nuclear tests of the 1940s and 1950s and where about 1,000 of them currently live, can no longer sustain them, due to a lack of resources and a greater frequency of bad weather. Recurrent flooding from storms and high tides has disrupted water supplies and destroyed crops. The Department of the Interior has proposed that the U.S. resettlement fund set up for Bikini Islanders help to support their relocation to the United States. The Paris Agreement and the Pacific Pacific Island states were very active in seeking to influence the outcome of the U.N. Climate Change Conference of the Parties (COP) in Paris, France, in 2015. The Paris Agreement includes several outcomes sought by Pacific Island countries, such as a commitment to limit temperature rise. The Agreement reaffirms "the goal of limiting global temperature increase well below 2 degrees Celsius, while urging efforts to limit the increase to 1.5 degrees." Twelve Pacific Island countries signed the Paris Agreement on April 22, 2016. The Pacific Islands Forum 2016 annual meeting continued the organization's focus on climate change. The Forum Communique included the following statement: Leaders reiterated the importance of the Pacific Islands Forum in maintaining a strong voice considering the region's vulnerabilities to the impact of climate change. Leaders welcomed the Paris Agreement and reinforced that achieving the Agreement goal of limiting global temperature increases to 1.5°C above pre-industrialised levels is an existential matter for many Forum Members which must be addressed with urgency. Leaders congratulated the eight Forum countries that have ratified the Agreement and encouraged remaining Members and all other countries to sign and ratify the Agreement before the end of 2016 or as soon as possible. Leaders called for ambitious climate change action in and across all sectors and encouraged key stakeholders to prioritise their support for the implementation of key obligations under the Agreement. Ocean Acidification Climate change and sea level rise are not the only environmental challenges "substantially enhanced" by anthropogenic activity facing the region. Ocean acidification is likely to have a severe impact on Pacific Island states. According to some experts, carbon dioxide, absorbed by seawater, creates acidification which in turn reduces the ability of many marine organisms, such as coral, from regenerating. Coral reefs play a key role in supporting fisheries and tourism which are two key components of the economy of many Pacific Island states. A recent study has found that coral cover in the Great Barrier Reef off the coast of Australia has declined by 50% over the past 30 years. Various studies have predicted that if current trends continue, ocean reefs will "be the first major ecosystem in the modern era to become ecologically extinct" by the end of the century. Others predict an earlier demise . Fisheries The Southwest Pacific straddles the largest tuna fisheries in the world. According to one advocacy group, over half of the tuna consumed in the world is harvested from the Western and Central Pacific Ocean at an unsustainable rate. Many of the Pacific Islands states lack the capacity to effectively monitor and patrol their fisheries resources. In one example, Palau, a nation with a land area of 177 square miles and a maritime exclusive economic zone (EEZ) of 230,000 square miles, has a maritime police division of 18 personnel and one patrol ship. The global black market for seafood is estimated to be worth $20 billion with one in five fish caught illegally . As a result, poaching of fisheries is a major problem in the Pacific. In order to minimize poaching, the United States and nine Pacific Island states have entered into ship rider agreements. Under the program, enforcement officials from Pacific I sland states may ride U.S. Coast Guard ships while they are patrolling the EEZs of those states. U.S . Coast Guard ships are empowered to enforce the laws of the host nation . Referenda on Self-Determination New Caledonia, a territory of France, and Bougainville, which is part of Papua New Guinea, are to hold referenda on independence in 2018 and 2019. Issues and areas of possible concern to Congress include U.S. assistance for the administration of free and fair elections, the building of political institutions, and the mitigation of potential conflict. Developments in Bougainville also may affect U.S. relations with Papua New Guinea. New Caledonia The French Overseas Territory of New Caledonia, annexed by France in 1853 and formerly used as a penal colony for French convicts, may become the world's next state. An estimated 39% of New Caledonia's 260,000 people are Kanaks while 27% are European, with the balance composed of "mixed race" persons and others from elsewhere in the Asia-Pacific. In the 1980s, the indigenous Kanaks clashed with pro-France settlers. In a referendum in 1987, which was boycotted by local independence groups, New Caledonians voted to remain with France. Under the Noumea Accord of 1998, signed by France, the Kanak Socialist Liberation Front, and the territory's anti-independence RCPR Party, a referendum on independence must be held by the end of 2018. Bougainville The Bougainville conflict between the Papua New Guinea Defense Force and the pro-independence Bougainville Revolutionary Army began over disputes related to the Panguna copper mine on Bougainville in the late 1980s. Key grievances related to the mine included the influx of workers from elsewhere in Papua New Guinea and Australia, environmental damage caused by the mine, and Bougainville islanders' dissatisfaction with their share of mine revenue. Tensions over the mine and secessionist sentiment led to a decade-long, low-intensity war in which an estimated 10,000 to 20,000 government troops, militants, and civilians died. Peace between the government and rebels was restored in 1997 under a New Zealand-brokered agreement. Under the terms of the agreement, a referendum on self-determination is to be held by mid-2020. A target date of June 2019 has now been agreed to by the Papua New Guinea government and Bougainville regional government. Some factions reportedly have held onto their weapons out of concern that the PNG government will not go through with the referendum. Appendix. Social and Economic Indicators

The Pacific Islands region, also known as the South Pacific or Southwest Pacific, presents Congress with a diverse array of policy issues. It is a strategically important region with which the United States shares many interests with Australia and New Zealand. The region has attracted growing diplomatic and economic engagement from China, a potential competitor to the influence of the United States, Australia, and New Zealand. Congress plays key roles in approving and overseeing the administration of the Compacts of Free Association that govern U.S. relations with the Marshall Islands, Micronesia, and Palau. The United States has economic interests in the region, particularly fishing, and provides about $38 million annually in bilateral and regional foreign assistance, not including Compact grant assistance. This report provides background on the Pacific Islands region and discusses related issues for Congress. It discusses U.S. relations with Pacific Island countries as well as the influence of other powers in the region, including Australia, China, and other external actors. It includes sections on U.S. foreign assistance to the region, the Compacts of Free Association, and issues related to climate change, which has impacted many Pacific Island countries. The report does not focus on U.S. territories in the Pacific, such as Guam, the Northern Mariana Islands, and American Samoa. The Southwest Pacific includes 14 sovereign states with approximately 9 million people, including three countries in "free association" with the United States—the Marshall Islands, Micronesia, and Palau. New Caledonia, a territory of France, and Bougainville, which is part of Papua New Guinea (PNG), are to hold referenda on independence in 2018 and 2019. U.S. officials have emphasized the diplomatic and strategic importance of the Pacific Islands region to the United States, and some analysts have expressed concerns about the long-term strategic implications of China's growing engagement in the region. Other experts have argued that China's mostly diplomatic and economic inroads have not translated into significantly greater political influence over South Pacific countries, and that Australia remains the dominant power and provider of development assistance in the region. Major U.S. objectives and responsibilities in the Southwest Pacific include promoting sustainable economic development and good governance, administering the Compacts of Free Association, supporting regional organizations, helping to address the effects of climate change, and cooperating with Australia, New Zealand, and other major foreign aid donors. U.S. foreign assistance activities include regional environmental programs, military training, disaster assistance and preparedness, fisheries management, HIV/AIDS prevention, care, and treatment programs in Papua New Guinea, and strengthening democratic institutions in PNG, Fiji, and elsewhere. Other areas of U.S. concern and cooperation include illegal fishing and peacekeeping operations. Congressional interests include overseeing U.S. policies in the Southwest Pacific and helping to set the future course of U.S. policy in the region, approving the U.S.-Palau agreement to provide U.S. economic assistance through 2024, and funding and shaping ongoing foreign assistance efforts. The Obama Administration asserted that as part of its "rebalancing" to the Asia-Pacific region, it had increased its level of engagement in the region. Other observers contended that the rebalancing policy had not included a corresponding change in the level of attention paid to the Pacific Islands.

Introduction The Airline Deregulation Act of 1978 ( P.L. 95-504 ) granted U.S. passenger airlines almost total freedom to determine which domestic markets to serve and what airfares to charge. With the advent of deregulation, there were concerns that small communities would lose air service because airlines would shift their operations to serve larger and often more profitable markets. To address these concerns, Congress established the Essential Air Service (EAS) program in the Airline Deregulation Act to ensure continuous air service to small communities. Initially, approximately 746 communities were eligible. However, not all eligible communities required EAS subsidies. Some communities have been receiving unsubsidized service because air carriers have been willing to offer service without subsidy; some have been receiving subsidized service under EAS from the very beginning; others initially supported unsubsidized service, but later sought subsidies, or vice versa; some were subsidized but later lost their eligible status and are no longer in the program. Over time, Congress has tightened the conditions under which communities can receive subsidized air service. Nonetheless, program expenditures have increased, more than doubling in inflation-adjusted terms between 2008 and 2018. At the end of FY2018, a total of 174 communities received subsidized EAS service. Legislative History Section 419 of the Federal Aviation Act, as amended by the Airline Deregulation Act in 1978, established a program to continue airline service to small communities. The program was initially seen as transitional and was set to expire after 10 years. This program was originally administered by the Civil Aeronautics Board (CAB), whose duties were later transferred to the U.S. Department of Transportation (DOT). The Airline Deregulation Act authorized CAB to require carriers to continue providing scheduled service at eligible communities after deregulation, with subsidies if necessary. The Airline Deregulation Act made communities receiving scheduled air service from a certificated carrier on October 24, 1978, eligible for EAS benefits. At that time, there were 746 eligible communities, including 237 in Alaska and 9 in Hawaii. According to a DOT estimate, nearly 300 of these 746 communities received subsidized service under EAS at some point between 1979 and 2016. As the original 10-year expiration date approached in 1988, Congress extended EAS for another 10 years. In the Federal Aviation Reauthorization Act of 1996 ( P.L. 104-264 ), Congress removed the 10-year time limit, extending the program indefinitely. For the first 12 years of the program, the sole criterion for EAS eligibility was whether the community was receiving scheduled air service on October 24, 1978, the date that the Airline Deregulation Act was signed into law. Over the following years, Congress has worked to limit the scope of the program, mostly by eliminating subsidy support for communities within a specified driving distance of a major hub airport. The Department of Transportation and Related Agencies Appropriations Act of 2000 ( P.L. 106-69 , §332) enacted two EAS eligibility requirements, prohibiting subsidies to carriers for service provided to (1) communities in the 48 contiguous states that are located fewer than 70 highway miles from the nearest large or medium hub airport; or (2) communities that require a per-passenger subsidy rate in excess of $200 unless such point is greater than 210 miles from the nearest large or medium hub airport. In 2003, Vision 100—Century of Aviation Reauthorization Act ( P.L. 108-176 , §405) directed DOT to establish Community and Regional Choice Programs as alternatives to the traditional EAS service. In the following year, DOT established two pilot programs designed to allow communities to explore options that better suit their transportation needs while keeping costs under control. EAS eligibility requirements were not changed. For more on these two pilot programs, see the section " Measures to Shrink the Program ." In 2011, the Airport and Airway Extension Act ( P.L. 112-27 , Part IV) prohibited DOT from providing EAS to communities with annual per-passenger subsidies of over $1,000, regardless of their distance from the nearest hub airport. Also in 2011, the Consolidated and Further Continuing Appropriations Act, 2012 ( P.L. 112-55 ) waived the requirement that carriers provide EAS flights using aircraft with 15 or more seats, allowing the use of smaller planes where passenger counts are low. The Federal Aviation Administration Modernization and Reform Act of 2012 ( P.L. 112-95 ) adopted additional EAS reform measures, including Section 421, which amended the definition of an "EAS eligible place" to require a minimum number of daily enplanements. The 2012 act also provided that for locations outside of Alaska and Hawaii to remain EAS-eligible, they must have participated in the EAS program at some time between September 30, 2010, and September 30, 2011. This officially overrode the original list of eligible communities (except for those in Alaska and Hawaii) and capped the number of communities that are eligible for EAS. The FAA Extension, Safety, and Security Act of 2016 ( P.L. 114-190 ) reauthorized the program through FY2017 without program modification. The FAA Reauthorization Act of 2018 ( P.L. 115-254 ) reauthorized the program through FY2023 and introduced several legislative measures, including Section 453, which amends 49 U.S.C. §41736 to sunset the Air Transportation to Noneligible Places (ATNEP) program in 2020. The law also requires the Secretary of Transportation to waive application of the subsidy-per-passenger cap under certain conditions. See the section " Measures to Shrink the Program " for details. Current Eligibility Requirements Except in Alaska and Hawaii, an EAS-eligible place is now defined as a community that, between September 30, 2010, and September 30, 2011, either received EAS for which compensation was paid or received from the incumbent carrier a 90-day notice of intent to terminate EAS following which DOT required the carrier to continue providing service to the community (known as "holding in" the carrier). Starting October 1, 2012, no new communities can enter the program should they lose their unsubsidized service, except in Alaska and Hawaii. Airports that were formerly eligible but did not receive subsidized service during the specified year are no longer eligible for subsidized service and may not reenter the program. A community receiving subsidy during FY2011 remains eligible for EAS subsidy if it is located more than 70 miles from the nearest large or medium hub airport; it requires a rate of subsidy per passenger of $200 or less, unless the community is more than 210 miles from the nearest large or medium hub airport; the average rate of subsidy per passenger was less than $1,000 during the most recent fiscal year at the end of each EAS contract, regardless of the distance from a hub airport; and it had an average of 10 or more enplanements per service day during the most recent fiscal year, unless it is more than 175 driving miles from the nearest medium or large hub airport or unless DOT is satisfied that any decline below 10 enplanements is temporary. EAS Communities in Alaska and Hawaii Communities in Alaska and Hawaii are generally exempt from almost all EAS eligibility requirements, except one measure established by the Consolidated Appropriations Act of 2014 ( P.L. 113-76 ) and the Continued Appropriations Resolution of 2015 ( P.L. 113-164 ). Both laws directed that no EAS funds "shall be used to enter into a new contract with a community located less than 40 miles from the nearest small hub airport before the Secretary has negotiated with the community over a local cost share." This requirement does not affect any Alaska EAS communities since none is within 40 miles of the nearest small hub airport. However, one community in Hawaii, Kamuela, was affected and entered a cost-sharing arrangement in 2018. Alaska There were 237 Alaska communities on the original list of EAS-eligible communities. At the end of FY2018, 63 communities in Alaska received subsidized service (see Appendix B ), leaving 174 unsubsidized communities eligible for EAS subsidies. This represents a considerable increase from the 44 subsidized communities in 2015. The increase is due to additional Alaskan communities requesting subsidized service, which is permitted by law . Diomede, a community in Alaska that was not on the original list, is receiving service from EAS funds via ATNEP (49 U.S.C. §41736), a program under which a state or local government may propose to the Secretary of Transportation that DOT provide compensation to an air carrier to serve a place that is not EAS-eligible, with a 50% local share. Section 453 of the FAA Reauthorization Act of 2018 ( P.L. 115-254 ) would sunset the ATNEP program in two years, within which no more communities will be admitted into the program. Diomede, the only community currently in ATNEP, would become a full EAS community, meaning no local cost share would be required after the current agreement ends June 30, 2020. The number of passengers served by EAS flights in Alaska is not readily available. The EAS program office does not compile this information as there are no requirements regarding minimum enplanement figures or per-passenger subsidies in Alaska. Hawaii At the end of FY2018, two communities in Hawaii, Hana and Kamuela, received subsidized service under EAS (see Appendix A ). There are 10 EAS-eligible communities in Hawaii—nine on the original list of EAS communities plus Kalaupapa, which came into the EAS program via ATNEP and became a permanent EAS community with the 2012 FAA reauthorization. Program Administration The EAS program is administered by the Office of the Secretary of Transportation, which determines the minimum level of service required at each eligible community by specifying a hub through which the community is linked to the national passenger airline network; a minimum number of round trips and available seats that must be provided to that hub; certain characteristics of the aircraft to be used; and the maximum permissible number of intermediate stops to the hub. In general, DOT subsidizes two to four round trips a day with small aircraft from an EAS community to a large or medium hub airport, but in some cases it subsidizes flights to more than one hub. Selection of EAS Carriers DOT issues a request for proposals (RFP) to all scheduled carriers to provide service to an eligible community and institutes a carrier selection proceeding using a bid system. It is required by law to use the following four key criteria when considering carriers' proposals to provide subsidized service to EAS communities: service reliability; contractual and marketing arrangements with a larger carrier at the hub; interline arrangements with a larger carrier at the hub; and community views. The RFPs advise air carriers that their proposals for subsidy should be submitted on a sealed bid, "best and final" basis, and set forth the level of service (frequency, aircraft size, and potential hubs) that would be appropriate for the community given its location and traffic history. DOT typically receives one to three proposals per RFP. Once the carrier proposals are received, DOT formally solicits the views of the community as to which carrier and option it prefers. After receiving the communities' input, DOT issues a decision designating the selected air carrier and specifying the service pattern (routing, frequency, and type of aircraft), annual subsidy rate, and effective period of the rate. DOT generally establishes two-year EAS service contracts, which allows for frequent bidding and gives communities as well as DOT flexibility to switch carriers. Payment Procedures DOT pays the air carriers in arrears at the end of every month. Carriers submit invoices based on the number of flights actually completed in conformance with the contract. They are paid according to the per-flight rate established in the contract, not according to passenger numbers. If ad hoc service adjustments are made because of operational exigencies, the carrier reports those deviations on its invoice, and DOT makes appropriate adjustments in payment to the carrier. EAS Hold-In Authority By statute, if the air carrier serving an EAS community wants to discontinue service, it must first file a 90-day notice of its intent to suspend service. Hold-in authority prevents the incumbent carrier from suspending service until a replacement carrier begins service. DOT uses this authority to avoid service disruptions. During the 90-day period, DOT will try to find a carrier willing to enter the market on a subsidy-free basis. If unsuccessful, DOT issues an order prohibiting the suspension and requesting proposals for replacement service, either with or without subsidy. If it was serving an EAS-eligible community without subsidy, the incumbent carrier is eligible for compensation for being held in after the end of its original 90-day notice period. If the held-in carrier was already serving a community with EAS subsidy, it would continue to receive the same subsidy rate for six months, at which time it would be eligible for a rate increase. Program Costs The EAS program is funded from overflight fees paid to the Federal Aviation Administration by foreign aircraft that transit U.S. airspace without landing in or taking off from the United States. Since FY2002, Congress has supplemented the overflight fees with discretionary annual appropriations of varying size. Figure 1 shows that total EAS program expenditures have increased sharply over time. In constant 2018 dollars, spending has increased 600% since 1996 and 132% since 2008. Spending has spiked sharply on two occasions, one after the 2001 terrorist attacks that temporarily disrupted the aviation market and led to an economic downturn and the other in 2008 and 2009, when oil prices rose sharply during a deep recession. The FAA Modernization and Reform Act of 2012 sought to reduce discretionary spending on EAS through FY2015. Section 428 authorized appropriations for the discretionary portion of EAS funding of $143 million for FY2012, declining to $93 million for FY2015. However, the law also authorized all overflight fee revenues, rather than just the $50 million provided historically, to be made immediately available to the EAS program. This has had the effect of increasing total outlays for EAS subsidies, contrary to the expressed intent of at least some members of Congress. The Consolidated and Further Continuing Appropriations Act of 2015 ( P.L. 113-235 ) provided $263 million in total EAS funding for FY2015, including $108 million in funding from overflight fees and $155 million in discretionary appropriation. The FAA Extension, Safety, and Security Act of 2016 ( P.L. 114-190 ) reauthorized the program at the existing level through FY2017. The FAA Reauthorization Act of 2018 ( P.L. 115-254 ) authorized appropriations for the discretionary portion of EAS funding of $155 million for FY2018; $158 million for FY2019; $161 million for FY2020; $165 million for FY2021; $168 million for FY2022; and $172 million for FY2023. The program's total funding, including both appropriations and overflight revenues, was $288 million in FY2018. Annual EAS funding from FY2012 to FY2018 is shown in Table 1 . Between FY2012 and FY2018, annual EAS expenditures rose more than 49% in nominal dollars. These increases have occurred despite the numerous measures Congress has adopted over the years to contain program spending. Certain features of the program may have contributed to the challenge of controlling costs: Few carriers may bid for any particular EAS contract. Although in some instances two or three carriers may offer proposals in response to an RFP, in some cases there is only one proposal with no competing bid, providing little incentive for the carrier to minimize its subsidy request. Subsidy cost is not among the four major factors DOT is required by statute to consider when evaluating bids. DOT is required by statute to consider the views of the community when selecting a carrier to provide subsidized service. If more than one carrier is proposing to offer service, local officials are under no obligation to favor the proposal that entails the lowest cost to the federal government. The law does not limit a community's subsidized flights to a single route. More than 30 of the 174 EAS communities had subsidized flights to more than one hub airport in FY2018. Although eligibility for EAS service, except in Alaska and Hawaii, depends in part on an airport's distance from the nearest large or medium hub airport, the law does not specify that the EAS-subsidized flights must serve that hub. In an unknown number of cases, subsidized flights link EAS communities with more distant airports rather than with the nearest hub, perhaps at greater cost to the government. For technical reasons or because of its own operational needs, a carrier may utilize a plane for an EAS flight that is larger than necessary for the traffic on the route, in curring high per-passenger costs. DOT estimates that 20% to 25% of EAS communities are served by aircraft that are larger than passenger numbers might require. According to 2014 testimony by the Government Accountability Office (GAO), EAS flights, on average, had 49% of their seats filled with paying passengers in 2013, versus an average of 83% for all domestic flights. Costs per passenger may be high because air carriers may lack an incentive to maximize the number of passengers on a flight. Once a carrier and DOT have agreed on the subsidy amount for a flight, the carrier is free to set fares as it desires. The carrier may find it more profitable to charge high fares to relatively few passengers than to maximize the passenger load with lower fares. In FY2017, EAS subsidies in the contiguous 48 states plus Puerto Rico ranged from $9 to more than $778 per passenger. DOT does not have readily available data allowing calculation of changes in individual communities' per-passenger subsidy rates over time. Two tables at the end of this report provide information about subsidies to individual EAS communities as of September 2018. Appendix A provides a list of the subsidized communities in the contiguous 48 states, Hawaii, and Puerto Rico. Appendix B lists the subsidized EAS communities in Alaska. Measures to Shrink the Program Over the years, Congress has sought to limit the scope of the EAS program, mostly by eliminating subsidy support for communities within a reasonable driving distance of a major hub airport and by imposing a cap on the per-passenger subsidy. Although numerous communities have been removed from the program, these efforts have generally failed to contain overall spending on EAS. Some provisions in effect since the passage of the 2012 FAA reauthorization ( P.L. 112-95 ) could delay, if not negate, the law's attempt to shrink the program. For example, Section 426(c) authorizes the Secretary of Transportation, subject to the availability of funds, to grant waivers to communities exceeding the $200 subsidy-per-passenger cap on a case-by-case basis; Section 421(e) authorizes an unlimited number of waivers that may be granted, on an annual basis, to communities not meeting the minimum daily enplanement requirement; and Section 425 permits restoration of EAS eligibility to a community determined ineligible for subsidized EAS once these conditions are met. The FAA Reauthorization Act of 2018 included some provision requiring the Secretary of Transportation to waive application of the $200 subsidy-per-passenger cap under certain conditions (see section titled " $200 Subsidy Cap " for details). 70-Mile Rule The Department of Transportation and Related Agencies Appropriations Act of 2000 prohibited DOT from subsidizing carriers that provide EAS service to communities in the 48 states plus Puerto Rico that are located fewer than 70 highway miles from the nearest large or medium hub airport. As a result, a few communities lost eligibility to receive EAS subsidy, including Hagerstown, MD, which is within 70 driving miles of Washington Dulles International Airport, and Lancaster, PA, which is within 70 driving miles of Philadelphia International Airport. However, Section 409 of Vision 100 ( P.L. 108-176 ) allowed these two communities to petition DOT to review their mileage determinations. Based on certifications from the governor of each state that their communities were more than 70 miles from the nearest medium or large hub via the "most commonly used route," DOT reinstated both communities' eligibility for EAS subsidy. Since then, the "most commonly used route" standard has been extended multiple times, leaving both communities eligible for subsidized flights. The FAA Reauthorization Act of 2018 ( P.L. 115-254 ) extended their eligibility through FY2023. The annual per-passenger subsidy in FY2017 was approximately $344 for Hagerstown and $268 for Lancaster, both of which have EAS flights to both Baltimore-Washington International Airport and Pittsburgh International Airport. $1,000 Subsidy Cap A 2011 law, the Airport and Airway Extension Act ( P.L. 112-27 ), further limited EAS subsidies to $1,000 per passenger, regardless of the distance from the nearest hub airport, except for communities in Alaska and Hawaii. This resulted in eight communities with per-passenger subsidy over $1,000 becoming ineligible: Alamogordo/Holloman Air Force Base, NM; Ely, NV; Lewistown, MT; Miles City, MT; Kingman, AZ; Great Bend, KS; Huron, SD; and Worland, WY. Unlike other EAS statutory requirements, the $1,000-per-passenger subsidy limit may not be waived by the Secretary of Transportation. $200 Subsidy Cap During the late 1980s and early 1990s, EAS program eligibility requirements were revised by Congress and DOT in response to insufficient program funding. The Dire Emergency Supplemental Appropriations Act of 1989 ( P.L. 101-45 ) prohibited DOT from subsidizing air service after September 30, 1989 to and from any EAS point in the contiguous 48 states for which subsidy exceeded $300 per passenger. As a result, six communities became ineligible for subsidized EAS service. This $300 cap was lowered to $200 for FY1990 in P.L. 101-164 , and that cap was repeated in several later appropriations acts through the 1990s. It was made permanent by the Department of Transportation and Related Agencies Appropriations Act of 2000, which set a maximum subsidy of $200 per passenger, except in Alaska and Hawaii, unless the community is more than 210 miles from the nearest large or medium hub airport. DOT has routinely provided notice of this statutory mandate to communities that appeared to be at risk of exceeding the cap, with the expectation that they would work with prospective EAS air carriers to keep the subsidy per passenger below the $200 cap. Between 1990 and 2006, 33 communities lost their eligibility because their per-passenger EAS subsidy exceeded the $200 maximum. In late 2006, there were no communities whose subsidies were over the $200 cap. For the following eight years, DOT stopped enforcing the $200 cap in response to a number of shocks that affected the EAS program during that time. These included the cessation of operations by four air carriers in 2008, prolonged lapses in scheduled service at more than 35 EAS communities, and higher subsidy requests from carriers resulting from higher fuel prices. On May 20, 2016, DOT issued order 2016-5-17, finding 30 communities had exceeded the $200-per-passenger subsidy cap in FY2015. Among these 30 communities, eight had experienced service hiatus and received waivers from DOT (Order 2016-8-21). The remaining 22 communities all submitted petitions for a waiver and eventually received waivers, per DOT Order 2016-11-8. All continued to receive subsidized EAS service or remain eligible to participate in the community and regional choice pilot programs. In September 2017, DOT indicated in Order 2017-9-23 that 27 communities exceeded the subsidy cap in FY2016, among which six also failed to meet the daily 10-enplanment requirement. Among these 27 communities, waivers were granted to eight communities that had experienced service hiatus during FY2016. On December 29, 2017, in its final Order 2017-12-2, DOT granted waivers to 18 of the 19 communities seeking waivers to one or both eligibility requirements. It denied the petition for waiver from Jamestown, NY, which failed to comply with either requirement but has the closest proximity (76 driving miles) to a medium hub airport, Buffalo Niagara International Airport. In FY2016, Jamestown had the second-highest per-passenger subsidy ($460) and the lowest average daily enplanements (seven) among EAS communities. On May 11, 2018, DOT issued Order 2018-5-14, finding that 25 communities did not meet one or both statutory eligibility requirements during FY2017. Four of these communities had service hiatus in FY2017 and were therefore granted waivers. The remaining 21 communities submitted petitions for a waiver and received waivers in August 2018, per DOT Order 2018-8-2. The FAA Reauthorization Act of 2018 requires the Secretary of Transportation to waive application of the subsidy-per-passenger cap if the community's subsidy per passenger for a fiscal year is lower than its subsidy per passenger for any of the three previous fiscal years. The law also requires the Secretary to waive application of the subsidy-per-passenger cap if a community's per-passenger subsidy for a fiscal year is less than 10% higher than its highest subsidy per passenger in any of the three previous fiscal years, but this may be waived only once per community. This means the communities that meet the criteria would be exempt from the $200 per-passenger subsidy cap, while the ones that do not meet the criteria may still petition DOT for a waiver. Minimum Daily Enplanement The FAA Modernization and Reform Act of 2012 amended 49 U.S.C §41731(a)(1)(B) to change the definition of "eligible place" for EAS, such that a community must maintain an average of 10 or more enplanements per day to be eligible. This requirement, however, does not apply to locations in Alaska and Hawaii or to communities more than 175 driving miles away from the nearest large or medium hub airport. The Secretary of Transportation may also waive, on an annual basis, the 10-enplanement requirement if a community demonstrates to the Secretary's satisfaction that its low average daily enplanement level is caused by a temporary decline in enplanements. On April 24, 2014, DOT issued a tentative order indicating its intention to enforce the 10-passengers-per-day rule. Based on FY2013 EAS data, this would have ended subsidized service to 13 communities: Athens, GA; Bradford, PA; El Centro, CA; Fort Dodge, IA; Franklin/Oil City, PA; Greenville, MS; Hagerstown, MD; Jackson, TN; Lancaster, PA; Kingman, AZ; Macon, GA; Merced, CA; and Muscle Shoals, AL. All the communities except Athens, GA, filed petitions for waivers. On September 26, 2014, DOT issued Order 2014-9-21, granting these 12 communities temporary waivers. DOT indicated that these communities' compliance with the 10-passengers-per-day requirement would be reassessed based on FY2015 data. EAS service to Athens, GA, ended on September 30, 2014. In May 2015, DOT issued another tentative order indicating its intention to enforce the 10-passengers-per-day rule based on FY2014 data. This would have affected subsidized service to three communities: Mason City, IA; Show Low, AZ; and Victoria, TX. All three communities filed petitions for a waiver. DOT granted waivers to all three, per order 2015-11-19. In DOT order 2016-5-17, mentioned previously, DOT found that in FY2015, 12 of the 30 communities that had exceeded the $200 subsidy cap also failed to meet the requirement of at least 10 enplanements per day. Four communities were in the group of eight that had experienced service hiatus. DOT Order 2016-8-21 granted waivers to these communities. The remaining eight communities filed for and were granted waivers by DOT Order 2016-11-8. They continue to receive subsidized EAS service or remain eligible to participate in the community and regional choice pilot programs. In September 2017, DOT's Order 2017-9-23 stated that six communities failed to meet the average daily 10-enplanment requirement. DOT later updated the traffic data and determined that one community, Bradford, PA, met the enplanement requirement. Among the remaining five communities, waivers were granted to all except Jamestown, NY. EAS service to Jamestown, NY, ended on January 16, 2018. On May 11, 2018, DOT indicated in Order 2018-5-14 that 25 communities did not meet one or both statutory eligibility requirements in FY2017. Four of these communities had service hiatus in FY2017 and were therefore tentatively granted waivers. Among the remaining 21 communities, four did not meet the requirement of an average of 10 daily enplanements. They submitted petitions and were granted waivers in August 2018. Cost Sharing If Near a Small Hub The Consolidated Appropriations Act, 2014, the Continued Appropriations Resolution, 2015, and the Consolidated Appropriations Act, 2018, directed that no EAS funds "shall be used to enter into a new contract with a community located less than 40 miles from the nearest small hub airport before the Secretary has negotiated with the community over a local cost share." This requirement does not exempt communities in Alaska and Hawaii. This would affect two communities that are within a 40-mile distance of a small hub airport—Lancaster, PA, and Kamuela, HI. Lancaster's EAS contract was extended for an additional six-month duration three times after it expired on September 30, 2017. This was caused by the uncertainty of Lancaster's eligibility during the multiple short-term extensions of EAS authority before the passage of the FAA Reauthorization Act of 2018, which made DOT unable to go through the regular request-for-proposal process. After Lancaster's eligibility was confirmed in the FAA Reauthorization Act, DOT issued a request for proposals with local cost sharing. A one-year cost-share agreement for Kamuela was reached among DOT, the County of Hawaii, and the selected air carrier, with the County of Hawaii paying 5% of the subsidy cost. Community and Regional Choice Pilot Programs Section 405 of Vision 100—Century of Aviation Reauthorization Act directed DOT to establish certain Community and Regional Choice Programs to provide communities with alternatives to traditional EAS service. In the following year, 2004, DOT established two pilot programs: the Alternate Essential Air Service Pilot Program (Alternate EAS) and the Community Flexibility Pilot Program. All communities receiving subsidized EAS at the time of application can participate. Alternate EAS (AEAS) allows communities to forgo subsidized EAS for a prescribed amount of time in exchange for a grant to spend on options that may better suit their transportation needs. These options include more frequent air service with smaller aircraft, on-demand air taxi service, scheduled or on-demand surface transportation, or purchasing an aircraft. The maximum grant amount may not exceed the annual EAS subsidy at the time of application to the program. Participating communities still need to meet the statutory eligibility criteria for EAS. Currently, AEAS has seven participants: Beckley, WV; Crescent City, CA; Macon, GA; Manistee/Ludington, MI; Page, AZ; Parkersburg, WV/Marietta, OH; and Tupelo, MS. All are using the proceeds to secure public charter service. The Community Flexibility Pilot Program allows as many as 10 communities that are receiving subsidized EAS to forgo EAS for 10 years in exchange for a grant equal to no more than two years' EAS subsidy. The grant can be used for a wide range of airport projects. Currently, Visalia, CA, which entered the program in March 2017, is the only participating community. Issues and Options The rate of increase in EAS spending remains a central issue of concern to Congress. However, program spending should be examined in conjunction with the number of communities served. According to a GAO report, 95 communities received subsidized EAS service in 1995 and 150 in 2008. In 2018, this number was 174 (see Appendix A ). Nevertheless, the growth rate of average subsidy per EAS community over the years has been significant. The average annual EAS subsidy in non-Alaska communities rose from $1 million per community in FY2002 to $2.6 million in FY2018. In addition to multiple contributing factors previously discussed, government regulations may affect the provision of air service to small communities. For example, a 2013 FAA pilot qualification rule increased the qualification requirements for airline pilots. Many pilots working for regional airlines did not meet the new minimum qualifications. The rules appear to have forced small carriers to raise salaries in order to attract qualified pilots, potentially raising EAS subsidy costs as well. In a 2009 report, GAO offered a number of options for modifying the EAS program: limiting program eligibility to communities participating as of a specified date; allowing carriers more flexibility on type of aircraft and/or service frequency; awarding long-term EAS agreements and incorporating financial incentives; allowing renegotiation of EAS agreements; consolidating EAS flights at regional airports; and focusing EAS service on the most remote communities. The first three options were adopted and included in federal laws. GAO also suggested that a multimodal approach to provide financial assistance could potentially be more responsive to communities' needs. It reiterated this recommendation in its 2014 report, suggesting that multimodal solutions, such as bus service to large airports or air taxi service to connect communities, could be more cost-effective than the current EAS program. Despite the changes that have been made to limit communities' eligibility for EAS and to permit the use of smaller aircraft, it appears that eligible communities, air carriers, and DOT may lack incentives to minimize program expenditures. The changes adopted in recent years, including in the FAA Modernization and Reform Act of 2012, have not proven effective in controlling program costs, in part because communities that fail to meet certain eligibility requirements almost always are granted waivers upon request. The FAA Reauthorization Act of 2018 provides that certain eligibility requirements will not apply to a number of these communities as long as they meet certain criteria. Appendix A. Subsidized EAS Outside of Alaska Appendix B. Subsidized EAS in Alaska

The Airline Deregulation Act of 1978 gave airlines almost total freedom to determine which domestic markets to serve and what airfares to charge. This raised the concern that communities with relatively low passenger levels would lose service as carriers shifted their operations to serve larger and often more profitable markets. To address this concern, Congress established the Essential Air Service (EAS) program to ensure that small communities that were served by certificated air carriers before deregulation would continue to receive scheduled passenger service, with subsidies if necessary. The EAS program is administered by the Office of the Secretary of the U.S. Department of Transportation (DOT), which enforces the eligibility requirements and determines the level of service required at eligible communities. By the end of FY2018, 174 communities in the United States received subsidized service under EAS. Over the years, Congress has limited the scope of the program, mostly by eliminating subsidy support for communities within a specified driving distance of a major hub airport and capping subsidies under certain criteria. The FAA Modernization and Reform Act of 2012 included additional EAS reform measures, including the requirement that a community have a minimum number of daily enplanements to remain eligible for subsidy. Further, the Consolidated Appropriations Act of 2014 (P.L. 113-76) and the Continuing Appropriations Resolution of 2015 (P.L. 113-164) introduced additional measures to shrink the program. The FAA Reauthorization Act of 2018 (P.L. 115-254) changed certain requirements regarding application of subsidy caps and would discontinue the Air Transportation to Noneligible Places (ATNEP) program in 2020. Despite these efforts to limit spending for EAS subsidies, inflation-adjusted program expenditures have risen 132% since 2008. Some factors contributing to the rising program costs are external, such as high aviation fuel prices from 2008 through 2014 and the prospect of higher pilot wage costs due to changes in federal regulations. However, certain features of the EAS program itself may have contributed to the challenge of controlling costs. The statute governing EAS does not list cost among the four factors that DOT must consider when evaluating air carriers' bids to provide subsidized EAS service, and neither the carriers nor the communities receiving subsidized service are obliged to select service options that minimize the government's costs. EAS traditionally has been authorized in laws reauthorizing the Federal Aviation Administration and other civil aviation programs. The 2018 FAA reauthorization act reauthorized the program through FY2023.

Introduction In 2002, the Medical Device User Fee and Modernization Act (MDUFMA, also called MDUFA I) gave the Food and Drug Administration (FDA) the authority to collect fees from the medical device industry. User fees and direct appropriations from Congress fund the review of medical devices by the FDA. Medical devices are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. The Federal Food, Drug, and Cosmetic Act (FFDCA) defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes. (FFDCA §201(h), 21 U.S.C. 301 §201(h)) According to FDA, examples of medical devices "range from simple tongue depressors and bedpans to complex programmable pacemakers with micro-chip technology and laser surgical devices." Medical devices also include in vitro diagnostic products, reagents, test kits, and certain electronic radiation-emitting products with medical applications, such as diagnostic ultrasound products, x-ray machines, and medical lasers. Manufacturers of certain kinds of medical devices must obtain FDA approval or clearance before marketing in the United States. The Center for Devices and Radiological Health (CDRH) has primary responsibility within FDA for medical device premarket review. The purpose of user fees is to support the FDA's medical device premarket review program and to help reduce the time it takes the agency to review and make decisions on marketing applications. Between 1983 and 2002, multiple government reports indicated that FDA had insufficient resources for its medical devices premarket review program. Lengthy review times affect the industry, which waits to market its products, and patients, who wait to use these products. The user fee law provides revenue for FDA; in conjunction, the agency negotiates with industry to set performance goals for the premarket review of medical devices. The medical device user fee program was modeled after the Prescription Drug User Fee Act (PDUFA). Like the prescription drug and animal drug user fee programs, the medical device user fee program has been authorized in five-year increments. Just before expiration, FDA's medical device user fee authorities were reauthorized through September 30, 2012, by the Medical Device User Fee Amendments of 2007 (MDUFA II). For MDUFA III, FDA announced in February 2012 that it had reached agreement with the medical device industry on proposed recommendations for the reauthorization of the medical device user fee program. The draft MDUFA III package—composed of statutory language and the FDA-industry agreement on performance goals and procedures—was posted on the FDA website in March 2012 and a public meeting on the draft was held later that month. Following a 30-day comment period, a final recommendation was submitted to Congress. On July 9, 2012, the FDA Safety and Innovation Act (FDASIA, P.L. 112-144 ) became law. FDA's authority to collect medical device user fees was reauthorized for FY2013 through FY2017 via Title II of FDASIA. However, under the FY2013 continuing resolution (Continuing Appropriations Resolution, 2013, P.L. 112-175 ), although FDA is collecting the new user fees allowed by MDUFA III/FDASIA, it can only spend fees up to the FY2012 level. This report describes current law regarding medical device user fees and the impact of MDUFA on FDA review time of various medical device applications and the agency's medical device program budget. Appendix E provides a list of acronyms used in this report. Current Law The Medical Device Amendments of 1976 ( P.L. 94-295 ) was the first major legislation passed to address the premarket review of medical devices. User fees to support the FDA's medical device premarket review program were first authorized by Congress in 2002, 10 years after Congress had provided the authority for prescription drug user fees via PDUFA. For prescription drugs, the manufacturer must pay a fee for each new drug application (NDA) that is submitted to FDA for premarket review. In contrast, most medical devices are exempt from premarket review and do not pay a user fee. Premarket review and payment of the associated fee is required for about a third of the medical devices listed with FDA (see Figure 1 ). FDA Premarket Review of Medical Devices FDA classifies devices based on their risk to the patient: low-risk devices are Class I, medium-risk are Class II, and high-risk are Class III. Low-risk medical devices (Class I) and a very small number of moderate-risk (Class II) medical devices are exempt from premarket review. In general, for moderate-risk and high-risk medical devices, there are two pathways that manufacturers can use to bring such devices to market with FDA's permission. One pathway consists of conducting clinical studies, then submitting a premarket approval (PMA) application with evidence providing reasonable assurance that the device is safe and effective. The PMA process is generally used for novel and high-risk devices and is typically lengthy and expensive. It results in a type of FDA permission called approval . Another pathway involves submitting a premarket notification—also known as a 510(k), after the section in the FFDCA that authorized this type of notification. With the 510(k), the manufacturer demonstrates that the device is substantially equivalent to a device already on the market (a predicate device) that does not require a PMA. The 510(k) process is unique to medical devices and results in FDA clearance . Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. Medical Device User Fees Premarket review by FDA—both PMA and 510(k)—requires the payment of a user fee. FDA typically evaluates more than 4,000 510(k) notifications and about 40 original PMA applications each year. Since MDUFA II reauthorization in 2007, FDA cleared over 13,000 510(k) devices and approved 106 PMAs. According to CDRH Director Jeffrey Shuren, for FY2010, user fees collected under MDUFA "fund only about 20% of the device review program;" in contrast, user fees collected under the PDUFA account for over 60% of the drug review program's budget. Fees collected under MDUFA III would fund about a third of the medical device premarket review process. There are also fees for when a manufacturer requests approval of a significant change in the design or performance of a device approved via the PMA pathway. This is called a Panel-Track Supplement when it is necessary for FDA to evaluate significant clinical data in order to make a decision on approval of the supplement. If a manufacturer requests approval of a change in aspects of an approved device, such as its design, specifications, or labeling, this is called a 180-Day PMA Supplement . In this case, FDA either does not require new clinical data or requires only limited clinical data. When a manufacturer requests approval for a minor change to an approved device, such as a minor change in the design or labeling, this is called a Real-Time PMA Supplement . With a Premarket Report , a manufacturer requests the approval of a high-risk device, originally approved for single use (one patient, one procedure), for reprocessing to allow additional use. The original 2002 user fee law had only authorized FDA to collect fees for premarket review, such as for PMA applications or 510(k) notifications. The 2007 reauthorization—MDUFA II—added two new types of annual fees in order to generate a more stable revenue stream for the agency. According to FDA, there were fluctuations in the numbers submitted from year to year, and fee revenues repeatedly fell short of expectations. MDUFA II added establishment registration fees , paid annually by most device establishments registered with FDA, and product fees , paid annually for high-risk (Class III) devices for which periodic reporting is required. MDUFA II also added two new application fees—the 30-Day Notice and 513(g) application—and substantially lowered all the existing application fee amounts (see Table C -1 ). A 30-Day Notice is used by a manufacturer to request modifications in manufacturing procedures or methods of manufacture affecting the safety and effectiveness of the device. A 513(g) application is used by a manufacturer to request information on the classification of a device. Other than the establishment fee, the amount of each type of user fee is set as a percentage of the PMA fee, also called the base fee . The law sets both the base fee amount for each fiscal year, and the percentage of the base fee that constitutes most other fees. Under MDUFA III, the 510(k) fee was changed from 1.84% of the PMA fee to 2% of the PMA fee. MDUFA III changed the PMA fee amount to $248,000 in FY2013 rising to $268,443 in FY2017 (see Table C -1 ). The amount of the establishment registration fee was changed under MDUFA III to $2,575 in FY2013 rising to $3,872 in FY2016 and FY2017 (see Table C -1 ). MDUFA III also changed the definition of "establishment subject to a registration fee;" according to FDA, this would increase the number of establishments paying the fee from 16,000 to 22,000. Exemptions and Discounted Fees Certain types of medical devices, sponsors of medical device PMA applications or 510(k) notifications, and medical device manufacturers are exempt from paying fees, and small businesses pay a reduced rate. Humanitarian Device Exemption (HDE) applications are exempt from user fees, other than establishment fees. An HDE exempts devices that meet certain criteria from the effectiveness requirements of premarket approval. Devices intended solely for pediatric use are exempt from fees other than establishment fees. If an applicant obtains an exemption under this provision, and later submits a supplement for adult use, that supplement is subject to the fee then in effect for an original PMA. State and federal government entities are exempt from fees for a PMA, premarket report, supplement, 510(k), and establishment registration unless the device is to be distributed commercially. Indian tribes are exempt from having to pay establishment registration fees, unless the device is to be distributed commercially. Other than an establishment fee, the FDA cannot charge a fee for premarket applications for biologics licenses and licenses for biosimilar or interchangeable products if products are licensed exclusively for further manufacturing use. Under a program authorized by Congress, FDA accredits third parties, allowing them to conduct the initial review of 510(k)s for the purpose of classification of certain devices. The purpose is to improve the efficiency and timeliness of FDA's 510(k) process. No FDA fee is assessed for 510(k) submissions reviewed by accredited third parties, although the third parties charge manufacturers a fee for their services. In MDUFA II, Congress amended the process of qualifying for small business user fee discounts in response to frustrations expressed by domestic and foreign companies that had difficulties with the requirements. Small businesses—those with gross receipts below a certain amount—pay reduced user fees and have some fees waived altogether. These fee reductions and exemptions are of interest because many device companies are small businesses. Whether a device company is considered a small business eligible for fee reductions or waivers depends on the particular fee. Small businesses reporting under $30 million in gross receipts or sales are exempt from fees for their first PMA. Proof of receipts may consist of IRS tax documents or qualifying documentation from a foreign government. Companies with annual gross sales or receipts of $100 million or less pay at a rate of 50% of the 510(k) user fee, 30-day notice, request for classification information, and 25% of most other user fees. Small businesses must pay the full amount of the establishment fees. Condition (or Trigger) A key element of FDA user fee laws—MDUFA and PDUFA—is that the user fees are to supplement congressional appropriations, not replace them. The law includes a condition, sometimes called a trigger, to enforce that goal. FDA may collect and use MDUFA fees only if the direct appropriations for the activities involved in the premarket review of medical devices and for FDA activities overall remain at a level at least equal (adjusted for inflation) to an amount specified in the law. Other MDUFA Requirements Over time, Congress has changed PDUFA to allow user fee revenue to be used for FDA activities related to not only premarket review but also the review of postmarket safety information associated with a drug. In contrast, MDUFA revenue can be used only for activities associated with FDA review of PMAs, 510(k)s, supplements, and reports. The law states that fees "shall only be collected and available to defray increases in the costs of resources allocated for the process for the review of device applications ." MDUFA II added a new FFDCA Section 738A regarding required reports and outlining the reauthorization process. This section, updated by MDUFA III, requires the Secretary to submit annual fiscal and performance reports for the next five fiscal years (FY2013 thru FY2017) to the Senate Committee on Health, Education, Labor, and Pensions, and the House Committee on Energy and Commerce. Fiscal reports address the implementation of FDA's authority to collect medical device user fees, as well as FDA's use of the fees. Performance reports address FDA's progress toward and future plans for achieving the fee-related performance goals identified in the agreement. Section 738A also directs the FDA to develop a reauthorization proposal for the following five fiscal years in consultation with specified congressional committees, scientific and academic experts, health care professionals, patient and consumer advocacy groups, and the regulated industry. Prior to negotiations with industry, FDA is required to request public input, hold a public meeting, and publish public comments on the agency's website. During negotiations with industry, FDA must hold monthly discussions with patient and consumer advocacy groups to receive their suggestions and discuss their views on the reauthorization. After negotiations with industry are completed, FDA is required to present the recommendations to certain congressional committees, publish the recommendations in the Federal Register , provide a 30-day public comment period, hold another public meeting to receive views from stakeholders, and revise the recommendations as necessary. Minutes of all negotiation meetings between FDA and industry are required to be posted on the FDA website. MDUFA Impact on FDA Review Time and Budget The amount of time it takes FDA to reach a review decision to clear a 510(k) notification or approve a PMA application is a measure of how well the agency is meeting the goals defined in the MDUFA agreement between FDA and the medical device industry. The time it takes to review a medical device—total review time—is composed of the time FDA handles the application—FDA time—plus the amount of time the device sponsor or submitter takes to respond to requests by FDA for additional information about the device. According to CDRH Director Shuren, "FDA has been meeting or exceeding goals agreed to by FDA and industry under MDUFA II for approximately 95% of the submissions we review each year. For example, FDA completes at least 90% of 510(k) reviews within 90 days or less." However, Dr. Shuren noted that these "metrics reflect FDA time only; they do not reflect the time taken by device sponsors to respond to requests for additional information. Overall time to decision—the time that FDA has the application, plus the time the manufacturer spends answering any questions FDA may have—has increased steadily since 2001." Figure 2 shows that while the amount of time FDA spends reviewing a 510(k) has decreased, the average total days for the review of 510(k)s has been increasing. FDA and GAO have both studied this issue of increasing review time. A 2011 FDA analysis of the reasons behind the increased average total days for the review of 510(k)s found that FDA reviewers frequently needed to ask for additional information—called an AI Letter—from the 510(k) device manufacturer or sponsor due to the poor quality of the original submission. According to FDA, these quality issues involved "the device description, meaning the sponsor either did not provide sufficient information about the device to determine what it was developed to do, or the device description was inconsistent throughout the submission." Furthermore, FDA concluded that "sponsors' failure to address deficiencies identified in first-round AI Letters are major contributors to the increase in total review times. For example, 65% of the time FDA sent a second-round AI Letter because the sponsor failed to submit information requested in the first AI Letter." The 2011 FDA analysis also found "in some cases, the FDA sent AI Letters for inappropriate reasons, such as asking for additional testing that was outside the scope of what would be required for a 510(k) submission, or asking for supporting documentation that was already covered by a standard government form." GAO also performed an analysis of FDA performance goals regarding 510(k) device review times and requests for additional information from sponsors. GAO found that although FDA met all medical device performance goals for 510(k)s, the total review time—from submission to final decision—has increased substantially in recent years. Regarding the agency's use of AI Letters, the GAO report notes that "the only alternative to requesting additional information is for FDA to reject the submission." Use of the AI Letter allows the sponsors the opportunity to respond, and although the time to final decision is longer, the submission has the opportunity to be approved. Figure 3 provides information on the amount of time FDA spends reviewing non-expedited PMA applications and Panel-Track Supplements. A device may receive expedited review if it is intended to treat or diagnose a life-threatening condition or irreversibly debilitating disease or condition, and it addresses an unmet need. CDRH Director Shuren notes that although FDA is spending less time reviewing PMA applications, the average total days for the review of PMA applications has been increasing since 2004. The February 2012 GAO report found that for FY2003 through FY2010, FDA met most of the goals for PMAs but fell short on most of the goals for expedited PMAs. The February 2012 GAO report found that FDA review time and time to final decision for both types of PMAs were highly variable but generally increased during this period. The February 2012 GAO report also commented on communication problems between industry and FDA based on interviews with three industry groups about the medical device review process. These industry representatives noted that FDA "guidance documents are often unclear, out of date, and not comprehensive." They also stated that "after sponsors submit their applications to FDA, insufficient communication from FDA prevents sponsors from learning about deficiencies in their submissions early in FDA's review. According to one of these stakeholders, if FDA communicated these deficiencies earlier in the process, sponsors would be able to correct them and would be less likely to receive a request for additional information." Two industry representatives noted that "review criteria sometimes change after a sponsor submits an application," and one industry representative stated that "criteria sometimes change when the FDA reviewer assigned to the submission changes during the review." The February 2012 GAO report points out that FDA has taken a number of actions to address the issues of the industry representatives. For example, FDA has issued new guidance documents, improved the guidance development process, initiated a reviewer certification program for new FDA reviewers, and enhanced its interactive review process for medical devices. For FY2012, 35% of FDA's total budget comes from user fees. Medical device user fee revenue provides about 10% of the FDA medical device and radiological health program budget. Figure 4 presents the total program level for FDA's device and radiological health program for FY2002 through FY2013 with dollars adjusted for inflation (based on 2005 dollars). Figure 4 also shows the contribution of medical device user fees, which began in FY2003, to the device and radiological health program budget, as well as fees collected for the inspection of mammography facilities under the Mammography Quality Standards Act (MQSA), which began fee collection in FY1996. For FY2010, user fees collected under MDUFA funded about 20% of the device review program, while user fees collected under PDUFA funded over 60% of the drug review program. User fees are an increasing proportion of FDA's device-related budget, as shown in Table 1 . User fees were 7.1% of FDA's devices and radiological health program level budget in FY2002 when MQSA was the sole user fee, and 14.2% of FDA's devices and radiological health program level budget in FY2012, with both MQSA and medical device user fees being collected by the agency. Table 1 shows that over the period of FY2003 to FY2012, the amount of user fees more than doubled, while the amount of direct appropriations (budget authority) increased at a slower rate. MDUFA III Package An initial public meeting on the reauthorization of the medical device user fees was held by FDA on September 14, 2010, after which the negotiation process between FDA and industry began, as well as monthly meetings with other stakeholders, such as health care professional associations and patient and consumer advocacy groups. Minutes of the 35 negotiation meetings between FDA and the medical device industry are posted on the agency's website, as are minutes of the 14 monthly meetings with the other stakeholders. On February 1, 2012, FDA announced that it had reached "an agreement in principle on proposed recommendations for the third reauthorization of a medical device user fee program." The recommendations would authorize $595 million in user fees collected by the agency from the medical device industry over a five-year period, allowing FDA to hire more than 200 full-time-equivalent workers with this additional funding. According to the minutes for the January 31, 2012, negotiation meeting, industry noted that although "MDUFA III represents a sizeable increase of 240 FTEs from current levels, FDA should not expect this type of significant resource increase under MDUFA IV." In response, the agency stated that it had "some concerns about how solid a financial footing this agreement establishes, given that there are a lot of uncertainties about how much effort will be required to meet the goals, and that in order to bring the proposal to a level that Industry could agree to, FDA had to take away any margin of error." On March 14, 2012, the agency posted on its website the draft negotiated package—composed of statutory language and the FDA-industry agreement on performance goals and procedures—referred to as MDUFA III. A public meeting describing the draft was held on March 28, 2012. The 30-day comment period on the draft ended April 16, 2012. After review of the comments, the final package was submitted to Congress. Tables in the appendixes provide additional details on the MDUFA III package beyond the narrative discussion found below. The tables in Appendix A relate to the legislative language and the table in Appendix B relates to the FDA-industry agreement on performance goals and procedures. Legislative Language MDUFA III legislative language changes the definition of "establishment subject to a registration fee," increasing the number of establishments paying the fee from 16,000 to about 22,000. It sets the fee amount for a PMA in FY2013 at $248,000. The fee amount for a PMA gradually rises to $268,443 for FY2017. The establishment fee is $2,575 in FY2013 and rises to $3,872 for FY2016 and FY2017. Other than the establishment fee, the amount of each type of user fee is set as a percentage of the PMA fee, also called the base fee. MDUFA III keeps the percentages the same as in MDUFA II except for the 510(k) fee, which is changed from 1.84% of the PMA fee to 2% of the PMA fee. Total fee revenue is set at $97,722,301 for FY2013 and rises to $130,184,348 for FY2017. The total fees authorized to be collected over the five-year period FY2013 through FY2017 is $595 million. MDUFA III adjusts the total revenue amounts by a specified inflation adjustment, similar to the adjustment made under PDUFA, and the base fee amount is adjusted as needed on a uniform proportional basis to generate the inflation-adjusted total revenue amount. After the base fee amounts are adjusted for inflation, the establishment fee amount is further adjusted as necessary so that the total fee collections for the fiscal year generates the total adjusted revenue amount. The new adjusted fee amounts are published in the Federal Register 60 days before the start of each fiscal year along with the rationale for adjusting the fee amounts. MDUFA III includes a provision that allows FDA to grant a waiver or reduce fees for a PMA or establishment fee "if the waiver is in the interest of public health." According to the FDA presentation at the March 28, 2012, public meeting, the fee waiver is intended for laboratory developed test (LDT) manufacturers. This provision sunsets at the end of MDUFA III. MDUFA III includes a requirement that sponsors submit an electronic copy of a PMA, 510(k), and other specified submissions and any supplements to such submissions. The requirement begins after the issuance of final guidance. MDUFA III also includes a provision for streamlined hiring of FDA employees who would support the review of medical devices. The authority for streamlined hiring terminates three years after enactment. Industry-FDA Performance Goals and Procedures for MDUFA III: The Agreement The agreement begins by stating, "FDA and the industry are committed to protecting and promoting public health by providing timely access to safe and effective medical devices. Nothing in this letter precludes the Agency from protecting the public health by exercising its authority to provide a reasonable assurance of the safety and effectiveness of medical devices." The agreement subsequently describes a number of process improvements that aim to improve FDA's medical device review process, provides revised performance goals and new shared outcome goals, describes infrastructure improvements, and provides for an independent assessment of the device review process. Process Improvements. In comparison to MDUFA II, the discussion of these topics is greatly expanded and consolidated into one new section of the agreement. FDA will put in place a structured process for managing pre-submissions, providing feedback to applicants via e-mail and a one-hour meeting or teleconference. It will publish guidance on electronic submissions and will clarify submission acceptance criteria. The agency will continue to use interactive review to encourage informal communication with the applicant to facilitate timely completion of the review process. FDA will continue to apply user fees to the guidance document development process, and may apply user fees to delete outdated guidance, note which are under review, and provide a list of prioritized device guidance documents intended to be published within a year. It will work with interested parties to improve the current third-party review program. FDA will implement final guidance on factors to consider when making benefit-risk determinations in device premarket review, including patient tolerance for risk and magnitude of benefit. The agency will propose additional low-risk medical devices to exempt from the 510(k) process. FDA will work with industry to develop a transitional in vitro diagnostics (IVD) approach for the regulation of emerging diagnostics. Review Performance Goals. The main focus of the agreement is FDA's commitment to completing the review of the various medical device submissions—such as PMA reviews and 510(k) notifications—within specified timeframes in exchange for an industry fee to support the review activity. Performance goals are specified for each type of submission for FY2013 through FY2017; each goal specifies the percentage of applications FDA will complete within a given time period. See Table B -1 and Table D -1 for further details. Shared Outcome Goals. This new section was not part of the MDUFA II agreement. The purpose of the programs and initiatives outlined in the agreement is to reduce the average total time to decision for PMAs and 510(k)s. FDA and applicants share the responsibility for achieving this goal. For PMA submissions received beginning in FY2013, the average total time-to-decision goal for FDA and industry is 395 calendar days; in FY2015, 390 calendar days; and in FY2017, 385 calendar days. For 510(k) submissions received in FY2013, the average total time to decision goal for FDA and industry is 135 calendar days; in FY2015, 130 calendar days; and in FY2017, 124 calendar days. Infrastructure. User fees will be used to "reduce the ratio of review staff to front line supervisors in the pre-market review program." FDA will enhance and supplement scientific review capacity by hiring reviewers and using external experts to assist with device application review. FDA will obtain streamlined hiring authority and work with industry to benchmark best practices for employee retention via financial and non-financial means. User fees will supplement (1) management training; (2) MDUFA III training for all staff; (3) Reviewer Certification Program for new CDRH reviewers; and (4) specialized training to provide continuous learning for all staff. FDA will improve its IT system to allow real-time status information on submissions. Independent Assessment of Review Process Management. By the end of the second quarter of FY2013, FDA will hire a consultant to assess the device application review process. Within six months of award of the contract, a report on recommendations likely to have a significant impact on review time will be published. The final report will be published within one year of contract award date. FDA will publish a corrective action and implementation plan within six months of receipt of each report. The consultant will evaluate FDA's implementation and publish a report no later than February 1, 2016. Performance Reports. As was the case in MDUFA II, FDA will meet with industry on a quarterly basis to present data and discuss progress in meeting goals. The agreement requires more detailed information to be covered in quarterly reports by CDRH and CBER; specifically, elements to be included are listed for 510(k)s, PMAs, Pre-Submissions, and Investigational Device Exemptions (IDEs). CDRH reports quarterly and CBER reports annually on 11 additional data points. FDA reports annually on nine other topics. Discretionary Waiver. FDA will grant discretionary fee waivers or reduced fees "in the interest of public health." Authority for the waiver and reduced fees expires at the end of MDUFA III. According to the FDA presentation at the March 28, 2012, public meeting, the fee waiver is intended for laboratory developed test (LDT) manufacturers. Other Issues In addition to MDUFA III, Congress, in FDASIA, also reauthorized PDUFA and included new authorities for a Generic Drug User Fee Act and a Biosimilars User Fee Act. These three provisions were included with MDUFA III along with a variety of related and unrelated issues in the final legislative package, the FDA Safety and Innovation Act (FDASIA, P.L. 112-144 ), which became law on July 9, 2012. Because of the importance of user fees to FDA's budget, PDUFA and MDUFA are considered to be "must pass" legislation, and Congress has often in the past included language to address a range of other concerns. For example, MDUFA II included provisions about the extent to which FDA can delegate activities to third parties (inspections and the review of premarket notifications); establishment registration requirements (timing and electronic submission); a unique device identification system; and reporting requirements for devices linked to serious injuries or deaths. For a complete listing of provisions that were included in FDASIA, please see CRS Report R42680, The Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144) , coordinated by [author name scrubbed]. Appendix A. Provisions in FFDCA §737 and §738 Appendix B. MDUFA III Agreement: Performance Goals and Procedures Appendix C. MDUFMA and MDUFA: Fees and Performance Goals Appendix D. MDUFA III Performance Goals Appendix E. Acronyms Used in This Report

The Food and Drug Administration (FDA) is the agency responsible for the regulation of medical devices. These are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. A medical device company must obtain FDA's prior approval or clearance before marketing many medical devices in the United States. The Center for Devices and Radiological Health (CDRH) within FDA is primarily responsible for medical device review and regulation. CDRH activities are funded through a combination of public money (i.e., direct FDA appropriations from Congress) and private money (i.e., user fees collected from device manufacturers), which together comprises FDA's total. Congress first gave FDA the authority to collect user fees from medical device companies in the Medical Device User Fee and Modernization Act of 2002 (P.L. 107-250). Five years later, the user fees were reauthorized through September 30, 2012, by the Medical Device User Fee Amendments of 2007 (MDUFA II; Title II of the Food and Drug Administration Amendments Act of 2007, FDAAA; P.L. 110-85). Over the years, concerns raised about medical device user fees have prompted Congress to carefully consider issues such as which agency activities could use fees, how user fees can be kept from supplanting federal funding, and which companies should qualify as small businesses and pay a reduced fee. The purpose of the user fee program is to help reduce the time in which FDA can review and make decisions on marketing applications. Lengthy review times affect the industry, which waits to market its products, and patients, who wait to use these products. The user fee law provides a revenue stream for FDA; in conjunction, the agency negotiates with industry to set performance goals for the premarket review of medical devices. In February 2012, FDA reached agreement with the medical device industry on proposed recommendations for the second user fee reauthorization—referred to as MDUFA III. The draft MDUFA III package—composed of statutory language and the FDA-industry agreement on performance goals and procedures—was posted on the FDA website in March 2012. Following a public meeting and a 30-day comment period on the draft, a final MDUFA III recommendation was submitted to Congress. On July 9, 2012, the FDA Safety and Innovation Act (FDASIA, P.L. 112-144) became law. MDUFA III was included in FDASIA as Title II. FDA's authority to collect medical device user fees was reauthorized for another five years, FY2013 through FY2017. FDASIA also reauthorized the prescription drug user fee program, created new user fee programs for generic and biosimilar drug approvals, and modified FDA authority to regulate medical products. However, under the current FY2013 continuing resolution (P.L. 112-175), although FDA is collecting the new user fees allowed by MDUFA III/FDASIA, it can only spend fees up to the FY2012 level. Since medical device user fees were first collected in FY2003, they have comprised an increasing proportion of FDA's device budget. All user fees (as enacted) accounted for 35% of FDA's total FY2012 program level, and device user fees accounted for 14% of the device and radiological health program level, which was $376 million in FY2012, including $53 million in user fees.

Introduction In response to the disclosure of various National Security Agency (NSA) surveillance and data collection programs, a number of legislative changes to the government's intelligence operations authority have been suggested. Many of these proposals include amendments to the practices and procedures of the Foreign Intelligence Surveillance Court (FISC), and the FISA Court of Review, which reviews rulings of the FISC. Currently, the government's applications for surveillance orders to the FISC are classified, as are most FISA opinions themselves. While traditional federal courts also review classified information in camera , their final opinions are rarely kept confidential. FISA opinions, in contrast, are not released publicly except in special circumstances. According to the FISC, traditional "courts operate primarily in public, with secrecy the exception; the FISC operates primarily in secret, with public access the exception." On the other hand, at least according to the public record, the FISA Court of Review has sat only twice; and both times the court released its opinion with sensitive information redacted. A number of proposals seek to increase government transparency by requiring public disclosure of FISA opinions. At least one group has proposed that all FISA decisions should be published in their entirety; other proposals would allow the government to conduct a declassification review of the material first, substituting a summary of material when appropriate. These proposals might be understood to raise separation of powers issues, namely, the scope of the executive branch's control over national security information. This report will first address current FISC procedures regarding disclosure, and will continue by analyzing the legal implications of mandating executive branch release of FISA opinions. This analysis will include an examination of judicial doctrine and statutory practice regarding control of national security information, concluding that neither branch enjoys exclusive power over the matter; rather, authority is shared between Congress and the executive branch. Requiring the public disclosure of FISA opinions concerns many policy questions involving national security; this report, however, is limited to the legal implications of such a requirement. Current FISC Procedures Under the Foreign Intelligence Surveillance Act (FISA), the FISC reviews government applications to, inter alia , conduct surveillance and engage in data collection for foreign intelligence purposes. If an application is denied, the government may request review from the FISA Court of Review. The government is usually the only party, as FISA provides that most FISC proceedings take place ex parte , and that FISC judges enter ex parte orders. Under FISA, most submissions to the FISC are made under seal, and appeals from FISC rulings are also sent under seal to the FISA Court of Review or the Supreme Court. Pursuant to 50 U.S.C. Section 1803(c), records of the FISC and the FISA Court of Review's proceedings "shall be maintained under security measures established by the Chief Justice in consultation with the Attorney General and the Director of National Intelligence." Under that authority, Chief Justice Warren Burger established these measures in 1979. In addition, 50 U.S.C. Section 1803(g) permits the FISA courts to individually adopt whatever security procedures "are reasonably necessary to administer their responsibilities." While the FISA Court of Review has not publicly released any more specific security procedures, the FISC's particular procedures took effect November 1, 2010, and specify that the court comply with various executive branch regulations governing classified material, in particular, Executive Order 13526—"Classified National Security Information." In sum, according to the FISC, "the collective effect of these provisions is that applications, orders, and other records ... whether in the possession of the FISC, the Court of Review, [or] the Supreme Court ... shall, as a rule, be maintained in a secure and nonpublic fashion." While the FISC usually sits ex parte , at least two exceptions apply. Recipients of production orders under Section 215 of the USA PATRIOT Act and directives under Section 702 of FISA may petition the court. In the event of a contested hearing, FISA permits ex parte and in camera review of classified information upon motion by the government. Under the FISC's procedures, disclosure of the court's opinions is permitted only in a limited number of situations, all of which require compliance with Executive Order 13526. First, a judge who wrote an opinion may sua sponte or by motion of a party publish the opinion. The FISC has discretion in this situation to direct the executive branch to redact the opinion for classified information. Recently, at least one FISC judge has released an opinion in this manner, "[b]ecause of the public interest" in the bulk metadata collection program. Second, the presiding judge may provide copies of court records to Congress on his own volition. Finally, the FISC's rules also provide that the executive branch may provide copies of court records to Congress without prior notification to the court. The executive branch must, however, notify the court "contemporaneously" when it does so. The executive branch recently argued that this provision prevented it from complying with Freedom of Information Act (FOIA) requests—without FISC approval—for FISC records in the government's possession. The FISC, however, rejected this proposition, explaining that the provision was intended to "stop the government's practice of filing what the Court viewed as unnecessary motions for unsealing before fulfilling its statutory obligations." The court explained that FISA regulated the disclosure of opinions "in the possession of the FISC," but did not regulate the disclosure of opinions already in the possession of the executive branch. Therefore, opinions and orders in the possession of the executive branch may be released to the public without seeking the FISC's permission. However, most filings made to the FISC are classified as Secret or Top Secret by the executive branch before being sent to the court, and the FISC's orders and opinions in the possession of the executive branch are similarly classified. While most classified information is subject to automatic review at 25 years, "FISA files" are not automatically reviewed until after 50 years. The executive branch can, however, choose to declassify portions of opinions, or entire opinions and release them to the public. It has done so in certain instances since the disclosure of the NSA data collection programs. Potential Article II Separation of Powers Issues Legislation that requires the executive branch to publicly disclose FISA opinions might raise separation of powers questions. Both Congress and the executive branch claim some power in this area. The central issue is the extent to which Congress may regulate control over access to national security information, including mandating that the executive branch disclose specific materials—a question not definitively resolved by the courts. Implicating Article II A preliminary question concerning the public disclosure of FISA opinions is why releasing court opinions—a product of an Article III entity—implicates the power of the President under Article II. Legislation that compels the executive branch to release FISA opinions in its possession directs the President to take specific action with respect to documents he may intend to keep secret, and thus implicates his Article II powers. For example, in the FOIA context, legislation compelling the release of agency records includes judicial opinions in the possession of the executive branch. In United States Department of Justice v. Tax Analysts , the Supreme Court ruled that the location in which specific documents originated was irrelevant in determining whether materials qualified as agency records. Instead, two requirements applied. First, the agency must "create or obtain" the materials; second, the agency must have control of the materials when the FOIA request is made. The government argued that it did not control the opinions because district courts could always modify them. However, the Supreme Court rejected this assertion, explaining that the proper inquiry was "on an agency's possession of the requested materials, not on its power to alter the content." The Court thus held that district court decisions in the possession of the executive branch qualified as agency records. Similarly, FISA opinions are retained by the executive branch as a party to the litigation, and remain in the control of the executive branch. Legislation directing the executive branch to release FISA orders may be analogous to FOIA's applicability to court opinions in the possession of the executive branch. Once the executive branch receives a FISA opinion, that opinion becomes an agency record. Most are then classified as either Top Secret or Secret. A number of FOIA cases have been filed seeking FISA opinions from the executive branch. Shared Power over National Security The Constitution assigns responsibility for the national defense to both Congress and the President. Article II provides that the President is Commander in Chief of the armed forces and instructs him to take care that the laws are faithfully executed. The Supreme Court has been somewhat deferential to the executive branch in matters of national security, noting that the power vested in the President in Article II bestows a "vast share of responsibility for the conduct of foreign relations," including "a degree of independent authority to act." The Supreme Court has indicated that the "grant of [the] war power includes all that is necessary and proper for carrying these powers into execution," and has noted that the Commander-in-Chief Clause gives the President the power to "direct the movements of the naval and military forces at his command, and to employ them in the manner he may deem most effectual to harass and conquer and subdue the enemy." At the same time, Article I grants Congress considerable power over national security and foreign affairs. Indeed, the Supreme Court has recognized that—"out of seventeen specific paragraphs of congressional power [in the Constitution], eight of them are devoted in whole or in part to specification of powers connected with warfare." Additionally, the Court has noted that the President "may not disregard limitations that Congress has, in the proper exercise of its own war powers, placed on his powers." Likewise, the Supreme Court noted in Hamdi v. Rumsfeld , that even during times of conflict, the Constitution "most assuredly envisions a role for all three branches when the rights of individuals are at stake." Leaving aside the disclosure of sensitive national security information or information subject to a valid claim of privilege, it is well established that Congress may require an agency to release its documents. Congress enjoys the power to create and regulate federal agencies. In exercising its powers to legislate under Article I, sec. 8 and other provisions of the Constitution, Congress may provide for the execution of those laws by officers appointed pursuant to the Appointments Clause. The Necessary and Proper Clause allows Congress to create and locate offices, establish their powers, duties, and functions, determine the qualifications of officeholders, and promulgate standards for the conduct of their offices. The Supreme Court has recognized broad congressional discretion to structure administrative agencies. Congress can thus create federal agencies, create officers to oversee them, and can impose duties on those officers. Therefore, Congress can generally require federal agencies to disclose their records. The Supreme Court has explicitly recognized Congress's power to require the "mandatory disclosure of documents in the possession of the Executive Branch." However, requiring the disclosure of sensitive national security information might raise Article II concerns. The executive branch has argued that the Commander-in-Chief Clause bestows the President with independent power to control access to national security information. As such, according to this line of reasoning, Congress's generally broad ability to require disclosure of agency documents may be constrained when it implicates national security. Potential Conflict Between Congress and the President Perhaps the leading case exploring the tension between congressional and presidential power is the Steel Seizure Case. President Harry Truman, claiming power as Commander in Chief, ordered the seizure of domestic steel mills that threatened to cease production during the Korean War. The Supreme Court declared this action unconstitutional because Congress had rejected legislation authorizing such action and other statutory options were available. Justice Jackson's famous concurrence—which has become the most influential opinion in this context —outlined three analytical categories as a framework for examining the scope of presidential power. In the first, the President acts with express congressional authorization and is accorded broad authority. In the second, when the President acts where Congress has been silent, historical practice may sometimes serve as a "gloss" on presidential power. Therefore, even if Congress and the President share power over an area, congressional inaction can "enable, if not invite" presidential action. In the third, the President's activity is inconsistent with congressional will—here the President's power is at its "lowest ebb." In this situation, if Congress regulates according to its constitutional powers, and the President defies a congressional statute, his action will be invalidated unless it is based on constitutional powers that exist independent of congressional control. For example, in Hamdan v. Rumsfeld , the Supreme Court invalidated the Bush Administration's military commissions because they were inconsistent with statutes. Absent congressional action, the President had power to establish them; however, once Congress legislated, the President had to comply. In contrast, in Zivotofsky v. Secretary of State , the D.C. Circuit ruled that the President did not have to comply with legislation that the court determined "impermissibly intrudes on the President's recognition power." Control over Access to National Security Information While courts have not clearly delineated the scope of presidential power that exists independent of congressional control, it appears that control over access to national security information is largely shared between the legislative and executive branches, rather than belonging exclusively to either one. Supreme Court jurisprudence does not establish absolute power by any branch over classified information, and recognizes room for Congress to impose classification procedures. In addition, an examination of historical practice reveals that Congress and the executive branch share power in this area. Congress, pursuant to its oversight function, requires consistent disclosure of sensitive national security information to the relevant intelligence and defense committees. Congress has also regulated control over access to national security information, passing legislation such as the Classified Information Procedures Act (CIPA), FISA, and the Freedom of Information Act (FOIA). Pursuant to these statutes, courts have required the executive branch to disclose information to the public and the judiciary. In fact, no statute regulating classified information has been held by courts to improperly intrude upon the President's power as Commander in Chief. As a result, Congress appears to have substantial power to regulate in this area. Nevertheless, Congress's power to compel the release of information held by the executive branch might have limits. The executive branch has typically exercised discretion to determine what particular information should be classified; and the Supreme Court has observed in dicta that the President is Commander in Chief, and his "authority to classify and control access to information bearing on national security ... flows primarily from this Constitutional investment of power in the President and exists quite apart from any explicit congressional grant." In addition, courts have crafted common law privileges that protect the executive branch from revealing certain military secrets. Consequently, there may be a limited sphere of information that courts will protect from public disclosure. Court Rulings Judicial analysis addressing the scope of Congress's power to regulate access to national security information is somewhat limited. What little there is, however, supports the position that Congress and the executive branch share power over the matter. For example, the Supreme Court has upheld statutes regulating information held by the executive branch. In Nixon v. General Services Administration , the Court upheld a statute that directed an executive branch official to collect President Nixon's papers and tape recordings and issue regulations governing public access to them. The Court noted the "congressional power ... [and] abundant statutory precedent for the regulation and mandatory disclosure of documents in the possession of the Executive Branch." In addition, while most classification procedures arise from Executive Orders, the Court has indicated the Congress could "certainly" establish classification procedures—"subject only to whatever limitations the Executive Privilege may be held to impose on such congressional ordering." The executive branch has relied on two cases that it views as supporting expansive presidential control over national security information. The first, Department of the Navy v. Egan , is invoked for its statement in dicta that "the authority to protect [national security] information falls on the President as head of the Executive Branch and as Commander in Chief." To be sure, the Court recognized that the executive branch makes decisions about what information to classify, and has authority to issue security clearances. However, the case does not indicate support for absolute presidential power in this area. In the case, the Federal Circuit Court of Appeals ruled that the Merit Systems Protection Board could review the substance—not just the procedures—of the Department of the Navy's security clearance determination. The Supreme Court reversed, explaining that it would not assume that one agency had power to review the merits of another's security clearance determination without specific congressional direction. The Court explained that "courts traditionally have been reluctant to intrude upon the authority of the Executive in military and national security affairs," "unless Congress has specifically provided otherwise." In a recent case in the Northern District of California, the executive branch relied on Egan to support its argument that allowing Congress to regulate the state secrets privilege would "raise fundamental constitutional problems which should be avoided." The court, however, rejected this assertion, remarking that " Egan recognizes that the authority to protect national security information is neither exclusive nor absolute in the executive branch." Similarly, the executive branch has relied on Chicago & Southern Air Lines v. Waterman Steamship Co r p. as recognizing a broad role for the executive branch in this area. This case, while not even concerning the disclosure of information, arguably recognizes shared power over national security secrets. Congress had provided via statute that the President could deny applications for foreign air travel. The Supreme Court declined to review a challenge to such a decision because to do so would, in the Court's opinion, violate congressional intent. Consequently, neither Egan nor Southern Air Lines demonstrates that the executive branch has absolute power in this area. The U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) has made explicit that control over access to classified information is shared. In 1976, the Subcommittee on Oversight and Investigations of the House Interstate and Foreign Commerce Committee issued a subpoena to the American Telephone and Telegraph Company (AT&T) seeking information concerning warrantless wiretapping by the executive branch. Citing the potential danger to national security if the information were released, the Department of Justice sought an injunction that would prevent AT&T from complying with the subpoena. On appeal to the D.C. Circuit, the legislative branch argued that its subpoena power "cannot be impeded by the Executive"; while the executive branch argued that because "the President retains ultimate authority to decide what risks to national security are acceptable," the judiciary should defer to the executive branch. The court, however, rejected both claims, noting that the congressional subpoena power was indeed broad, but not "absolute in the context of a conflicting constitutional interest asserted by a coordinate branch of government." Likewise, the court noted, while the judiciary is sometimes deferential to the executive branch in the area of national security, Supreme Court jurisprudence does "not establish judicial deference to executive determinations in the area of national security when the result of that deference would be to impede Congress in exercising its legislative powers." The court ultimately declined to rule on the merits of the injunction, and remanded the case to the district court, urging the parties to continue negotiating. Those negotiations again reached an impasse, and the parties soon returned to the D.C. Circuit. As before, both sides made broad assertions of authority. The executive branch argued that its duty to protect national security trumped the congressional subpoena power. However, the court again rejected this assertion, explaining that the two branches shared power over national security: the executive would have it that the Constitution confers on the executive absolute discretion in the area of national security. This does not stand up. While the Constitution assigns to the President a number of powers relating to national security, including the function of commander in chief and the power to make treaties and appoint Ambassadors, it confers upon Congress other powers equally inseparable from the national security, such as the powers to declare war, raise and support armed forces and, in the case of the Senate, consent to treaties and the appointment of ambassadors. The court also noted that the executive branch's concern about the improper release of national security information was "entirely legitimate," but the scope of the executive branch's authority in this matter "is unclear when it conflicts with an equally legitimate assertion of authority by Congress to conduct investigations relevant to its legislative functions." Similarly, Congress argued it had broad powers in this area, claiming that the Speech or Debate Clause precluded judicial intervention into a congressional subpoena. The court rejected this assertion as well, noting that the congressional subpoena power is not absolute. The court again declined to rule on the merits, and aimed to construct a compromise that would either encourage more negotiations or permit the district court to adequately mediate the remaining issues of contention. In sum, AT&T rejects the absolute claims of the executive branch to control over national security information, as well as Congress's absolute claim to access. Statutorily Required Disclosure to Courts Historical practice also supports the notion of shared power over national security information. Various statutory regimes regulate access to national security information, including mandating disclosure to the courts. During criminal trials involving classified information, CIPA provides procedures for courts to use to determine whether classified information will be discoverable by the defendant or admissible at trial. If the government refuses to comply by releasing information for in camera review, courts have authority to dismiss prosecutions. The executive branch has complied with these provisions, submitting classified information to the judicial branch for in camera review. Of course, if the government finds the cost of disclosure to outweigh the costs of not prosecuting, it can exercise prosecutorial discretion and decline to bring a case. FOIA's history and operation also supports the notion of shared power between Congress and the executive branch over national security information. Under FOIA, courts review sensitive national security information in camera . Prior to 1973, the precise scope of judicial review for FOIA exemption claims based on classified information was unsettled. In Environmental Prote c tion Agency v. Min k , the Supreme Court attempted to clarify this question. In response to a FOIA claim concerning an underground nuclear explosion, the executive branch claimed the materials were exempt as properly classified materials. The plaintiffs argued that courts should closely examine classification orders, but the Court ruled that the FOIA statutory exemption did not authorize in camera review of classified material. Subsequently, Congress amended FOIA and expressly overruled Mink by permitting in camera review of classified material. Since then, courts have routinely reviewed classified information in camera to ensure that agencies claim the national security exemption properly. Statutorily Mandated Disclosure to the Public In addition to allowing courts to review classified information in camera , FOIA provides the public with a statutory right of access to government records outside of the prosecutorial context, and provides courts with discretion to order the public release of information held by the executive branch. The executive branch can claim a number of statutory exemptions from disclosure, including properly classified information. When disputes arise, courts reviewing the executive branch's privilege claims do so de novo , but only to determine if the relevant information logically falls within the exemption. They may review materials in camera to ensure that the information is actually sensitive. Courts are also to ensure that the government does not claim exemptions too broadly, by ordering the government to provide all "reasonably segregable" non-classified information. If the information is properly classified by the executive branch, courts will not order its disclosure. However, if the court is not convinced that the material is properly classified, it can order the government to disclose the materials. Courts may "enjoin the agency from withholding agency records and ... order the production of any agency records improperly withheld," and may hold employees who refuse to comply in contempt. On the one hand, courts do not often force public disclosure of material the executive branch insists is properly classified, and the executive branch has received criticism for its insufficient responses to FOIA requests. On the other, courts do sometimes require public disclosure of material the government objects to releasing, and will narrow the scope of broad exemption claims made by the government. In ACLU v. CIA , for example, the D.C. Circuit rejected the Central Intelligence Agency's (CIA) FOIA response as overly broad and remanded the case to the district court. In that case, the ACLU brought a FOIA claim seeking access to CIA records concerning—but not necessarily about the agency's own use of—drones. The CIA replied with a " Glomar response"—"declining to either confirm or deny the existence of any responsive records." Glomar responses are acceptable government responses to FOIA requests in situations where even the confirmation or denial of information would cause harm under a FOIA exemption. However, Glomar responses are trumped—the agency cannot claim an exemption—when "an agency has officially acknowledged otherwise exempt information." The CIA claimed that disclosure of the "existence or nonexistence of CIA records responsive to this request ... is a currently and properly classified fact, the disclosure of which reasonably could be expected to cause damage to the national security." The D.C. Circuit noted that the issue before it was not whether the CIA itself operated drones, but rather "whether it has any documents at all about drone strikes." In particular, "'whether it is logical or plausible' for the CIA to contend that it would reveal something not already officially acknowledged to say that the Agency 'at least has an intelligence interest' in such strikes." The court pointed out that given that the executive branch had made public remarks about the existence of a drone program already, "the answer to that question was no." Therefore, the court remanded the case to the district court to determine if the " contents —as distinguished from the existence —of the officially acknowledged records may be protected from disclosure." Courts have also rejected the executive branch's privilege claims, as well as ordered the executive branch to segregate classified from non-classified information and release the latter. In a case in the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) brought by plaintiffs seeking information about the FBI's investigation of student movements at Berkeley, the government sought to claim exemptions from disclosure based on national security. The district court ordered the government to release some information completely and segregate other parts. The Ninth Circuit affirmed as to both orders. As to the first group, the Ninth Circuit explained that "general assertions" that disclosure would harm national security were not enough to carry the government's burden of claiming an exemption. Instead, the government must show with particularity why specific documents would harm national security. Since the government did not do so, those documents must be released. As to the second group of documents—those the district court ordered to be segregated—the court noted that the district court's decision to order the release of documents, but allow the government to redact references to the identity of a source, sufficiently accommodated the government's security concerns. Common Law and Constitutional Limits to Disclosure Nevertheless, courts have recognized the dangers of requiring the executive branch to release classified information. Under the common law doctrine of the state secrets privilege, courts have declined to compel the executive branch to reveal sensitive national security information in cases brought against the government. For example, courts have completely dismissed claims brought against the government based on espionage contracts at the pleadings on the theory that any litigation on the matter would reveal sensitive information. Even in civil claims brought against the government under federal statutes, courts will remove evidence from a case if there is a reasonable danger that its inclusion poses harm to national security. Finally, if the "very subject matter" of a claim against the government is a state secret—for example, the extraordinary rendition program—some courts will dismiss the case entirely. The U.S. Court of Appeals for the Fourth Circuit has explained that this practice is necessary in order to avoid the "constitutional conflict that might [occur if] the judiciary demanded that the Executive disclose highly sensitive military secrets." On the other hand, other courts have based the privilege on the prudential concern of protecting national security, rather than the constitutional question of infringing on presidential power. To the extent the privilege is a common law doctrine, it may be altered by statute. However, the executive branch would likely object that, at some point, such legislation intrudes on the President's power as Commander in Chief to protect national security information. Conclusion Congress and the President thus share power over access to national security information. Congress enjoys power to regulate access to classified information; however, the President generally makes the specific determination about what particular information is classified. FISA opinions and orders, most of which contain at least some sensitive facts pertaining to national security, are a mixture of legal reasoning and sensitive national security information. Proposals that allow the executive branch to first redact classified information from FISA opinions before public release appear to be on firm constitutional ground. Such laws, in line with statutes like FOIA, allow the executive branch to protect sensitive information and likely satisfy the executive branch's view of its constitutional obligations under Article II. In addition, these proposals largely coincide with the protections accorded by courts via the state secrets privilege. In contrast, a proposal that mandated all past FISA opinions be released in their entirety—without any redactions by the executive branch—might raise a separation of powers issue. The executive branch has historically enjoyed some protection from releasing properly classified information—via statutory exemptions and the common law. Legislation ignoring these protections would likely invite constitutional objections from the executive branch. Finally, a law that applied retroactively—compelling the release of past FISA decisions—might raise different questions than a law that applied only prospectively. In the former case, many past FISA decisions that contain classified information would be affected. In the latter, the executive branch could conceivably alter its strategy of what information to include in applications to the FISC, thus alleviating concerns about compelling the release of classified information; although such an effect might raise separate constitutional questions of its own.

In response to the disclosure of various National Security Agency (NSA) surveillance and data collection programs, a number of legislative changes to the government's intelligence operations authority have been suggested. Under the Foreign Intelligence Surveillance Act of 1978 (FISA), the Foreign Intelligence Surveillance Court (FISC) reviews government applications to conduct surveillance and engage in data collection for foreign intelligence purposes, and the FISA Court of Review reviews rulings of the FISC. Most FISA opinions are classified by the executive branch. Some have raised concerns that this practice permits the government to rely upon "secret law" to justify its activities, and have proposed requiring the public release of legal opinions and orders issued by the FISC and the FISA Court of Review. However, others might regard these proposals as raising separation of powers questions, including the scope of the executive branch's control over national security information. FISA opinions and orders, most of which seem to contain at least some sensitive facts pertaining to national security, involve the legal analysis of sensitive national security information. Requiring the executive branch to release them implicates Article II of the Constitution because it compels the President to disclose potentially sensitive documents, and could override the President's classification decisions. After briefly reviewing the FISC's current procedures, this report will examine the Article II implications of requiring the executive branch to disclose FISA opinions. The Constitution assigns responsibility for the national defense to both Congress and the President. However, the extent to which Congress may regulate the President's discretion over national security matters is a contentious issue. Some argue that the President possesses a sphere of authority that exists independent of any congressional delegation of authority. While courts have not precisely determined the scope of any such power, it appears that control over access to national security information is largely shared between the legislative and executive branches, rather than belonging exclusively to one branch. For example, courts have indicated that neither one possesses absolute power over classified information. In addition, an examination of historical practice reveals that Congress and the executive branch share power in this area. Congress requires consistent disclosure of sensitive national security information to the relevant intelligence and defense committees. Congress has also regulated control over access to national security information, passing legislation such as the Classified Information Procedures Act (CIPA), FISA, and the Freedom of Information Act (FOIA). Pursuant to these statutes, courts have required the executive branch to disclose information to the public and the judiciary. In fact, no statute regulating classified information has been held by courts to improperly intrude upon the President's power as Commander in Chief. Nevertheless, Congress's power to compel the release of information held by the executive branch might not be absolute. The Supreme Court has observed that the President enjoys some power as Commander in Chief to control access to national security information. In addition, courts have crafted common law privileges that protect the executive branch from revealing certain military secrets. Consequently, there may be a limited sphere of information that courts will protect from public disclosure.

Introduction In 1963, responding to projections of an impending physician shortage, Congress passed the Health Professions Educational Assistance Act (P.L. 88-129) to support the training of health professionals. This act, which authorized grants for the construction of new teaching facilities, was the first comprehensive legislation to address health care provider supply. Related programs, authorized in Title VII of the Public Health Service Act (PHSA), have evolved in subsequent reauthorizations. Beginning in the 1980s, funding for these programs became more focused on alleviating geographic and specialty maldistribution of health professionals, rather than increasing their overall supply. In the 1990s, Title VII programs emphasized support for primary care professionals, students from disadvantaged and/or diverse backgrounds, and individuals who were willing to practice in medically underserved communities. In 1998, the most recent authorization of Title VII programs, Congress regrouped programs into functional clusters ( P.L. 105-392 , Health Professions Education and Partnerships Act). This led to the creation of a range of grants programs for the development of a wide range of health care professionals that make up the health workforce. Employing primary care and public health as frameworks, the legislation targeted: underrepresented minorities in the health professions; students and residents training in primary care medicine and dentistry; faculty in health education, primary health care and public health; and community-based institutions that were in support of creating and building networks for the education and training of the health workforce. Physicians, physician assistants, nurses, psychologists, pediatricians, community health workers, geriatric students, pharmacy students, paraprofessional, and many more would receive support for education and training in the initial years of the program. Further, P.L. 105-392 provided support for the analysis of the nation's health workforce in anticipation of pending and future needs to address supply and demand issues throughout the United States. Title VII programs are administered by the Bureau of Health Professions at the Health Resources and Services Administration (HRSA), in the Department of Health and Human Services (HHS). Title VII programs provide scholarships to students through grants and loans to institutions. For FY2008, the enacted appropriation for Title VII programs is $194 million. The FY2009 President's request contains no funding for any of the Title VII programs. HRSA also administers two related programs in health workforce development. The National Health Service Corps (NHSC) is authorized under Title III of the PHSA, and administered by the HRSA Bureau of Primary Health Care. The NHSC is a scholarship and loan repayment program for certain health care workers who commit to future service in areas of the country experiencing a shortage of health care providers. Eligible providers include primary care physicians (doctors of medicine or osteopathy), primary care nurse practitioners, physician assistants, dentists and dental hygienists, certified nurse midwives, social workers, psychologists, and other mental health providers. The second program, Nursing Workforce Development, is authorized in Title VIII of the PHSA, and administered by the Bureau of Health Professions. Programs in Title VIII focus exclusively on programs for the education and training of nurses at basic and advanced levels of education. Title VIII programs provide scholarships, loans and grants to achieve policy objectives. A variety of other federal programs also provide support for health professions training, including graduate medical education (GME) programs administered through the Centers for Medicare and Medicaid Services (CMS) in HHS, clinical research training supported by the National Institutes of Health in HHS, and training programs in the Departments of Defense and Veterans Affairs. These other programs may or may not provide training that is targeted toward clinical specialization. The HRSA programs in Titles III, VII and VIII of the PHSA are the only federal programs intended to counter market forces that encourage specialization. These programs instead aim to improve the placement of providers in underserved areas, improve the racial and ethnic diversity of providers, and push back against market forces favoring specialization by encouraging "generalist" providers, those in primary care, family medicine, and geriatrics. According to the Department of Labor, seven of the 20 fastest growing occupations are in the health workforce. Home health aides, medical assistants, physician assistants, physical therapist assistants, dental assistants, dental hygienists, and personal and home care aides comprise the seven groups. Health care aides and assistant occupations are projected to grow especially quickly as organizations try to control costs. Individuals in these occupations may be expected to assume some duties formerly done by more highly paid health care professionals, such as dentists, nurses, physicians, and therapists. Furthermore, continued population growth coupled with an aging populations will continue to demand a high level of quality health care services. The effectiveness of Title VII health professions programs in meeting a variety of stated objectives has long been a subject of debate. This has resulted in recommendations from the Administration to eliminate many of the programs, recommendations which have persisted for many years. The country's largest health philanthropy, the Robert Wood Johnson Foundation, has heralded repeated successes in applying or drawing on lessons learned from Title VII models. Others argue that Title VII programs have made a significant difference in recruiting and retaining health professions in rural areas, where health professional shortages are most severe. In 2006, the General Accounting Office (GAO) assessed Title VII programs and determined that the effectiveness of these programs was difficult to evaluate. This report examines the legislative, programmatic and funding histories of Title VII health professions programs, and discusses issues including workforce analysis and the evaluation of program effectiveness. In addition, a number of social or market trends likely to affect the health professions, such as the aging population, are discussed. Title VII programs are described in the appendix. This report will be updated as events warrant. Legislative History of Title VII Programs In 1963, responding to a projected nationwide shortage of physicians, Congress passed the Health Professions Educational Assistance Act (P.L. 88-129, amending the Public Health Service Act, or PHSA). The act authorized grants for the construction of new teaching facilities and loans to support students in the study of medicine, dentistry, and osteopathy. In the 1970s, when studies indicated that a physician shortage appeared to have subsided, the emphasis of Title VII programs shifted. Through several reauthorizations in the 1970s and 1980s, Title VII programs were seen as a means to improve maldistributions of physicians and other health professionals. Programs were authorized to increase the numbers of health professionals in underserved (mostly rural or inner-city) areas, and to improve the racial and ethnic diversity of the health workforce. In addition, programs were developed to counter the nationwide trend among medical residents toward specialization. The major objective of these programs was to increase support for training and curriculum development in primary care. In 1998, Congress reauthorized and consolidated health professions programs in the Health Education Partnerships Act ( P.L. 105-392 ), creating new authority for programs in geriatrician training and health workforce analysis. To provide administrative flexibility, Congress consolidated multiple existing or new programs into clusters. The clusters identify the following areas for Title VII Health Workforce Development: (1) training of minority and disadvantaged professionals; (2) training in primary care medicine and dentistry; (3) interdisciplinary, community-based linkages, to establish training centers in remote areas; (4) health professions workforce information and analysis; (5) public health workforce development; and (6) student financial assistance. Congress also established advisory committees for two of the clusters: primary care medicine and dentistry, and interdisciplinary, community-based linkages. Eventually, mental health providers were made eligible for participation in certain Title VII programs. The Health Education Assistance Loan (HEAL) program was reauthorized in 1998, but since then no new loans have been issued. HEAL continues to receive annual appropriations in order to liquidate existing loans. Though budget authority for most Title VII programs expired in September 2002, most programs have continued to receive funding through annual appropriations. Health Professions Supported by Title VII Programs The health workforce comprises those who provide hands-on medical care, those who provide ancillary technical and patient-care services, paraprofessional, and public health workers who study and address health problems in populations rather than individuals. Generally, workers providing direct medical care or patient-specific technical services have specialty training and certification, and are licensed by states and territories as a condition of their practice. These requirements do not generally apply to the public health workforce. A wide range of health professionals is eligible to receive support for the education and training activities offered through Title VII programs. Education and training requirements vary for each profession and are reflected in the period of academic study, residency requirements, licensure requirements, and other prerequisites for practice. Title VII support is also available to institutions that train health professionals. Groups of health professionals that are eligible for Title VII support include physicians, dentists, mental and behavioral health professionals, environmental health professionals, dental assistants, and medical assistants. Some Title VII programs for training providers emphasize support for primary care, those health care services rendered in general medicine and dentistry, family practice and pediatrics. These fields, which emphasize a breadth of skills and care for the whole patient, contrast with specialty care, which is often focused on specific organs or systems. Primary care providers, who may include physicians, dentists, nurses or physician assistants, provide primary care through integrated, accessible health care services. The American Academy of Family Physicians, representing primary care physicians, defines its members as those who [function] as the patient's means of entry into the health care system ... [and are] the physician of first contact in most situations and, as the initial provider, [are] in a unique position to form a bond with the patient ... [to evaluate] the patient's total health needs, and [to provide] personal care within one or more fields of medicine. Title VII also supports training of the public health workforce. This workforce may include nurses and physicians, though they may or may not render direct patient care in the course of their work. Public health workers may also be administrators, technicians, veterinarians, animal control specialists, environmental engineers, sanitarians, educators and community outreach workers. The national public health workforce has been estimated at roughly 450,000 to 500,000 employed workers, employed in health departments at the local, state, or federal levels, in health care institutions, in academia, and in other settings. Considerable overlap exists among providers of primary care and those in public health, as both are strongly oriented toward prevention of illness and injury. Individuals in both fields often move between them, or work in both concurrently, during the course of their careers. Allied health professionals support or assist in the delivery of public health services or primary health care. They are involved with the delivery of health or related services pertaining to the identification, evaluation and prevention of diseases and disorders; dietary and nutrition services; rehabilitation and health systems management, and others. Dental hygienists, diagnostic medical sonographers, dietitians, cardiovascular technologists, medical technologists, occupational and physical therapists are some examples. These practitioners provide many kinds of services, and they work in all types of settings, including managed care, hospitals, laboratories, health departments, long-term care, and home care settings. Funding for Title VII Programs Since FY2002, the Administration has proposed elimination of most Title VII programs, while continuing most funding for the National Health Service Corps and Title VIII Nursing Workforce programs, saying, These [Title VII] training grants were created almost 40 years ago when a physician shortage was looming. Today, a physician shortage no longer exists. To reflect changing priorities, the budget will recommend focusing resources on the Health Professions grants that address current health workforce supply challenges, such as the impending nursing shortage. For each of fiscal years 2003 through 2007, the Administration requested funds for only two Title VII programs: Scholarships for Disadvantaged Students (Section 737), and Health Professions Workforce Information and Analysis (Section 761). For FY2008, the Administration's request for funding was down to a single program, Scholarships for Disadvantaged Students, and for FY2009, no funding was requested for any Title VII programs. In each of FY2003 through FY2008, Congress continued to appropriate funds for Title VII programs (see Table 1 , below). On February 5, 2007, the President submitted the FY2008 budget request to Congress, including $9.7 million for Title VII programs; the comparable FY2007 amount was $184.7 million. The House passed H.R. 3043 ( H.Rept. 110-231 ), providing $228.3 million for Title VII programs. The Senate reported S. 1710 ( S.Rept. 110-107 ), then later passed H.R. 3043 , amended, with $189.7 million for Title VII programs. The conference report ( H.Rept. 110-424 ), providing $212.0 million, was vetoed on November 13, 2007; the House failed to override the veto on November 15. A series of four continuing resolutions provided temporary FY2008 funding until enactment of P.L. 110-161 , the Consolidated Appropriations Act, 2008, on December 26, 2007. Division G of the act provided $194.0 million for Title VII programs (representing the amount after 1.74% rescission taken from $197.406 million). The final FY2008 appropriation $194.0 million represents a 4.9% increase over the FY2007 amount (see Table 2 ). Health Workforce Analysis An essential tool in assuring an adequate and capable health workforce is the ability to describe workforce strength in the present, and to accurately project future needs. Federal leadership for health workforce analysis rests in the HRSA Bureau of Health Professions, National Center for Health Workforce Analysis (NCHWA). In reauthorizing Title VII and VIII programs in 1998, Congress stated three purposes for programs in Health Professions Workforce Information and Analysis: (1) Provide for the development of information on the health professions work force and for the analysis of work force related issues; (2) Provide for the development of necessary information for decision-making regarding future directions in health professions and nursing programs; (3) Provide for continued analysis of issues affecting graduate medical education. To meet these purposes, HRSA has provided grants to state or local governments, health professions schools, schools of nursing, academic health centers, community-based health facilities, and other public or private nonprofit entities in order to: conduct targeted information collection and analysis; research high-priority workforce questions; develop a non-federal analytic and research infrastructure; and conduct program evaluation and assessment. Difficulties in measuring the health workforce are discussed below, and represent something of a first hurdle in meeting the Title VII goals of improving the numbers, distribution and diversity of non-specialized health practitioners. When it is not possible to count an existing workforce with confidence, it may not be possible to proceed to next steps: projecting future workforce needs, in total or as a percentage of a population served; defining shortage areas; determining whether market trends in workforce sectors will assure an appropriate future supply; and, evaluating whether specific Title VII programs are effective. Defining and Enumerating the Health Workforce Each year, NCHWA enters into cooperative agreements with six Regional Centers for Health Workforce Studies to collect, analyze and disseminate information and to monitor trends in the national, state and local health workforce. NCHWA also supports efforts to describe the health workforce state by state, and has published in-depth and summary state profiles on its web page. A census of health workers starts with consistent terminology. The U.S. Department of Labor, Bureau of Labor Statistics (BLS) uses a system of Standard Occupational Classification (SOC) to collect, calculate, and disseminate data about the American workforce. SOC categories provide a consistent format for use in the decennial census, for federal agencies enumerating private-sector workforces relevant to their missions, and for private entities interested in studying the American workforce. Workers are classified into one of over 820 occupations based on similar job duties, skills, education, or experience. Health care workers whose disciplines are supported by Title VII programs are classified in category 29-0000—"Health care Practitioners and Technical Occupations," which is further divided into "Diagnosing and Treating Practitioners" such as physicians, pharmacists and dentists, and "Health Technologists and Technicians," which includes, among others, laboratory and radiology technicians, and dental hygienists. The suffix in category 29 allows for finer designations. For example, therapists are coded in the 29-1120 series, and respiratory therapists, in particular are coded as 29-1126. Despite its overall utility, the SOC system falls short when applied to Title VII programs in at least two important ways. First, only eight subcategories of physicians are available, including "other," a category likely to become progressively less helpful if trends toward specialization persist. Second, public health workers, a target group for Title VII programs which has grown in importance with the national emphasis on homeland security, are not described in the SOCs. They are likely to be counted as physicians, nurses, technicians, or other practitioners, depending on which degrees they may hold (if any), but the classification scheme misses the fact that their "practice" is on populations rather than individuals. An analysis of efforts to enumerate workers in the nation's local health departments found that the SOC system did not correspond in meaningful ways with actual workers and their roles, and concluded that "no state or national system is in place to track local public health workers in any way." One of the few attempts to enumerate the national public health workforce estimated it at about 448,000 individuals, though this effort raised as many questions as it answered: What types of training do these individuals have? What proportion of their time is spent solely on public health practice, versus personal health care, teaching or research? Have they also been counted erroneously toward some other health workforce? Attempts by professional associations to enumerate workers in their disciplines sometimes yield results that conflict with BLS findings. For example, in 2000, BLS data indicated that there were 598,000 physicians in the United States, while a study of the same year by the American Medical Association indicated almost 814,000, or 36% more. This shows the difficulty in using different data sources (such as BLS data and state license rolls) both in conducting the count itself, and in the variety of determinations that must be made to answer a given question. If one is interested in the strength of a full-time workforce practicing a specific discipline, then correction must be made for those holding licenses and practicing in multiple states, those engaged in employment other than practice, (including those in administration or who are retired), and those practicing part-time or not at all. Projecting Future Workforce Strength and Needs Each year, NCHWA grantees prepare ten-year projections of national health workforce strength based on analysis of data from the BLS Office of Occupational Statistics and Employment Projections. In a 2004 analysis, projected a trend toward growth in health sector jobs, particularly among home health, home care, and personal care aides: Employment of home health aides—the occupation projected to grow the fastest—and of personal and home care aides, classified as a personal service occupation, should grow very rapidly as the elderly population expands and as efforts to contain health care costs continue. The emphasis on less costly home care and outpatient treatment of elderly persons, rather than expensive institutional care, will lead to growing numbers of aides to provide in-home health care, as well as personal care and housekeeping assistance. In addition, patients of all ages are being sent home from hospitals and nursing facilities as quickly as possible, and many of those discharged need continued health care and personal care at home. NCHWA supports ongoing research to project workforce needs for specific health professions in greater depth. These reports generally use BLS data, and frequently comment on the same dominant trends in supply and demand, such as aging of both the population and the health workforce, and the growing opportunities for women in higher-paying fields and their attrition from lower-paying health care jobs. Specific trends are also noted for certain health professions, such as the growth of outpatient prescription drug use and the projected growth in demand for pharmacists. The Association of State and Territorial Health Officials (ASTHO) recently reported on the status of the national public health workforce. Lacking relevant BLS data, ASTHO used the results of a survey of state government agencies conducted by the Council of State Governments and the National Association of State Personnel Executives, augmented by its own survey of its members, the senior health officials of the 57 states and territories (including the District of Columbia). The report's key findings include an aging public health workforce, retirement rates as high as 45% over the next five years, current vacancy rates of up to 20% in some areas, and prolonged high turnover in some areas. The report notes that the educational status of public health workers is not always clear, and that prevailing wages at the state and local level may serve as impediments to enhancing educational requirements. Shortage Designations and Diversity The Shortage Designation Branch develops shortage designation criteria and uses them to decide whether or not a geographic area or population group is a Health Professional Shortage Area (HPSA) or a Medically Underserved Area (MUA) or Population HRSA reports that about 20% of the U.S. population resides in primary medical care HPSAs, and that more than 34 federal programs depend on these shortage designations to determine eligibility or as a funding preference. Health Professional Shortage Areas A HPSA is designated when the Secretary of HHS determines there is a shortage of health professional(s) in an urban or rural area (which need not conform to political subdivisions), a population group or a public or nonprofit private medical facility. Areas are given "HPSA Scores" that take into account several factors, including ratios of population to primary care physicians, poverty rates, infant mortality/ low birth weight, and travel distance to sources of care. Medically Underserved Areas and Populations HRSA defines a Medically Underserved Area (MUA) as "a whole county or a group of contiguous counties, a group of county or civil divisions or a group of urban census tracts in which residents have a shortage of personal health services," and a Medically Underserved Population (MUP) as "groups of persons who face economic, cultural or linguistic barriers to health care." Minority and Disadvantaged Designations With respect to health professionals, HRSA defines an underrepresented minority as " ... racial and ethnic populations that are underrepresented in the health professions relative to the number of individuals who are members of the population involved. This definition would include Black or African American, Hispanic or Latino, American Indian or Alaskan Native." It is worth noting that individuals who are Asian or Pacific Islanders are not designated in this case. These groups are not underrepresented in the health professions relative to the U.S. population, though they may be designated as underrepresented minorities in other contexts. HRSA defines a "disadvantaged" individual as someone who (a) comes from an environment that has inhibited the individual from obtaining the knowledge, skill, and abilities required to enroll in and graduate from a school (environmentally disadvantaged); or (b) comes from a family with an annual income below a level which is based on low-income thresholds according to family size published by the U.S. Bureau of the Census, adjusted annually for changes in the Consumer Price Index, and adjusted by the Secretary of HHS for adaptation to this program (economically disadvantaged). Trends Affecting the Health Workforce Key social and market trends affect demand for and supply of individuals in the health workforce. Aging of the population and the health workforce, requirements for emergency preparedness, access to health insurance, growth in minority populations, reliance on international medical graduates and other concerns could shape programmatic and funding decisions that affect the supply of health workers. The Aging Population In 2006, an estimated 37.3 million persons were 65 years and older, representing 12.4% of the U.S. population. This group is expected to grow to 71.5 million (about one in every five people) by 2030. Health services utilization (e.g., office visits, hospital discharges, length-of-stay, and out-of-pocket health care costs) is generally greater for older adults than for younger individuals. Compounding the problem of growing numbers of older individuals who will require care, are reports that groups of health professionals are close to retirement age. The average age at groups of health professionals are also aging into retirement. The average age of nurses and public health workers, among others, exceeds the average age of the American workforce overall, and large proportions of these groups are expected to retire by 2010. Almost 97% of those over 65 (who are eligible for Medicare) reported in 2003 that they had "a usual place to go for medical care," a proportion much larger than for younger age groups. While access to care may be a lesser problem for seniors, quality of care may be of concern. The American Geriatrics Society has testified on the nationwide shortage of trained geriatricians, and of training programs for them. The Society describes geriatric care as follows: Geriatric medicine promotes wellness and preventive care, with emphasis on care management and coordination that helps patients maintain functional independence in performing daily activities and improves their overall quality of life.... geriatricians commonly work with a coordinated team of nurses, geriatric psychiatrists, physician assistants, pharmacists, social workers, physical and speech therapists and others. The geriatric team cares for the most complex and frail of the elderly population. Geriatricians are primary care-oriented physicians who are initially trained in family practice or internal medicine and who are required to complete at least one additional year of fellowship training in geriatrics. In 2007, the American Geriatrics Society reported that there were approximately 7,000 certified geriatricians in the nation. The Alliance for Aging Research projects a need for 36,000 geriatricians by 2030. They also recommend enhanced training of a variety of other health professionals (e.g., family physicians, mental health providers and nurses) in the special needs of older patients. In the Health Professions Education Partnerships Act of 1998, Congress created a new Section 753 in the PHSA to provide support for professional training, re-training, and faculty development for geriatric practice. Funding for this program has increased from $12.4 million in FY2001 to $30.9 million in FY2008. The President's FY2009 budget does not request funds for this and other primary care programs. Emergency Preparedness Since the terror attacks of 2001, the need for a responsive public health workforce is more evident. GAO reported in 2002 that "shortages of personnel existed in state and local health departments, laboratories, and hospitals and were difficult to remedy." Federal, state and local governments may be in competition for a finite group of workers, as CDC Director Julie L. Gerberding has noted, "We're competing over the same group of talented people. It takes time to hire and train people and our pipeline in our schools is not a torrent. It's more like a trickle." The Partnership for Public Service has reported that the federal government has been unable to match salary growth in the private sector since 2001, resulting in migration of talent away from public service, and that nearly half of all federal employees in biodefense-related positions will be eligible for retirement within five years. In 2002 the Institute of Medicine proposed a plan for educating public health professionals for the 21 st century, recommending degree programs in schools of public health, medicine, and nursing. In a subsequent workshop, the Association of State and Territorial Health Officials (ASTHO) posited that training programs alone will not remedy public health worker shortages, and that the problem requires a strategy that takes into account the human resources systems, salary structures, and incentives in governmental public health. ASTHO urged consideration of distance-learning, education debt forgiveness programs for state and local public health workers, and funding support for on-the-job training. CDC maintains a public health workforce program that looks broadly at the problem from a "pipeline" perspective. Its most recent strategic plan for public health workforce development pre-dates the 2001 terror attacks, though activities are ongoing to bolster the workforce in the context of terrorism and emergency preparedness. CDC Director Julie L. Gerberding notes: A competent and sustainable workforce is one of the strategic imperatives within CDC's National Strategy for Terrorism Preparedness and Emergency Response. CDC's support to address this imperative will focus on: increasing the number and type of professionals that comprise a preparedness and response workforce; delivery of certification and competency based training; recruitment and retention of the highest quality workforce; evaluation of the impact of training on workforce competency; (and) support for Schools of Public Health, Medicine and other Academic partners to increase the number of individuals entering the field and trained throughout their career. Currently, CDC funds Academic Centers for Public Health Preparedness at Schools of Public Health to address workforce training and 'workforce pipeline' issues.... we are developing a strategic framework for workforce development throughout the entire public 41health system, which includes going way back to junior highs and high schools. Though HRSA has conducted analyses of the health workforce, its emphasis has historically been on primary health care rather than in public health functions such as surveillance, outbreak investigation and facility inspections. More recently HRSA is funding studies of the public health workforce in several states. In addition, HRSA has supported a number of programs to train public health professionals on the job. Following the terror attacks of 2001, HRSA provided grants in FY2002 and FY2003 through a new Bioterrorism Training and Curriculum Development Program, for training in recognition and treatment of diseases related to bioterrorism to health care providers in training and on the job. FY2004 funding completed the awards for prior-year grantees. The FY2005 appropriation for this program was $27.520 million. Since then, funding for emergency preparedness and response has been appropriated to the CDC. Despite these efforts, there have been repeated calls for a national strategy aimed at defining and providing a skilled, sustainable workforce for public health preparedness, without it coming at the expense of routine public health activities. The Gilmore Commission recommended in 2002 that "DHHS fund studies aimed at modeling the size and scope of the health care and public health workforce needed to respond to a range of public health emergencies and day-to-day public health issues." With the release of its fifth and final report one year later, the Commission noted that this recommendation was one of few that had yet to be implemented. The Association of Public Health Laboratories has said that "the nationwide shortage of skilled laboratorians cannot be addressed through short-term funding support, but requires a long-term national strategy." And the Partnership for Public Service noted, "There is no government wide planning effort that develops a coordinated recruitment plan for the numerous federal agencies responsible for biodefense....We have seen no analysis that identifies the numbers and types of employees needed in response to the most likely bioterrorist threats." Congress may wish to consider whether federal leadership to develop a national strategy for a prepared public health workforce should properly reside at CDC, at HRSA, or elsewhere, and whether this matter should be considered in reauthorizing Title VII programs. Health Insurance In 2006, the U.S. Census Bureau reported that both the percentage and the number of people without health insurance increased in 2006. The percentage without health insurance increased from 15.3% in 2005 to 15.8% in 2006, and the number of uninsured increased from 44.8 million to 47.0 million. The Institute of Medicine (IOM), in one of a series of reports on the problem of uninsurance, looked at its associated costs, and commented on its effects on provider distribution, saying: Uninsurance may affect the availability of health services within communities. In an effort to avoid the burden of uncompensated care or to minimize its impact on the financial bottom line, health care providers may cut back on services, reduce staffing, relocate, or close. Already overcrowded hospital emergency departments may be further strained as they increasingly serve as the provider of first and last resort for uninsured patients. Physicians' offices or even hospitals may relocate away from areas of towns or entire communities that have concentrations of uninsured persons. Especially for institutions that serve a high proportion of uninsured patients such as center-city community hospitals or academic medical centers, a large or growing number of uninsured persons seeking health care may "tip" a hospital's or clinic's financial margin from positive to negative. In January 2002, the Administration announced a series of actions to assist those without health insurance. The focus of HRSA activities was to support Community Health Centers and the National Health Service Corps, both authorized in Title III of the PHSA, a strategy proposed in other venues as well, including appropriations testimony. Title VII Health Professions programs were not mentioned specifically, though if they are effective in placing providers in underserved areas, they could serve to push back against the market forces described by IOM in providing care for the uninsured. International Medical Graduates A graduate from a medical school outside the United States and Canada is an international medical graduate (IMG). IMGs constitute about one-fourth of physicians in graduate medical education in the United States. The Educational Commission for Foreign Medical Graduates at certifies IMGs to enter residency or fellowship programs at accredited U.S. institutions. About one-fourth of IMGs entering U.S. residency programs are on exchange visitors' status (J-1) visas, and must either return to their home countries for two years following training, or obtain a waiver by committing to three years of service in an underserved area in the United States. As a result, in 2002 IMGs with visa waivers constituted about 60% of all underserved-area service commitments in the United States. This new policy substantially reduced the number of areas that qualified for J-1 visa waiver status in a number of primarily rural states. However, in December 2003, HHS expanded restrictions on its J-1 visa waiver application, resulting in limitations on the geographic locations in which participating physicians are allowed to work. Physicians with an approved J-1 waiver may work only in Federally Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs) or Indian Health Service (IHS) Clinics in areas with high HPSA scores. HRSA notes that three times as many minorities live in HPSAs as compared with the general population. While IMGs serve an important role in plugging health care gaps in these underserved areas, about 40% of IMGs come from just four Asian countries—India, the Philippines, Pakistan and South Korea. Black and Hispanic IMGs are under-represented not only relative to the patient population, but also compared with the provider population. IMGs do not, therefore, contribute to improving overall racial and ethnic diversity in the health workforce. The Effectiveness of Title VII Programs The effectiveness of Title VII health professions programs in meeting a variety of stated objectives has long been a subject of debate. On the one hand, Administrations have proposed to eliminate many of the programs, recommendations which have persisted for many years. On the other hand, Congress has continued to fund these programs, and they continue to evolve, complicating the task of evaluating program effectiveness. Numerous views on program effectiveness and ways to improve program evaluation are discussed below. Differing Views on Program Goals In general, evaluating program effectiveness depends on linking performance to pre-determined goals. This simple maxim has proved troublesome when applied to HRSA Title VII programs; different parties, from stakeholders to the Administration to the Congress, have articulated different goals ranging from the very broad to the very specific, and sometimes in conflict. This has led to a wide swath of official determinations of effectiveness and a historical difference of opinion between Congress and the Executive Branch regarding the merits of these programs. In addition, the evolution of program goals over time adds to the script of stated purposes. For example, the Advisory Committee for Section 747 Primary Care Medicine and Dentistry programs recounted a chronology of purposes in authorizing legislation, beginning in 1963 with support for school construction, the most basic bricks-and-mortar foundation of long-term capacity-building. With each reauthorization the stated purposes evolved, bringing in support for minority training and geographic distribution, expanding residency slots, opportunities for geriatric education, and incorporating family medicine and dentistry along the way. To some, the moving goalpost of program objectives stymies efforts to evaluate the effectiveness of any one step. To others, this simply represents the natural progression of successful programs. In 1997, in preparation for the 1998 reauthorization of HRSA Title VII programs ( P.L. 105-392 ), GAO testified that "the effectiveness of Title VII... programs will remain difficult to measure as long as they are authorized to support a broad range of health care objectives without common goals, outcome measures, and reporting requirements." The following sections will examine program goals from a variety of perspectives. The cluster of Section 747 Primary Care Medicine and Dentistry programs will be cited frequently as an example; these programs have a reasonable evidence base upon which to consider the question of effectiveness, as well as a rich history of debate. It is assumed that some of the elements of this controversy will apply equally well to the other program clusters. Congressional Views In reauthorizing Title VII programs in 1997, Congress consolidated the existing 44 health workforce programs into seven clusters . Legislative language generally articulated objectives only for specific components within each cluster, but the accompanying Senate Report (105-220, June 23, 1998) provided a glimpse of congressional intent toward broader goals for each cluster, as follows: Minority and Disadvantaged Health Professionals Training : Purposes: (1) Provide for the training of minority and disadvantaged health professionals to improve health care access in underserved areas and to improve representation in the health professions. Primary Care Medicine and Dentistry : Purpose: Provide for the training of family physicians, general internists, general pediatricians, physician assistants, general dentists, and pediatric dentists to improve access to and quality of health care in underserved areas. Interdisciplinary, Community-Based Linkages : Purposes: (1) Provide support for training centers remote from health professions schools to improve and maintain the distribution of health providers in rural and urban underserved areas; (2) Provide support for geriatric education and geriatric faculty fellowships; and (3) Provide support for interdisciplinary training projects. Health Professions Workforce Information and Analysis : Purposes: (1) Provide for the development of information on the health professions work force and for the analysis of work force related issues; (2) Provide for the development of necessary information for decision-making regarding future directions in health professions and nursing programs; and (3) Provide for continued analysis of issues affecting graduate medical education. Public Health Workforce Development : Purpose: Provide for an increase in the number of individuals in the public health work force and enhance the quality of such work force. Nursing Workforce Development : (Not applicable. These programs are found in Title VIII.) Student Financial Assistance: Purposes: (1) Continue certain loan programs which do not require federal appropriations or that guarantee the availability of loan sources in the market for health professions students; and (2) Continue a loan program for the disadvantaged. Most of the clusters carry statements of purpose that causally link an activity (e.g., "provide for the training of minority and disadvantaged health professionals") to an outcome (e.g., "to improve health care access in underserved areas and to improve representation in the health professions"). While Congress has funded each cluster in each fiscal year since reauthorization, the Administration has not always concurred with these assumptions of causality, or with the assumption that these programs are effective in general. Despite the Administration's annual budget proposals (discussed below), Congress provided continued funding for all program clusters in Title VII each year from FY2002 through FY2008. Administration Views In the FY2008 Administration budget proposal, as in prior years, HRSA health workforce programs were slated for near-elimination. In FY2009, all programs are targeted for elimination. In its Program Assessment Rating Tool (often called a PART assessment) for FY2003, the White House Office of Management and Budget (OMB) found a lack of clarity of purpose in Title VII programs, giving them collectively a 13% (out of 100) rating for results/accountability, and recommending continued phase-out of most health professions grants with redirection of funds to more effective options, though none were stated. In specific, the assessment found: 1. There is disagreement regarding the purpose of the program and a clear and focused purpose is not found in the authorizing legislation, external views and program documents. For example, the agency believes the purpose is to address the failure of the market to distribute health providers to all areas of the country and to serve all population groups. Others believe the purpose is to primarily to help rural areas or to subsidize schools. 2. While the program has been managed well overall, it has not regularly used performance data to improve program outcomes. The GAO noted in 1997 that effectiveness has not been shown and the impact will be difficult to measure without common goals, outcome measures and reporting. The program has adopted new performance benchmarks, but lacks data to demonstrate progress. In her testimony to congressional appropriators regarding the FY2005 budget proposal, HRSA Administrator Elizabeth Duke expanded on the Administration's rationale for cutting back or eliminating the health professions programs, stating that: the preference of the Administration is to put more money into direct health care delivery and less money into some of the programs that have been historically used.... only 30 percent of the graduates of these programs actually end up in care to the underserved, and ... the Administration's position is that a better way to go would be to fund direct care (through the National Health Service Corps). Views of Formal Advisors The Advisory Committee on Training in Primary Care Medicine and Dentistry was created by Congress in 1998 to provide advice and recommendations to the Secretary of HHS regarding programs in Section 747. As expected, in order to provide tangible experience in program performance, the committee is comprised of individuals who either work for institutions or represent professions that benefit from Title VII programs. The committee has issued two reports. In the first, published in November 2001, the committee concluded that these programs are effective in improving the numbers and distribution of targeted providers, though much of the evidence cited is anecdotal and a causal link between the program and outcomes is not always demonstrated. The committee acknowledges this, though, in several statements about the difficulty in evaluating these programs, saying Several factors make it difficult to obtain direct evidence relevant to the influence of Title VII, Section 747 programs on its primary goals. First, the program has continued to evolve since it began. With these changes, reporting methods have been modified and have not necessarily provided data relevant to the supply, distribution, and composition of primary care providers. Ironically, the committee adds to the debate about Title VII programs serving as counterweights to the market-driven specialization trend, suggesting that public funds as well as private sector forces may work against program outcomes and hamper their actual or perceived effectiveness. The committee notes: Judgments about (the effectiveness of these programs) are further muddied because these programs represent only a minor fraction of overall funding for medical education and training.... The billions of dollars in support of other national priorities such as biomedical research through the National Institutes of Health and the support through Medicare graduate medical education in subspecialty areas have been powerful influences toward specialty rather than primary care training that dwarf the amounts expended to support Title VII, Section 747 incentives. Stakeholder Views Responding to OMB's unfavorable performance ratings for Title VII programs, the American Academy of Family Physicians (AAFP) has testified that: OMB criticized all of the Title VII Health Professions programs as lacking a focused objective. However, Section 747 ... in particular, has a clear purpose and has been successful in achieving its goals. The OMB evaluation lumps all of the programs together and does not evaluate them individually. By definition, these programs will have different goals, different levels of effectiveness and different histories, making the PART evaluation unsophisticated, at best. The Section 747 cluster does have a stated purpose in authorizing legislation, as noted above. With respect to the apparent assumption by Congress that subsidized training programs will lead to improved access and quality of care in underserved communities, AAFP points to the findings, published in 2002, of a comprehensive analysis of Title VII programs between 1978 and 1993 in which 180,000 medical school graduates were followed to evaluate their practice specialty and location in the year 2000. Students who attended schools that received no family medicine funding through Title VII during their tenure chose family practice at a rate of 10.2%. Students who attended schools that received Title VII funding of any type for one or more years of their enrollment chose family practice at a rate of 15.8%. Additionally, Title VII funding was associated with higher rates of practice in primary care health personnel shortage areas and with practice in a rural area. The authors concluded that Title VII programs resulted in an additional 6,968 family physicians involved in active patient care who would otherwise not have been, with an aggregate input of $290 million in Title VII funds to Section 747 programs, over the 15-year study period. Resolving the Effectiveness Debate Comprehensive studies such as the one about family physicians described above are few, though some would argue that a lack of evidence to demonstrate successful performance does not mean that Title VII programs are ineffective. The disagreements in evaluating Section 747 programs highlight the difficult position in which Congress finds itself. What are the parameters of a meaningful evaluation, in terms of the time-span studied and the length of follow-up in an ever-changing landscape? Should these evaluations be conducted by stakeholders? Is OMB the best evaluator for a process intended to "aim" a freshman medical student at whatever shortages may exist eight years hence? What is the societal value of a well-placed provider who would not otherwise be there? Adding to the challenge of evaluating effectiveness, even if one concludes that Title VII programs led to improved provider distributions, what does that mean for access to care, or to actual health outcomes for the population? GAO has noted that: geographic measures of physician supply can be a very rough measure of the actual accessibility of physician services in a given area.... many people lack access even in an area with a large number of physicians. This lack of access is often due to economic facts; lack of insurance, Medicaid coverage or low income in general may prevent many residents from receiving care from many of the physicians in the area. In addition, there may be language and cultural barriers that keep the residents from seeking or receiving appropriate care. Many seek an end to the annual debate in which the Administration, Congress and stakeholders propose eliminating or restoring budgets for Title VII programs, while evaluation methods continue to satisfy no one. The Society of Primary Care Policy Fellows has called for a new evaluation model, saying: Over the 25-year history of these programs, extensive data have been collected but have not been effectively used to scientifically assess their impact. For a decade, the Office of Management and Budget and the General Accounting Office have repeatedly criticized (HRSA) for failing to perform regular, objective, comprehensive evaluations. Evaluation of the programs has also been hampered due to a lack of legislated outcome measures and their reliance on the prevailing Administration's priorities. When it has been possible to collect data relevant to Administration priorities, for example, to assess [Title VII's] ... impact on access to care in either health centers or through the National Health Service Corps, these data have not been collected. For Title VII, this evaluation failure has meant a decade of Administration budget recommendations for no funding. The Society recommends that an evaluator directly accountable to the Congress be designated, that the evaluator establish outcomes-based benchmarks, and that there be routine data analysis to measure workforce production and distribution, and population health. The Society also recommends that data be gathered to evaluate the impact of Title VII programs on the distribution and deployment of the health workforce in federally qualified health centers and other underserved communities. The GAO has noted limitations in the PART assessment process, saying in particular: Some agency officials claimed that having multiple statutory goals disadvantaged their programs. Without further guidance, subjective terminology can influence program ratings by permitting OMB staff's views about a program's purpose to affect assessments of the program's design and purpose. This limitation may help to explain the PART findings for Title VII programs; despite several statements in the assessment narrative itself that data for evaluation were limited, suggesting a finding of "Results Not Demonstrated," the programs were instead rated "Ineffective." GAO noted that the PART assessment process is being revamped for FY2005 to reflect lessons learned, and GAO recommended, among other things, closer coordination of OMB with Congress to improve the likelihood that future PART assessments will accurately capture congressional intent in measuring program performance. OMB itself notes the limitations of its Performance Assessment Rating Tool, saying: information provided by performance measurement is just part of the information that managers and policy officials need to make decisions. Performance measurement must often be coupled with evaluation data to increase our understanding of why results occur and what value a program adds. Performance measurement cannot replace data on program costs, political judgments about priorities, creativity about solutions, or common sense. A major purpose of performance measurement is to raise fundamental questions; the measures seldom, by themselves, provide definitive answers. OMB then describes six types of obstacles to good performance measurement and ways to mitigate them. Four of the descriptions apply to Title VII programs, as follows: The program ' s outcomes are extremely difficult to measure : This problem can result when the program purpose is not clear, when the beneficiary or customer is not clearly defined, when stakeholders and programs managers have different views of the program, and when good data are not available. OMB suggests using qualitative information such as expert panel reviews when quantitative measures are lacking. The program is one of many contributors to the desired outcome : This problem results when several federal programs, programs from various levels of government (federal, state, local), and private-sector or non-profit activities all contribute to achieving the same goal. OMB recommends, as one approach, developing broad, yet measurable, outcome goals for the collection of programs, while also having program-specific performance goals. Results will not be achieved for many years : To address this issue, OMB suggests defining specific short- and medium-term steps or milestones to accomplish the long-term outcome goal. These steps are likely to be output-oriented interim goals. The program has multiple purposes and funding can be used for a range of activities : This problem occurs with federal programs that must offer some degree of local flexibility while still aiming toward national goals. OMB suggests developing both performance measures and national standards to provide "joint accountability" for programs, and setting local targets for aggregation into national targets. The national goal-setting agenda for health, the decennial Healthy People project, emphasizes health targets for individuals. The current set of goals, Healthy People 2010, articulates two national goals directly related to Title VII programs in its section on Access to Quality Healthcare Services, namely to "increase the proportion of schools of medicine, schools of nursing, and other health professional training schools whose basic curriculum for health care providers includes the core competencies in health promotion and disease prevention," and "(in) the health professions, allied and associated health profession fields, and the nursing field, increase the proportion of all degrees awarded to members of underrepresented racial and ethnic groups." In its most recent "details for performance analysis," HRSA reports on efforts to transition from older goals, which are being phased out, to new short- and long-term goals. A general trend is the elimination of goals to increase the number of providers and substitution of goals to increase the proportion of funded providers actually serving in the desired situation. The shifting parameters, while intended to provide more pertinent measures, again reflect the difficulty in evaluating these steadily-evolving programs. Options for Congress While Congress has continued to fund Title VII programs despite recent budget proposals for elimination, reduced amounts put forward in budget proposals may affect budget ceilings—the so-called 302(b) allocations for appropriations bills—putting pressure on appropriators who wish to maintain Title VII funding to offset the funds from elsewhere. In reauthorizing Title VII programs, Congress may wish to consider whether the annual funding cycle and evaluation process for these programs could be clarified through explicit authorizations for appropriations; through specific statements of program purpose or outcomes in legislation or report language; through requirements for expanded dialogue with officials at HRSA and OMB to bridge the gaps between congressional and administrative priorities for these programs; through evaluation demonstration projects to develop the type of baseline and ongoing data collection and analysis needed to meet the needs of OMB and other evaluators; and other measures. Description of Title VII Programs Programs are administered by the Bureau of Health Professions (BHPr) of the Health Resources and Services Administration (HRSA) of the Department of Health and Human Services (HHS). A brief description of each program follows. Part A: Student Loans Subpart I: Insured Health Education Assistance Loans to Graduate Students (Sections 701-720). The health education assistance loan (HEAL) program authorizes federal guarantees for educational loans obtained by graduate students in schools of medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health, pharmacy, chiropractic, or programs in health Administration and clinical psychology. Students borrow funds from commercial lenders, educational institutions, state agencies, insurance companies, and pension funds at the prevailing market interest rates. The federal government insures the loan's principal and interest. Student borrowers pay an insurance premium to contribute to a Student Loan Insurance Fund from which payments are made for defaults, death, and disability of borrowers. Borrowers have from 10 to 25 years to repay loans. Loan amounts are limited to $20,000 for an academic year for a student in medical, osteopathy, dentistry, veterinary medicine, optometry, or podiatry school ($80,000 aggregate). For students enrolled in schools of pharmacy, public health, chiropractic, or graduate programs in health administration or clinical psychology, the loan amount is limited to $12,500 for an academic year ($50,000 aggregate). Since the program's inception, $4 billion has helped 156,000 students pay for their education in the health professions. Citing a decline in the need for the HEAL program, the FY1996 appropriation for Labor, Health and Human Services, and Education included provisions to phase out the program ( P.L. 104-208 ). Subsequently, new HEAL loans to student borrowers were discontinued as of September 30, 1998. However the program exists to provide loan insurance for students who have obtained loans prior to 1998. The Secretary reports that FY2004 goals for the program are (1) an orderly phase-out of the outstanding loan portfolio and (2) reduction in the amount of HEAL claims to be paid from the liquidating account. In FY2006, the HEAL program reported an outstanding portfolio of $1.4 billion, a decrease from the FY2004 portfolio of $2.1 billion. In FY2007, a total of 41,102 HEAL borrowers showed outstanding loan balances. These loans will require management until 2037, when the last loan is expected to be repaid. Also, in FY2007, Congress appropriated $6.9 million to the program for the administration of existing loans (see previous paragraph). For FY2008 and FY2009, the President's request contained about $3 million per year for this program. Subpart II: Federally-Supported Student Loan Funds (Sections 721-735). This subpart authorizes three programs for loans to students in the health professions: student loan (HPSL) program; the primary care loan (PCL) program; and the loans for disadvantaged students (LDS) program. Students must demonstrate financial need to be eligible for the programs. For all three programs, loans must not, for any school year, exceed the cost of attendance. This includes tuition, other reasonable educational expenses, and reasonable living costs for that year. For medical students in their third and fourth years of schooling, loans may be increased to pay balances from other loans that were made for attendance at the school. HPSL provides loans to students in schools of medicine, osteopathy, dentistry, pharmacy, podiatry, optometry, or veterinary medicine. Students must meet financial need criteria and agree to complete requirements for residency training and subsequent practice in primary care. The PCL program permits schools of allopathic and osteopathic medicine to make loans to students who agree to enter and complete a residency training program in primary health care and to practice primary care medicine through the life of the loan. The LDS program provides loans to students who study allopathic or osteopathic medicine and are from disadvantaged background. For FY2005, the Federal Capital Contribution was about $16.5 million. Programs in Subpart II operate from a revolving Federal Capital Contribution Fund, despite no additional annual appropriations. The Consolidated Appropriations Act of 2006, Public Law 109-149, included provisions that rescinded the authority of these programs to redistribute monies from the Federal Capital Contribution Fund in FY2006. Part B: Health Professions Training for Diversity (Sections 736-741) Programs in this part aim to address the lack of minority representation among faculty and practicing clinicians in the health professions. Currently, an array of assistance is provided in the form of scholarships, loan repayment programs, and training programs. The Centers of Excellence (COE) program provides grants to health professions schools to support programs of excellence in health professions education for under-represented minority individuals. Among other requirements, the schools must use the grant to train students in providing health services to a significant number of underrepresented minorities through community-based health facilities located at remote sites. Schools may use funds to provide stipends. However, eligible health professions schools must: (1) have a significant number of underrepresented minority enrollees; (2) effectively assist minority students in completing the education program; (3) effectively recruit minority students and provide them with financial support; and (4) make significant recruitment efforts to increase the number of faculty and administrators who are from minority groups. Schools designated as Centers of Excellence may include certain historically black colleges and universities, schools with large enrollments of Hispanic or Native American students, or, other health professions schools with a large enrollment of underrepresented minorities. In FY2006, COE supported 4 projects (down from 34 projects in FY2005), 1,209 underrepresented minority students (down from 1,010 in FY2005), and 222 underrepresented faculty participants (down from 1,850 in FY2005). For FY2008 and FY2009, the President requested no funding for this program. The Scholarships for Disadvantaged Students program (SDS) authorizes grants to institutions for expenses related to tuition and other reasonable living expenses for the purpose of assisting full-time financially needy students. Priority is given to institutions based on the proportion of graduating students going into primary care, the proportion of underrepresented minority students, and the proportion of graduates working in medically underserved communities. Eligible entities include schools of medicine, osteopathy, dentistry, nursing, pharmacy, podiatry, optometry, veterinary medicine, public health, chiropractic, or allied health, a school offering a graduate program in behavioral and mental health practice, or an entity providing programs for the training of physician assistants. In addition, the school must carry out a program for recruiting and retaining students from disadvantaged backgrounds, including racial and ethnic minorities. In FY2006, 15,486 disadvantaged students participated in the program (a decrease from 34,618 in FY2005). In FY2007, the budget projection showed little change. For FY2008, the President's budget contained a request to fund these programs, but for FY2009 it contained no request for funding (see section on " Funding for Title VII Programs "). Programs for faculty loan repayment (FLRP) and minority faculty fellowship (MFFP) authorize contracts with individuals who agree to serve as members of the faculty in health professions schools in return for federal repayments of up to $20,000 in educational loans for each year of service. Eligible individuals must be from disadvantaged backgrounds who: (1) have a degree in medicine (allopathic or osteopathic), dentistry, nursing, or another health profession; (2) are enrolled in an approved graduate training program in medicine, dentistry, nursing, or other health profession; or (3) are enrolled as a full-time student and in the final year of course work at an accredited school. Health professions schools can provide minority faculty fellowships with such grants in order to increase the number of underrepresented minority faculty members. Fellowships include stipends and allowances for other expenses, such as travel and specialized training. Schools are required to provide matching funds for the fellowship program. In FY2006, 30 faculty participated in the programs (a decrease from 42 faculty participants in FY2005). For FY2008 and FY2009, the President requested no funds for this program (see section on " Funding for Title VII Programs "). The Health Careers Opportunity Program (HCOP) provides grants to health professions schools, academic health centers, state or local governments, or other appropriate entities to train and educate health professionals in order to reduce disparities in health care and in the provision of culturally competent health care. Between FY2005 and FY2006, the level of participation decreased significantly for several HCOP activities. In FY2005, a total of 7,500 post-secondary, and 3,400 secondary minority/disadvantaged students received support. In the same year, a total of 1,500 matriculants in health and allied health professions schools received support, and a total of 80 grants were issued. In FY2006, 259 post-secondary, and 120 secondary minority/disadvantaged students received support. Also, in FY2006, a total of 140 matriculants in health and allied health professions schools were supported, and a total of 4 grants were issued. This program was funded in FY2007 and FY2008. For FY2009, however, the President requested no funds for this program (see section on " Funding for Title VII Programs "). Part C: Training in Family Medicine, General Internal Medicine, General Pediatrics, Physician Assistants, General Dentistry, and Pediatric Dentistry (Sections 747-748) This subpart consists of four components: (1) Family Medicine; (2) General Internal Medicine and Pediatrics Training; (3) Physician Assistant Training; and (4) General Pediatric Dentistry Training. The goals of these programs are to improve access to and quality of health care in underserved areas and to improve the diversity of primary care medical and dental providers. The programs provide grants and contracts to public or nonprofit private groups, including hospitals, schools of medicine (allopathic or osteopathic). Funds must be used to: (1) plan, develop, operate, or participate in an approved professional training program (including a residency or internship program) in the field of family medicine, internal medicine, or pediatrics for medical students, interns, residents, or practicing physicians that emphasizes training for the practice of family medicine, general internal medicine, or general pediatrics; (2) provide financial assistance (through traineeships and fellowships) to needy medical students, interns, residents, practicing physicians, or other medical personnel who plan to specialize or work in family medicine, general internal medicine, or general pediatrics; (3) train physicians who plan to teach in family medicine (including geriatrics), general internal medicine, or general pediatrics; (4) provide financial assistance (traineeships and fellowships) to physicians in such program who plan to teach in a program for family medicine (including geriatrics), general internal medicine or general pediatrics; (5) meet the costs of training physician assistants, and for the training of individuals who will teach in such programs; and (6) meet the costs of planning, developing, or operating programs, and provide financial assistance to residents in general dentistry or pediatric dentistry. In FY2006, the program supported a total of 17,870 individuals in clinical training in underserved areas, a decrease from the support of 31,153 individuals in FY2005. This program was funded in FY2007 and FY2008. For FY2009, the President requested no funding for this program (see section on " Funding for Title VII Programs "). Part D: Interdisciplinary, Community-Based Linkages (Sections 750-757) The Area Health Education Center (AHEC), Health Education and Training Center (HETC), Geriatric Education Center (GEC), and the Quentin N. Burdick Program for Rural Interdisciplinary Training, and grants for allied health programs comprise this part. AHECs provide grants to schools of medicine for projects to increase and improve health personnel services in medically underserved communities. A grant may be awarded to a school of nursing in any state that does not have an AHEC. Each center is required to encourage the regionalization of health professions schools through partnerships with community-based organizations and specifically designate a geographic area or medically underserved population to be served by the center that is remote from school facilities. In FY2006, appropriated funds resulted in increased support of all activities in the AHEC program. In FY2006, AHECs supported a total of: 315,000 local providers for continuing education training on women's health, diabetes, hypertension, obesity, health disparities, cultural competence, and the bioterrorism response; 42,000 minority/disadvantaged students to enhance health careers; 20,000 health professions students trained at community sites in underserved areas; and 46 states with AHEC programs. The program received no appropriation from FY2006 through FY2008. For FY2009, the President requested no funding for this program (see section on " Funding for Title VII Programs "). The HETC program provides grants to entities that address the persistent and severe unmet health care needs in border states between the U.S. and Mexico and in the state of Florida, and in other urban and rural areas with serious unmet health care needs. The HETC must establish an advisory board, conduct health professions training and education programs, and conduct training in health education services, and support health professionals (including nurses) practicing in such areas through educational and other services. In FY2005, HETC supported: training for a total of 7,500 minority/disadvantaged elementary or high school students in health careers; 300 local providers or health professions students in medically underserved areas; 600 local residents trained as community health workers; 80 health professions students trained at new sites; and 20 new sites for health professions training in medically underserved areas. The program received no funding in FY2006 through FY2008. For FY2009, the President requested no funding for this program (see section on " Funding for Title VII Programs "). The Geriatric Education Center (GEC) program authorizes: (1) grants and contracts for improved training of health professionals and allied health professionals in geriatric health care; (2) grants and contracts for geriatric training projects to train physicians and dentists and behavioral and mental health professionals who plan to teach geriatric medicine, geriatric behavioral or mental health, or geriatric dentistry; and (3) geriatric academic career awards to promote the career development of eligible individuals as academic geriatricians. In FY2005, funding supported a total of 50,665 health providers receiving training in geriatrics; 66 geriatric fellowship trainees; 50 Geriatric Education Centers (GECs); and, 104 Geriatric Academic Career Awards Programs (GACAs). The program received no funding in FY2006. However, for FY2007 and FY2008, Congress restored funds for the program. For FY2009, the President requested no funding for this program (see section on " Funding for Title VII Programs "). The Quentin N. Burdick Program for Rural Interdisciplinary Training makes grants to eligible entities for interdisciplinary training programs to provide health services in rural areas. The funds can be used to provide stipends to students, establish post-doctoral fellowship programs, train faculty in rural health care delivery systems, or purchase or rent needed transportation or telecommunication equipment. In FY2004, this program supported a total of 900 students and rural health care providers trained in rural settings and 35 interdisciplinary training sites in rural areas, and the numbers were expected to remain about the same, according to HHS estimates. From FY2006 through FY2008, the program received no appropriation. For FY2009, the President requested no funds for this program (see section on " Funding for Title VII Programs "). The Allied Health and Other Disciplines Program consist of the following three components: (1) Allied Health Special Projects; (2) Chiropractic Demonstration Projects; and (3) Podiatric Primary Care Residency Training Projects. Grants may be awarded to assist entities in increasing the number of individuals trained in allied health professions; plan and implement projects in preventive and primary care training for physicians of podiatry; and carry out demonstration projects in which chiropractors and physicians collaborate to provide the most effective treatments for spinal and lower back treatments. In FY2006, allied health graduates and geropsychology graduates did not receive support for training, as in previous years. However, the program supported a total of 20 grantees in graduate psychology, and four awards for chiropractic demonstration projects. The program received funding in FY2007 and FY2008. For FY2009, the President requested no funds for this program (see section on " Funding for Title VII Programs "). Part E: Health Professions and Public Health Workforce (761-770) Subpart 1: Health Professions Workforce Information and Analysis (Sections 761-763). Grants are awarded to entities in order to develop analysis of and information on the health workforce. Grants may be awarded to support the development of information for decision-making strategies pertinent to the health workforce. This part is carried out in programs administered in the National Center for Health Workforce Analysis of BHPr. Specific goals of the program are to: (1) provide health workforce information and analyses to national, state and local policymakers and researchers on a broad range of issues such as graduate medical education, Medicaid/SCHIP, and health workforce planning; (2) conduct federal-state collaborative efforts directed at assessing the adequacy of the current and future local health workforce; and 3) develop strategies for improving the diversity and distribution of the workforce. Subpart 2 : Public Health Workforce (Sections 765-770). Grants may be awarded to eligible entities to increase the number of individuals in the public health workforce, to enhance the quality of such workforce, and to enhance their ability to meet national, state, and local health care needs. Preference for such grants is given to entities serving individuals from disadvantaged backgrounds and those entities that graduate large proportions of individuals that serve in underserved communities. As a result, of such support through FY2005, workforce reports are available for each state. The public health training center program makes grants to accredited schools of public health, or other accredited institutions so that the latter may plan, develop, operate, and evaluate projects in various areas of interest. These areas include preventive medicine, health promotion and disease prevention, or improving access to and quality of health services in medically underserved communities. Public health traineeship grants are made to accredited schools of public health and other institutions for graduate or specialized training for health professions fields in which there is a severe shortage of health professionals (including epidemiology, environmental health, biostatistics, toxicology, nutrition, and maternal and child health). Grants are awarded to schools of medicine, osteopathic medicine, public health, and dentistry to meet the costs of projects to plan and develop new residency training programs, to maintain or improve existing residency programs, and to provide financial assistance to residency trainees. Also, grants are awarded to the health administration traineeship and special programs related to hospital administration or health policy analysis and planning to provide student traineeships and to prepare students for employment. Among the programs authorized for public health training, only Public Health Traineeships (authorized in Secs.766, 767 and 768) have received continuous support from FY2002 through FY2008. The program supported 7,864 public health students in FY2006. However, other programs such as Workforce Information and Analysis (Sec. 761) and Health Administration Traineeships and Special Projects (Sec. 769), received no appropriated funds for FY2006 through FY2008. The President's FY2009 budget contained no funding for any of these public health training programs (see section on " Funding for Title VII Programs ").

In 1963, responding to projections of an impending physician shortage, Congress passed the Health Professions Educational Assistance Act (P.L. 88-129). This act was the first comprehensive legislation to address the supply of health care providers. Relevant programs, authorized in Title VII of the Public Health Service Act (PHSA), have evolved in subsequent reauthorizations, to provide grants to institutions for primary care curriculum and faculty development, scholarships and loans to individuals training in certain health professions, and other programs. Title VII programs are administered by the Bureau of Health Professions at the Health Resources and Services Administration (HRSA), in the Department of Health and Human Services (HHS). These programs are intended to counter market forces that encourage specialization, and instead aim to alleviate particular provider supply shortages, improve the placement of providers in underserved areas, and improve the racial and ethnic diversity of providers. The most recent reauthorization of HRSA Title VII programs was in the Health Education Partnerships Act of 1998 (P.L. 105-392), which added authority for geriatrician training, and health workforce analysis, among others. Though authority for these programs expired at the end of FY2002, Congress has continued to fund most of them each year since then. The effectiveness of Title VII health professions programs has long been a subject of debate. Evaluating program effectiveness is complicated by differing perspectives on the ultimate program goals, by continuous evolution of the programs, and by the influence of other federal and private sector programs on provider supply and demand. The unresolved debate about Title VII program effectiveness has resulted in recommendations from the Administration to eliminate many of these programs, recommendations which have persisted for many years. This report will examine the legislative, programmatic and funding histories of Title VII health professions programs, and discuss issues including workforce analysis and evaluating program effectiveness. In addition, a number of social or market trends likely to affect the health professions, such as the aging population, will be discussed. This report will be updated as events warrant.

Introduction1 Cyberspace has taken on increased strategic importance as states have begun to think of it as yet another domain—similar to land, sea, and air—that must be secured to protect their national interests. Cyberspace is another dimension, with the potential for both cooperation and conflict. The Obama Administration's 2010 National Security Strategy identifies cybersecurity threats "as one of the most serious national security, public safety, and economic challenges." Cyberattacks are now a common element of international conflict, both on their own and in conjunction with broader military operations. Targets have included government networks, media outlets, banking services, and critical infrastructure. The effects and implications of such attacks may be small or large; cyberattacks have defaced websites, temporarily shut down networks and cut off access to essential information and services, and damaged industrial infrastructure. Despite being relatively common, cyberattacks are difficult to identify at their source and thwart, in particular because politically motivated attacks are often crowd-sourced, and online criminal organizations are easy to join. Suspicions of state-sponsored cyberattacks are often strong but difficult to prove. The relative anonymity under which actors operate in cyberspace affords a degree of plausible deniability. This report focuses specifically on cyberattacks as an element of warfare, separate and distinct from diplomatic or industrial espionage, financially motivated cybercrime, or state-based intimidation of domestic political activists. However, drawing clean lines between cyberwar, cyberterrorism, cyberespionage, and cybercrime is difficult. State and non-state actors carry out cyberattacks every day. When and under what conditions cyberattacks rise to the level of cyberwar is an open question. Some experts contend that all warfare, including cyberwarfare, by definition includes the destruction of physical objects. According to this point of view, to be an act of cyberwarfare, the attack must originate in cyberspace and result in the destruction of critical infrastructure, military command-and-control capabilities, and/or the injury or death of individuals. On the other hand, some analysts have a more inclusive view of cyberwarfare. These experts would include, in addition to cyberattacks with kinetic effects, the exfiltration or corruption of data, the disruption of services, and/or manipulation of victims through distraction. As our military becomes increasingly information dependent, potential vulnerabilities in network-centric operations are crystalized. A cyberattack on a military asset may be considered an act of war to which the military will respond under the Law of Armed Conflict. However, there may also be attacks on civilian systems which would warrant a military response. Background Cyberspace: The Operating Environment The Internet represents a portion of the global domain of cyberspace; however, there are networks and systems that are not connected to the Internet. Included among these are national strategic assets whose compromise could have serious consequences. In its 2010 Quadrennial Defense Review, the Department of Defense (DOD) identified cyberspace as a global commons or domain, along with air, sea and space. Previous views of cyberspace had focused mainly on the enabling or force multiplier aspects of information technology and networked workfare. Cyberspace is currently defined by the DOD as a global domain within the information environment consisting of the interdependent networks of information technology infrastructures and resident data, including the Internet, telecommunications networks, computer systems, and embedded processors and controllers. It is also described in terms of three layers: (1) a physical network, (2) a logical network, and a (3) cyber-persona: The physical network is composed of the geographic and physical network components. The logical network consists of related elements abstracted from the physical network, (e.g., a website that is hosted on servers in multiple locations but accessed through a single URL). The cyber-persona layer uses the rules of the logical network layer to develop a digital representation of an individual or entity identity. Because one individual or entity can have multiple cyber personae, and vice versa, attributing responsibility and targeting attacks in cyberspace is challenging. Another challenge lies in insider threats, when an authorized user or users exploits legitimate access to a network for nefarious purposes. From a military perspective, the operational environment is a composite of the conditions, circumstances, and influences that affect the employment of capabilities and bear on the decisions of the commander. The information environment is the aggregate of individuals, organizations, and systems that collect, process, disseminate, or act on information, further broken down into the physical, informational, and cognitive dimensions. Cyberspace operations employ capabilities whose primary purpose is to achieve objectives in or through cyberspace. The following section gives examples of some of the tools through which these objectives may be achieved. Cyber Weapons There are several tools through which effects in cyberspace are achieved. Effects can range in severity from disrupting or slowing down access to online goods and services, to degrading and destroying entire network operations. The actors who employ these tools can range from individual hacker groups to nation states and their proxies. The following section describes the most common attack tools, or cyber weapons, that these actors employ. Malware Malware is a general term for malicious software. Bots, viruses, and worms are varieties of malware. Bots, as described below, are used to establish communication channels among personal computers, linking them together into botnets that can be controlled remotely. Botnets are one way that other forms of malware, such as viruses and worms, spread. As the names imply, viruses spread by infecting a host. They attach themselves to a program or document. In contrast, worms are stand alone, self-replicating programs. The first known malware aimed at PCs, a virus, was coded in 1986 by two brothers in Pakistan. They named the virus Brain after their computer shop in Lahore and included their names, addresses, and phone numbers in the code. Calling Brain malware is slightly misleading because the brothers had no ill intentions. They were simply curious to find out how far their creation could travel. Within a year it had traveled around the globe. Malware that targets the internal networks of particular companies are often spread by infecting "watering-holes," a term for public websites frequented by employees. Another common method is "spearphishing"—sending emails to targeted individuals that contain malicious links. The email appears to be innocuous and sent from a trusted source, but clicking on the link opens a virtual door to outsiders. So-called "air-gapped" networks, computer systems that are not connected to the Internet, are not vulnerable to these types of attacks; however, such networks can be infected by viruses and worms when an external device, such as a thumb drive, is inserted into a networked computer. Botnets Robotic networks, commonly known as botnets, are chains of home and business PCs linked together by a script or program. That program (the bot) enables a single operator to command all of the linked machines. Botnets are not necessarily malicious. The computer code botnets use also enables desirable communication across the Internet, such as the chat rooms that were popular in the 1990s. However, programmers have figured out how to exploit vulnerabilities in widely used Microsoft Windows operating platforms to degrade, destroy, and manipulate computer networks—often without the knowledge of the machine's owner or local operator. Because they are automated programs, when released, bots lurk on the Internet and take over computers, turning them into a network of "zombies" that can be operated remotely. The majority of email spam is generated by botnets without the host computer's knowledge. In fact, owners are often not aware that their computers are part of a botnet, the only indication of which is sluggish response time. Early botnet operators were often skilled coders. In contrast, today an underground industry of skilled botnet providers exists, but operators no longer have to be fluent coders. Starting in 2004, bots got considerably easier to use as the result of new applications that allowed hackers to build bots by pointing and clicking, resulting in a bloom of spam in email inboxes across the globe. In addition to unwanted advertising, botnets can generate denial-of-service (DoS) attacks and spread malware. Distributed Denial of Service Attacks Distributed Denial of Service (DDoS) attacks flood their target with requests, consuming the target's bandwidth and/or overloading the capacity of the host server, resulting in service outages. These attacks are "distributed" because effective attacks employ botnets, distributing the source of requests across an entire network of zombie computers. DDoS attacks are unique for three reasons: (1) they exploit vulnerabilities in their target's software or operating system that cannot be easily repaired or "patched;" (2) each individual packet is a legitimate request—only the rate and total volume of packets gives an attack its destructive impact; and (3) the severity of the attack is measured in terms of its duration. Unlike malware, which alters or infects its target, DDoS attacks consist of the same types of packets, a unit of data, that a typical user would send when making a legitimate request. The only difference is in the number and frequency with which the attacker generates requests. The goal of a DDoS attack is to render targeted networks unavailable or non-responsive, thereby preventing users from accessing information for the duration of the attack. The pathway of a DDoS attack is known as a vector . Today it is common for an attack to have multiple vectors. A DDoS attack carried out by botnets along multiple vectors can interrupt services for days, weeks, or even months. More sophisticated attacks take advantage of vectors that amplify their strength through a process that generates exponential reverberations. The ability to amplify an attack, for instance by tricking a server into responding to a target with an even larger packet than what was originally sent, increases an already substantial asymmetric advantage. Botnet applications not only make DDoS attacks relatively easy to mount, but the redundant and decentralized nature of the Internet makes attribution difficult. In theory, a DDoS attack could temporarily take down the entire web by simultaneously targeting the 13 root servers on which all Internet traffic depends. In practice, this has not yet happened. Automated Defense Systems Retaliatory hacking, a response to network breaches that has been used in the private sector, has gained traction within DOD as a means to stage an "active defense." These potentially offensive operations may occur when a systems administrator sees an intrusion and in turn breaches the assumed point of origin, either to retrieve or destroy information. However, such activities are complicated for two reasons: uncertainty in attack attribution and active defense may violate terms enacted in the Computer Fraud and Abuse Act of 1986. This law criminalizes unauthorized breaches and other computer-related activity, including the distribution of malware and use of botnets. Although the military would be involved in a counterattack only during a national security crisis, the government may tacitly encourage companies to engage in retaliatory hacking as the first line of defense for the nation's critical infrastructure. For example, the Defense Advanced Research Projects Agency (DARPA) has launched a Cyber Grand Challenge program to hasten the development of automated security systems capable of responding to and neutralizing cyberattacks as fast as they are launched. Automated defense systems may also be configured to launch a counterattack in the direction of a network breach. Targets Attacks on information technology destroy, degrade, and/or exfiltrate data from a host computer. The intended effect of a cyberattack can be related to the attack target. Within the context of cyberwarfare, two areas are attractive targets for a potential adversary: government and military networks, and critical infrastructure and industrial control systems. Government and Military Networks Nation states and other entities target government and military networks to exfiltrate data, thereby gaining an intelligence advantage, or to potentially plant a malicious code that could be activated in a time of crisis to disrupt, degrade, or deny operations. In 2008, The Pentagon itself was a target of a massive breach, when an infected thumb drive was inserted into a computer connected to DOD classified networks. The discovery of the malware, named Agent.btz, led to a massive cleanup operation code-named Buckshot Yankee. While the incident appeared to be related to espionage and theft of sensitive information, it is possible that malware could also contain a hidden, more nefarious function, such as the capability to disable communications or spread disinformation. Critical Infrastructure and Industrial Control Systems Civilian critical infrastructure comprises networks and services that are considered vital to a nation's operations and are owned and operated by the private sector. Examples of these sectors include energy, transportation, financial services, food supplies, and communications. These sectors may be particularly vulnerable to cyberattack because they rely on open-source software or hardware, third-party utilities, and interconnected networks. Large-scale industrial control systems (ICS), such as the supervisory control and data acquisition (SCADA) systems that provide real-time information to remote operators, present a unique vulnerability. Disabling an electric power plant by attacking its SCADA system, for instance, will have many follow-on effects. These systems, as they control the operations of a particular platform, are referred to by the Defense Department as "operations technology." From highly specialized equipment, such as uranium enrichment plants, to mundane heating and air conditioning systems and office photocopiers, the capability to remotely control industrial hardware for maintenance and operations purposes also makes these machines vulnerable to cyberattacks. Attacks against operations technology (OT) are different than information technology (IT) attacks because OT attacks can produce kinetic effects. Although OT controls primarily mundane infrastructure, these built environments are increasingly networked environments, which adds a complicated layer to training and maintenance. Actors and Attribution With low barriers to entry, multiple actors may take part in use of the Internet and networked technology as a means to achieve strategic effects. These actors may represent nation states, politically motivated hacker groups or "hactivists," or terrorist and other criminal organizations. Directly attributing a cyberattack to any one of these groups can be challenging, particularly as they may sometimes operate in concert with each other, though for differing motivations. Nation States Cyberwarriors are agents or quasi-agents of nation states who develop capabilities and undertake cyberattacks to support a country's strategic objectives. These entities may or may not be acting on behalf of the government with respect to target selection, attack timing, or type(s) of cyberattack. Moreover, cyberwarriors are often blamed by the host country when the nation that has been attacked levies accusations against that country. Typically, when a foreign government is presented with evidence that a cyberattack is emanating from its country, the nation that has been attacked is told that the perpetrators acted of their own volition, not at the behest of the government. Politically Motivated Hacktivists Cyberhactivists are individuals who perform cyberattacks for pleasure, or for philosophical or other nonmonetary reasons. Examples include someone who attacks a technology system as a personal challenge (who might be termed a "classic" hacker), and a "hacktivist," such as a member of the cybergroup Anonymous, who undertakes an attack for political reasons. The activities of these groups can range from simple nuisance-related DoS attacks to disrupting government and private corporation business processes. Terrorists and Organized Crime Cyberterrorists are state-sponsored or non-state actors who engage in cyberattacks as a form of warfare. Transnational terrorist organizations, insurgents, and jihadists have used the Internet as a tool for planning attacks, recruiting and radicalizing members, distributing propaganda, and communicating. No unclassified reports have been published regarding a terrorist-initiated cyberattack on U.S. critical infrastructure. However, the essential components of that infrastructure are demonstrably vulnerable to access and even destruction via the Internet. In 2007, a U.S. Department of Energy test at Idaho Labs demonstrated the ability of a cyberattack to shut down parts of the electrical grid. In the test, known as the Aurora Experiment, a cyberattack on a replica of a power plant's generator caused it to self-destruct. Advanced Persistent Threats The term "Advanced Persistent Threat" (APT) has been used within the intelligence community to describe nation-state cyberespionage activities. However, organizations that may or may not be state-sponsored may also use APT techniques to gain a competitive military advantage. Characteristics of an APT include a high level of sophistication in the malware's code, along with the targeting of certain networks or servers to glean specific information of value to the attackers or to cause damage to a specific target. Likely targets include government agencies and corporations in critical infrastructure sectors such as financial, defense, information technology, transportation, and health. In 2013, the U.S. security firm Mandiant published a 60-page intelligence report on a Chinese operation, which the firm identified as APT1, that allegedly stole hundreds of terabytes of data from at least 141 organizations across 20 industries worldwide since 2006. Mandiant's analysis concluded that APT1 is likely government-sponsored (believed to be the 2 nd Bureau of the People's Liberation Army General Staff Department's 3 rd Department) and one of the most persistent of China's cyber threat actors. Attribution Issues Analysts trying to determine the origin of a cyberattack are often stymied by the use of botnets. First, computers infected by a botnet may be located in countries around the world, obscuring the country of origin of the botnet's commander, known as the bot herder. Second, the identity of the server controlling the botnet may be obscured by the prevalence of peer-to-peer software . In addition to these concerns, Internet provider (IP) addresses that might otherwise trace the location of a computer that launched an attack can be faked (known as "spoofing"), and even with a valid IP address, it may be virtually impossible to verify who was behind the computer at the time an attack was launched. This uncertainty is also true of a computer that has been infected unbeknownst to the user. At the nation-state level, a certain amount of deniability in terms of cybersecurity and network control is plausible. Given the proliferation of hacker organizations and the cyber weapons at their disposal, states can easily claim a lack of responsibility for rogue cyber actors and attacks that appear to stem from within state borders. Threat Environment Cyberattack is a persistent threat. This section describes events that have provoked a political and/or military response from leaders in one or more state. The case studies provided are not exhaustive; excluded are many instances of cyber espionage that could arguably be considered international incidents. Instead, this section focuses primarily on cyberattacks that (1) have had strategic effects, (2) play a tactical role in a larger military operation, (3) carry implications for the ability of a state to carry out future military operations, or (4) threaten public trust in the reliability and security of information on the Internet. Cyberattack Case Studies Each of the cyberattacks in this section illustrates a different tactical and/or strategic use of weapons in cyberspace. The events in each of these cases raised questions about acts of terror and/or war in cyberspace and the role of the military. Estonia: Cyberattack as Siege Estonia is a Baltic state of approximately 1.3 million people that regained its independence from the Soviet Union in 1991. In 2004, Estonia joined the European Union (EU). Technologically, Estonia distinguished itself as the home of Skype, a widely popular online voice and video communication software. Today, Estonia is one of the most wired nations on earth. Estonians conduct most of their daily business online, even carrying out the basic rights and responsibilities of democratic citizenship, such as voting, through the Internet. As a result, Estonia is particularly vulnerable to cyberattack. On the morning of April 28, 2007, waves of DDoS attacks besieged websites in Estonia. Over the next two weeks, attackers targeted crucial sectors, shutting down Internet access to hundreds of key government, banking, and media web pages. Estonians were unable to bank online or retrieve cash from ATMs. Attackers also targeted Internet addresses for servers, threatening the telephone network and the credit card verification system. Vital services simply ceased to function, unable to stand back up before the next wave of attack. Where possible, organizations cut off all international traffic, closing the gates against the attack. Unlike previous DoS attacks that hit a single site over the course of days, this attack brought communication and commerce in a sovereign nation to a halt for weeks. The 2007 cyberattacks appear to have originated in Russia. On April 27, 2007, Estonian officials carried out a controversial plan to relocate a World War II-era statue of a Red Army soldier from a central location in Tallinn, the nation's capital, to a military cemetery in a suburb. Despite ominous warnings from the Russian government that removing the statue honoring the sacrifice of Russian soldiers would prove "disastrous for Estonians," Estonia, after 16 years of independence, decided to move the reminder of Soviet occupation. What role, if any, the Russian government actually played in the attack is unclear. The Russian government claimed the attack was an online version of an angry mob. Evidence suggests that patriotic hackers played an important role in the attack. The Pro-Putin movement Nashi ("Ours"), which organizes political events for young adults, claimed at least partial responsibility for engaging in cyber activities to counter "anti-Fatherland" forces. Suspicion remains about government involvement, though. Patriotic hacking can provide cover for behind-the-scenes coordination efforts. The attacks followed instructions posted in Russian language Internet chat rooms on how to generate DoS attacks. The posts included calls for a coordinated attack at the stroke of midnight on May 9, the day Russians celebrate their World War II victory. At exactly midnight in Moscow, 11p.m. in Tallinn, nearly 1 million computers around the globe navigated to Estonian websites. Surging at 4 million packets per second, Internet traffic in Estonia increased 200-fold, squeezing the bandwidth of an entire nation. Prepared for the surge, the head of the Estonian computer emergency response team enlisted the help of individuals responsible for the health and care of the Internet root server system to follow attacks back to their source and block specific computers from accessing the servers. This strategy mitigated the effects of the attack. Then suddenly the surges in traffic stopped as suddenly as they had started. Because Estonia is a member of NATO and the European Union, this event exposed how unprepared those organizations may have been to respond to a cyberattack against a member state. Had Estonia invoked NATO's Article V collective security provision, doing so would have raised several thorny questions about what kind of attack triggers those alliance obligations. The fact that the cyberattack was targeted at a member state and prompted an official state response was complicated by the inability to identify the aggressor. Moreover, the attack did no physical damage, and in the end did no permanent damage to Estonia's web-based infrastructure. The damage was measurable only in terms of short-lived commercial losses. This kind of cyberattack is sometimes likened to a weather event. Snow storms, although a temporary crisis, rarely have any lasting effects. How serious a threat the storm presents depends, at least in part, on one's capability to weather the storm. Although Estonian Defense Ministers viewed this event in terms of a national security crisis, other security analysts described it as a "cyber riot" or "costly nuisance," comparing it to an electronic sit-in where traffic to public and commercial sites is slowed or blocked to make a political point. Georgia: Cyberattack and Invasion In 2008, Russia invaded Georgia by land and air and blockaded the nation by sea. Simultaneously, pro-Russian hackers besieged Georgia's Internet, all but locking down communication for the duration of the armed conflict. Although Georgia is not a heavily wired society—at the time experts ranked it 74 th out of 234 nations in terms of Internet addresses, behind Nigeria, Bangladesh, Bolivia, and El Salvador —the attacks were a significant event in the development of cyberwar because they synchronized patriotic hacking with government-sponsored military movements. Like Estonia, Georgia is a former Soviet state; it declared its independence in 1991. Tensions with Russia have persisted and were not eased by Georgia's failed bid to join NATO in the spring of 2008. Over the course of that same summer, well-armed Russian-backed separatists began consolidating control over two predominately Russian-speaking regions on the country's northern border, Abkhazia and South Ossetia. As tensions rose, separatists—some of whom were believed to be Russian special forces—clashed with Georgian police. In mid-July, the cyberattacks started. The Georgian President's website was the first high-profile target. Although the DDoS attack vector passed through a U.S.-based, commercial IP address, experts identified the malware that hackers used to generate the attack as a "MachBot" DDoS controller. Machbot is written in Russian and a known tool of Russian criminal groups. Reportedly, pro-Russian hackers were discussing the attacks on websites and in chat rooms; in addition to the higher-profile attack, hackers also temporarily shut down Georgian servers. Three weeks later, on August 8, Russian tanks crossed the border into South Ossetia. Accompanying the ground invasion was a second round of DDoS attacks. One of the first targets was an online forum popular with pro-Georgian hackers. This preemptive attack reduced, but did not entirely eliminate, the number of counterattacks against Russian targets. As the troops moved in, Georgians were unable to access 54 local websites with critical information related to communications, finance, and the government. Georgian officials transferred critical Internet resources to U.S., Estonian, and Polish host servers. Refuge for some websites, including those of the President and Ministry of Defense, was granted by an American executive from the privately owned web-hosting company Tulip Systems, but without the knowledge or authority of the U.S. government. Tulip Systems reported experiencing attacks on its servers, a fact that raises troubling questions about sovereignty in the age of cyberwarfare. The fighting lasted five days. During that time, Georgia's Internet connection was besieged by attacks and unable to communicate via web with the media. Reportedly, cyberattacks followed the same target patterns as the land and air invasions, with DDoS attacks taking out the communications prior to bombing or ground troop movements. Perhaps most importantly, the cyberattacks and the air attack spared critical infrastructure associated with Georgia's energy sector. Iran: Cyberattack with Kinetic Effect When programmers at a small Belarussian cybersecurity firm first discovered a new computer worm in June 2010, they knew it was unusually sophisticated because it was exploiting a "zero-day vulnerability" in Microsoft Windows. Malware that outsmarts programmers and developers by identifying an unanticipated weakness in the Windows operating systems is rare. Even so, the cybersecurity specialists who originally detected Stuxnet had no idea just how sophisticated this new worm would turn out to be.  The idea of sabotaging industrial control systems from a remote location was not new, but creating a worm that could search for a single target was revolutionary, and this is what Stuxnet's authors had achieved. The intended target appears to have been industrial control systems in Iran's nuclear facility at Natanz. The first clue was the pattern of infected computers: the Stuxnet worm attacked air-gapped networks (i.e., those not connected to the Internet). The worm propagated by infecting local hosts via a USB thumb drive. While a computer scanned the contents of the inserted thumb drive, the worm surreptitiously installed a partially encrypted file. This file contained a stolen security certificate that fooled its host into believing that the Stuxnet worm was a trusted program. From its initial host computer, Stuxnet could travel throughout a networked system. Although Stuxnet did not propagate itself through the web, if an infected computer was connected to the Internet, the worm would automatically begin sending information back to one of two domain names hosted on servers in Denmark and Malaysia. Once cybersecurity experts realized that infected computers were "phoning home," they redirected that traffic into a sinkhole they controlled. By analyzing the collected data, the experts were able to map the pattern of infection. Unlike most malware, which spreads rapidly through densely networked countries like the United States and South Korea, Stuxnet was overwhelmingly concentrated in Iran. Of the first 38,000 infected computers, 22,000 were located in Iran. The second clue as to Stuxnet's intended target was that, reportedly starting in 2009, International Atomic Energy Agency inspectors noticed the significantly higher-than-average rate at which Iran was removing and repairing centrifuges in its uranium enrichment facility at Natanz. Centrifuges built to process natural uranium into a form capable of fueling a nuclear power plant, or building a nuclear warhead, are extremely delicate. Among the fastest spinning objects on earth, any irregularities in a centrifuge's rotor will cause imbalances. Even a fingerprint on the rotor would cause it to spin out of control and do irreparable damage. As cybersecurity specialists dug deeper into the code, they identified commands that were specific to the industrial control system Simatic WinCC Step7, produced by the German company Siemens. This is the same controller Iran uses in its uranium-enrichment facilities to control its centrifuges. Once Stuxnet identified its target, the malware automatically commanded the centrifuges to spin at frequencies significantly faster and then slower than normal, doing damage to the delicate rotors. Meanwhile, Stuxnet evaded detection by making it appear to the operators monitoring the system (via a computer screen) that nothing had changed. The overall effect of Stuxnet on the Iranian nuclear program is unclear. Iran has since acknowledged the attack but maintains that Stuxnet did not change the rate at which it was able to increase its stockpile of enriched uranium. David Albright and Christina Walrond of the Institute for Science and International Security argue that although the rate of production has not changed, starting in late 2009, Iran required more centrifuges to perform the same amount of work. Albright and Walrond did not definitively argue that Stuxnet caused Iran's efficiency to decline, nor did they discount that possibility, instead stating, "It is likely that multiple factors have played a role in the diminished effectiveness of the FEP [fuel enrichment plant].... The available data are too general to determine the actual situation." No one has claimed responsibility for the attack, but in January 2011, but the New York Times reported that Stuxnet was a joint venture of the United States and Israel. Reportedly, Israel constructed a centrifuge plant at Dimona identical to the one in Natanz to simulate the attack. The United States allegedly provided information about vulnerabilities in the Siemens controller, access to which had been gained through a cybersecurity collaboration between Siemens and the Idaho National Lab. The DOD and U.S. Cyber Command The Department of Defense is responsible for securing its own networks, the Department of Defense information networks (DODIN), or .mil domain, formerly known as the Global Information Grid (GIG). The requested cybersecurity budget for DOD was approximately $5.1 billion for FY2015.This figure represents a portion of the President's requested overall IT budget for DOD that same year (approximately $36 billion). The DOD cybersecurity budget grew by $1 billion from 2013 to 2014, but this increase may reflect changes in how DOD programmatic elements have defined "cybersecurity" programs. In general, the DOD cybersecurity budget comprises the following activities: Information Assurance, Cyberspace Operations, National Cybersecurity Initiative/Defense Industrial Base/Defense Cyber Crime Center, and U.S. Cyber Command. After recognizing that cyberspace is a global operating domain as well as a strategic national asset, DOD reorganized its cyber resources and established the U.S. Cyber Command in 2010. This sub-unified command under the U.S. Strategic Command is co-located at Fort Meade, Maryland with the National Security Agency (NSA). It combines offensive and defensive capabilities and is commanded by a four-star general, also the director of the NSA. The NSA's primary missions are information assurance for National Security Systems and signals intelligence. Also located within NSA is the Central Security Service, the military's cryptology component. As an intelligence agency, NSA operates under the authorities of Title 50 U.S.C., War and National Defense. U.S. Cyber Command operates under U.S.C. Title 10, Armed Forces—the authorities through which the military organizes, trains, and equips its forces in defense of the nation. Cyber Command Mission and Force Structure As previously stated, one of the main missions of U.S Cyber Command is to defend and operate the DODIN. In his nomination hearing before the Senate Armed Services Committee, then-Vice Admiral Michael S. Rogers, tapped to become the head of U.S. Cyber Command, described the duties of the Cyber Commander thusly: The Commander, U. S. Cyber Command (USCYBERCOM) is responsible for executing the cyberspace missions specified in Section 18.d.(3)of the Unified Command Plan (UCP) as delegated by the Commander, U.S. Strategic Command (USSTRATCOM) to secure our nation's freedom of action in cyberspace and to help mitigate risks to our national security resulting from America's growing dependence on cyberspace. Subject to such delegation and in coordination with mission partners, specific missions include: directing DODIN operations, securing and defending the DODIN; maintaining freedom of maneuver in cyberspace; executing full-spectrum military cyberspace operations; providing shared situational awareness of cyberspace operations, including indications and warning; integrating and synchronizing of cyberspace operations with combatant commands and other appropriate U.S. Government agencies tasked with defending the our nation's interests in cyberspace; provide support to civil authorities and international partners. All these efforts support DoD's overall missions in cyberspace of defending the nation against cyber attacks, supporting the combatant commands, and defending Department of Defense networks. Operators at the U.S. Cyber Command are sometimes referred to as "cyber warriors," although this term does not appear in official Department of Defense definitions. Reports of USCYBERCOM-planned workforce structures yield clues regarding the activities a so-called cyber warrior might undertake. First reported in the Washington Post , "The plan calls for the creation of three types of Cyber Mission Forces under the Cyber Command: 'national mission forces' to protect computer systems that undergird electrical grids, power plants and other infrastructure deemed critical to national and economic security; 'combat mission forces' to help commanders abroad plan and execute attacks or other offensive operations; and 'cyber protection forces' to fortify the Defense Department's networks." These multiservice Cyber Mission Forces numbered under 1,000 in 2013, when DOD announced plans to expand them to roughly 5,000 soldiers and civilians. The target number has since grown to 6,200, with a deadline at the end of FY2016. In early November 2014, a leaked classified document was reported to have stated that "additional capability may be needed for both surge capacity for the [Cyber Mission Forces] and to provide unique and specialized capabilities" for a whole-of-government and nation approach to security in cyberspace. USCYBERCOM Commander Admiral Michael S. Rogers has said that overall, Cyber Mission Forces will be about 80% military and 20% civilian. At a recent conference, Deputy Commander of USCYBERCOM Lieutenant General James McLaughlin said the Cyber Mission Force was being formed into 133 teams of tactical units that will support all Combatant Commands, and that at least half of these teams would be used for defensive measures. Each of the four military services provides cyber mission forces to USCYBERCOM. All of the services' cyber divisions plan to steadily increase their number of cyber operators over the next two years. USCYBERCOM and Information Sharing In May 2011, DOD launched a pilot voluntary program (the DIB Cyber Pilot) involving several defense industry partners, the NSA and DOD, to share classified threat-vector information among stakeholders. Under the DIB Cyber Pilot, NSA shares threat signatures with participating defense companies. One aspect of the program was sharing by the NSA of threat signatures obtained through its computer monitoring activities. DHS subsequently initiated the Joint Cybersecurity Services Pilot (JCSP) in January 2012 and announced in July that the program would be made permanent, with the renamed DIB Enhanced Cybersecurity Services (DECS) as the first phase. In this program, DHS communicates with participating commercial Internet service providers directly, while DOD still serves as the point of contact for participating DIB contractors. Authorities Authorities for U.S. military operations in cyberspace are not currently organized according to the nature of the perceived threat, whether espionage, crime, or war. Instead, authorities are organized according to the domain (.mil, .gov, .com, etc.) in which the activity is taking place, as opposed to its motivations or effects. Presidential Policy Directive 20, discussed in greater detail below, distinguishes between network defense on the one hand and offensive and defensive cyberspace operations on the other. U.S. policy on network defense is to adopt a risk-management framework published by the Department of Commerce's National Institute of Standards and Technology. Responsibility for implementing the framework is shared among different government departments and agencies, with U.S. Cyber Command responsible for the .mil domain and the Department of Homeland Security responsible for the .gov domain. Adoption of the NIST framework is voluntary for private companies and their own network defense. One of the instruments through which offensive cyberspace operations are conducted may be a classified "Execute Order," defined by DOD as an order issued by the Chairman of the Joint Chiefs of Staff, at the direction of the Secretary of Defense, to implement a decision by the President to initiate military operations. According to The Federation of American Scientists' Secrecy News, Air Force Instruction 10-1701 , entitled "Command and Control (C2) for Cyberspace Operations," dated March 5, 2014, states, "Classified processes governing C2 [command and control] of AF [Air Force] offensive and defensive cyberspace operations conducted by AF Cyber Mission Forces are addressed in a classified CJCS [Chairman, Joint Chiefs of Staff] Execute Order (title classified) issued on 21 Jun 13." Then-Vice Admiral Michael Rogers, as a nominee for Commander, U.S. Cyber Command (and NSA Director), said before the Senate Armed Services Committee that "geographic combatant commanders already have authority to direct and execute certain Defensive Cyberspace Operations (DCO) within their own networks." However, the Execute Order suggests that there may be standing orders to conduct offensive cyberspace operations as well. The following section provides a brief overview of evolving norms in cyberspace and the authorities that govern network defense and cyberspace operations. Legislative Authorities Section 941of the National Defense Authorization Act for Fiscal Year 2013 ( P.L. 112-239 ), affirms the Secretary of Defense's authority to conduct military activities in cyberspace. The provision's language is similar to that in Section 954 of final conference report to accompany H.R. 1540 , the National Defense Authorization Act for Fiscal Year 2012. In this version, this section reaffirms that the Secretary of Defense has the authority to conduct military activities in cyberspace. In particular, it clarifies that the Secretary of Defense has the authority to conduct clandestine cyberspace activities in support of military operations pursuant to a congressionally authorized use of force outside of the United States, or to defend against a cyberattack on an asset of the DOD. The section highlights the blurred lines between military operations and intelligence activities, particularly with respect to cyberspace. In general, Title 10 and Title 50 of the U.S. Code refer to distinct chains of command and missions belonging to the armed forces and intelligence agencies, respectively. The U.S. Cyber Command, the military entity responsible for offensive operations in cyberspace and subject to Title 10 authorities, is co-located with and led by the Director of the National Security Agency, a Title 50 intelligence organization. Computer Network Attack, the military parlance for offensive operations, is closely related to and at times indistinguishable from Computer Network Exploitation, which is used to denote data extrapolation or manipulation. According to DOD, a clandestine operation is one that is "sponsored or conducted by governmental departments or agencies in such a way as to assure secrecy or concealment. A clandestine operation differs from a covert operation in that emphasis is placed on concealment of the operation rather than on concealment of the identity of the sponsor." Under Title 50, a "covert action" is subject to presidential finding and Intelligence Committee notification requirements. Traditional military activity, although undefined, is an explicit exception to the Title 50 U.S.C. covert action definition in Section 913 as the identity of the sponsor of a traditional military activity may be well known. According to the Joint Explanatory Statement of the Committee of Conference, H.R. 1455 , July 25, 1991, traditional military activities include activities by military personnel under the direction and control of a United States military commander (whether or not the U.S. sponsorship of such activities is apparent or later to be acknowledged) preceding and related to hostilities which are either anticipated (meaning approval has been given by the National Command Authorities for the activities and or operational planning for hostilities) to involve U.S. military forces, or where such hostilities involving United States military forces are ongoing, and, where the fact of the U.S. role in the overall operation is apparent or to be acknowledged publicly. By this reading, a clandestine operation falls under the traditional military activity rubric, because the identity of the sponsor is not concealed. Hence, by referring only to "clandestine" operations rather than covert operations, the provision distinguishes between approval and reporting requirements for military-directed cyberspace operations and those conducted by the intelligence community. By requiring quarterly briefings to the congressional defense committees, the language would also appear to address concerns that a "clandestine" or "traditional military activity" designation for a cyber operation would skirt the strict oversight requirements of its covert counterpart. However, confusion may remain regarding the proper role and requirements of the military, because some cyber operations may contain both covert and clandestine elements. Another consideration is the military's responsibility to notify congressional intelligence committees of computer network exploitation activities undertaken as "operational preparation of the environment." Executive Authorities In December 2008, President-elect Obama offered details about the cybersecurity goals his Administration would pursue, including "strengthening federal leadership on cybersecurity, developing next-generation secure computers and networking for national security applications, and protecting the IT infrastructure to prevent corporate cyberespionage." In February 2009, he initiated a 60-day interagency review with the goal of developing "a strategic framework to ensure" that federal cybersecurity initiatives "are appropriately integrated, resourced, and coordinated with Congress and the private sector." The White House released the Cyberspace Policy Review in May 2009. At that time, the President announced that the Administration would "pursue a new comprehensive approach to securing America's digital infrastructure," and that he was creating a new White House office to be led by a Cybersecurity Coordinator—a senior cybersecurity policy official, often referred to as the "Cyber Czar," assigned to the Office of the President and responsible for coordinating the nation's cybersecurity-related policies. While many security observers saw these initial efforts by the Obama Administration as a positive step, others were concerned that government-wide collaborative efforts were not keeping pace with the threats directed at U.S. technological global interests. Between 2009 and 2013, cyber threats to U.S. infrastructure and other assets became a growing concern to policy makers. In the absence of legislative action, in 2012 the Obama Administration announced a new Presidential policy directive related to U.S. Cyber Operations, the contents of which remain classified, and began drafting an executive order on cybersecurity practices, Executive Order 13636, Improving Critical Infrastructure Cybersecurity, released after a year of interagency debate and review. At the federal level, five executive orders and Presidential directives authorize offensive and defensive action in cyberspace: National Security Presidential Directive 54/Homeland Security Presidential Directive 23—The Comprehensive National Cybersecurity Initiative The Obama Administration's Cyberspace Policy Review builds on the Comprehensive National Cybersecurity Initiative (CNCI) launched in January 2008 by the George W. Bush Administration via a classified presidential directive. The CNCI established a multipronged approach for the federal government to identify threats, address telecommunications and information-system vulnerabilities, and respond to or proactively address entities that wish to steal or manipulate protected data on secure federal systems. Presidential Policy Directive 20 (PPD-20)—U.S. Cyber Operations Policy  President Obama implemented PPD-20 on U.S. Cyber Operations Policy in October 2012. Although subsequently leaked to the public in June of 2013, PPD-20's contents remain classified, with the exception of what the White House shared in a brief fact sheet. A widely cited Washington Post article published on November 14, 2012 asserted the significance of PPD-20: For the first time ... the directive explicitly makes a distinction between network defense and cyber-operations to guide officials charged with making often-rapid decisions when confronted with threats. The policy also lays out a process to vet any operations outside government and defense networks and ensure that U.S. citizens' and foreign allies' data and privacy are protected and international laws of war are followed. The article went on to quote an unnamed senior administration official on the distinction between defense and offense, clarifying that "network defense is what you're doing inside your own networks.... Cyber-operations is stuff outside that space, and recognizing that you could be doing that for what might be called defensive purposes." PPD-20 closes a perceived gap in the authorities necessary for DOD to defend the nation in cyberspace, a gap that has not been addressed by Congress. The directive does not create new powers for federal agencies or the military; however, by distinguishing between network defense and cyber operations, it provides a policy framework for the Pentagon's rules of engagement for cyberspace. As specifically described in the White House fact sheet, PPD-20: takes into account the evolution of the threat and growing experience with the threat; establishes principles and processes for using cyber operations so cyber tools are integrated with the full array of national security tools; provides a whole-of-government approach consistent with values promoted domestically and internationally and articulated in the International Strategy for Cyberspace; mandates that the United States take the least action necessary to mitigate threats; and prioritizes network defense and law enforcement as preferred courses of action. Executive Order 13636—Improving Critical Infrastructure Cybersecurity The White House released EO 13636 on February 12, 2013. This executive order declares that "it is the policy of the United States to enhance the security and resilience of the Nation's critical infrastructure (CI) and to maintain a cyber environment that encourages efficiency, innovation, and economic prosperity while promoting safety, security, business confidentiality, privacy, and civil liberties" (Section 1). The order: expands information sharing and collaboration between the government and the private sector, including sharing classified information by broadening a program developed for the defense industrial base to other CI sectors; develops a voluntary framework of cybersecurity standards and best practices for CI protection, through a public/private effort; establishes a consultative process for improving CI cybersecurity; identifies CI with especially high priority for protection, using the consultative process; establishes a program with incentives for voluntary adoption of the framework by CI owners and operators; reviews cybersecurity regulatory requirements to determine whether they are sufficient and appropriate; and incorporates privacy and civil liberties protections in activities under the order. In addition to codifying the DECS program, the order provides specific responsibilities to DHS and the sector-specific agencies, as well as the Departments of Commerce, Defense, and Justice, the intelligence community, the General Services Administration, and the Office of Management and Budget, addressed below. Presidential Policy Directive 21—Critical Infrastructure Security and Resilience Along with EO 13636, the White House released Presidential Policy Directive 21 (PPD-21), "Critical Infrastructure Security and Resilience," which addresses the protection of CI. PPD-21 supersedes Homeland Security Presidential Directive 7 (HSPD 7), "Critical Infrastructure Identification, Prioritization, and Protection," released December 17, 2003. PPD-21 seeks to strengthen the security and resilience of CI by clarifying functional relationships among federal agencies, including the establishment of separate DHS operational centers for physical and cyber-infrastructure; identifying baseline requirements for information sharing; applying integration and analysis capabilities in DHS to prioritize and manage risks and impacts, recommend preventive and responsive actions, and support incident management and restoration efforts for CI; and organizing research and development (R&D) to enable secure and resilient CI, enhance impact-modeling capabilities, and support strategic DHS guidance. The directive provides specific responsibilities to DHS and the sector-specific agencies, as well as the Departments of Commerce, Interior, Justice, and State; the intelligence community; the General Services Administration; and the Federal Communications Commission. National Infrastructure Protection Plan, National Response Framework and Defense Support for Civil Authorities The National Infrastructure Response Plan (NIPP), developed by DHS with other federal agencies and private sector owners of critical infrastructure, outlines how government and private sector critical infrastructure stakeholders work together to manage risks and achieve security and resiliency. The NIPP 2013 meets the requirements of PPD-21, "Critical Infrastructure and Resilience." The phrase "defense support of civil authorities" refers to DOD's mission to help civil authorities respond to a domestic emergency or other domestic activity. This support may be provided through the military services, the National Guard, and other DOD resources. For the civil cybersecurity mission, DHS leads the interagency with DOD support. The National Cyber Incident Response Plan outlines roles and responsibilities for coordinating and executing a response to a domestic cyber incident. This plan fits into DHS's National Response Framework, a tiered response guide for local, state, and federal governments with respect to major disasters or emergencies. A 2010 memorandum of agreement between DOD and DHS also guides cooperation between the two entities with respect to securing national cyber assets. International Authorities The DOD's role in defense of cyberspace follows the body of laws, strategies, and directives outlined above. For the military to respond to an act of cyberterrorism or cyberwar, a presidential finding must be issued and an order must be executed. However, discussions have been underway in various international fora that may affect how the U.S. government views certain actions in cyberspace and when a military response is warranted. Although the President still decides ultimately what the military will do, the decisions made in the international arena could affect how the Department of Defense organizes, trains, and equips its forces in order to fulfill treaty obligations. As of yet, no international instruments have been drafted explicitly to regulate inter-state relations in cyberspace. One apparent reason for the absence of such a treaty is that the international governance of cyberspace has largely been the purview of private, professional organizations such as the Internet Engineering Task Force (IETF) and the Internet Corporation for Assigned Names and Numbers (ICANN). However, politically motivated cyberattacks are increasingly common and, although difficult to attribute, often raise strong suspicion of government involvement. More importantly, perhaps, states have become targets of cyberattack, provoking a sense of urgency regarding the creation of national strategies and capabilities for cyberdefense and cyberoffense. The U.S. Position on International Authorities The Obama Administration has responded to the internationalization of the cyberspace threat environment by releasing in 2011 an International Strategy for Cyberspace . The Strategy calls for strengthening bilateral and multilateral government partnerships, and a strong role for the private sector. It does not call for any new treaties or agreements, and the only existing instrument cited is the Budapest Convention (discussed below). It recommends, instead, preservation of the openness that has been a hallmark of the Internet age. This puts the United States at odds with China and Russia, both of which prefer a more nationalistic approach to Internet governance. In September 2012, the U.S. State Department, for the first time, took a public position on whether cyber activities could constitute a use of force under Article 2(4) of the U.N. Charter and customary international law. According to State's then-legal advisor, Harold Koh, "Cyber activities that proximately result in death, injury, or significant destruction would likely be viewed as a use of force." Examples offered in Koh's remarks included triggering a meltdown at a nuclear plant, opening a dam and causing flood damage, and causing airplanes to crash by interfering with air traffic control. By focusing on the ends achieved rather than the means with which they are carried out, this definition of cyberwar fits easily within existing international legal frameworks. If an actor employs a cyber weapon to produce kinetic effects that might warrant fire power under other circumstances, then the use of that cyber weapon rises to the level of the use of force. However, the United States recognizes that cyberattacks without kinetic effects are also an element of armed conflict under certain circumstances. Koh explained that cyberattacks on information networks in the course of an ongoing armed conflict would be governed by the same principles of proportionality that apply to other actions under the law of armed conflict. These principles include retaliation in response to a cyberattack with a proportional use of kinetic force. In addition, "computer network activities that amount to an armed attack or imminent threat thereof" may trigger a nation's right to self-defense under Article 51 of the U.N. Charter. Here Koh cites the International Strategy for Cyberspace , which affirmed that "when warranted, the United States will respond to hostile acts in cyberspace as we would to any other threat to our country." The International Strategy goes on to say that the U.S. reserves the right to use all means necessary – diplomatic, informational, military, and economic – as appropriate and consistent with applicable law, and exhausting all options before military force whenever possible. International Consensus-Building Activities One of the Defense Objectives of the International Strategy for Cyberspace is to work internationally "to encourage responsible behavior and oppose those who would seek to disrupt networks and systems, dissuading and deterring malicious actors, and reserving the right to defend national assets." A growing awareness of the threat environment in cyberspace has led to two major international processes geared toward developing international expert consensus international cyber authorities. First, the threat environment has spurred NATO interest in understanding how existing international law applies to cyberwarfare. A year after the 2007 DDoS attack on Estonia, NATO established the Cooperative Cyber Defense Center of Excellence (CCDCOE) in Tallinn, Estonia. The CCDCOE hosts workshops and courses on law and ethics in cyberspace, as well as cyber-defense exercises. In 2009, the center convened an international group of independent experts to draft a manual on the law governing cyberwarfare. The Tallinn Manual, as it is known, was published in 2013. It sets out 95 "black letter rules" governing cyber conflict addressing sovereignty, state responsibility, the law of armed conflict, humanitarian law, and the law of neutrality. The Tallinn Manual is an academic text: although it offers reasonable justifications for the application of international law, it is non-binding and the authors stress that they do not speak for NATO or the CCDCOE. Second, the cyberspace threat environment has prompted the United Nations to convene Groups of Governmental Experts (GGE) to study "Developments in the Field of Information and Telecommunications in the Context of International Security." The first successful U.N. GGE report came out in 2010, followed by a second report in 2013. The current GGE is expected to reach consensus again in 2015. The stated purpose of this process is to build "cooperation for a peaceful, secure, resilient and open ICT environment" by agreeing upon "norms, rules and principles of responsible behaviour by States" and identifying confidence and capacity-building measures, including for the exchange of information. Unlike the work done at Tallinn under the auspices of NATO, this U.S.-led process includes both China and Russia. Existing International Instruments That Bear on Cyberwarfare As previously discussed, the military's role in cyberwarfare is governed by U.S. law. Yet many international instruments bear on cyberwarfare, including those relating to law enforcement (e.g., extradition and mutual legal assistance treaties), defense, and security, along with broad treaties and agreements, such as the United Nations Charter and the Geneva Conventions, as well as international law. Such instruments include, but are not limited to, those described below. Council of Europe Convention on Cybercrime This law-enforcement treaty, also known as the Budapest Convention, requires signatories to adopt criminal laws against specified types of activities in cyberspace, to empower law-enforcement agencies to investigate such activities, and to cooperate with other signatories. Those activities include both attacks on the integrity of cyber-systems and content-related crimes such as fraud, pornography, and "hate speech." The convention focuses on identification and punishment of criminals rather than prevention of cybercrime. Consequently, it may act as a deterrent, but it has no remediating effect on the criminal acts that do occur. Also, the provisions on content may not be consistent with the different approaches of various nations to freedom of expression. While widely cited as the most substantive international agreement relating to cybersecurity, some observers regard it as unsuccessful. In addition to most members of the Council of Europe, the United States and three other nations have ratified the treaty. United Nations Resolutions A series of U.N. General Assembly resolutions relating to cybersecurity have been adopted over the past 15 years. One resolution called for a report from an international group of government experts from 15 nations, including the United States. That 2010 report, sometimes referred to as the Group of Governmental Experts (GGE) Report, recommended a series of steps to "reduce the risk of misperception resulting from ICT disruptions" but did not incorporate any binding agreements. Nevertheless, some observers believe the report represents progress in overcoming differences between the United States and Russia about various aspects of cybersecurity. In December 2001, the General Assembly approved Resolution 56/183, which endorsed the World Summit on the Information Society (WSIS) to discuss on information society opportunities and challenges. This summit was first convened in Geneva, in 2003, and then in Tunis, in 2005, and a10-year follow-on in Geneva in May 2013. Delegates from 175 countries took part in the first summit, where they adopted a Declaration of Principles—a road map for achieving an open information society. The Geneva summit left other, more controversial issues unresolved, including the question of Internet governance and funding. At both summits, proposals for the United States to relinquish control of ICANN were rejected. Law of War The so-called "Law of War" embodied in the Geneva and Hague Conventions and the U.N. Charter may in some circumstances apply to cyberattacks, but without attempts by nation states to apply it, or specific agreement on its applicability, its relevance remains unclear. It is also complicated by difficulties in attribution, the potential use of botnets (see the " Malware " section above), and possible harm to third parties from cyber-counterattacks, which may be difficult to contain. In addition, questions of territorial boundaries and what constitutes an armed attack in cyberspace remain. The law's application would appear clearest in situations where a cyberattack causes physical damage, such as disruption of an electric grid. As mentioned above, the Tallinn Manual addresses many of these questions. International Law on Countermeasures This body of international law relates to "how states may respond to international law violations that do not rise to the level of an armed attack justifying self-defense." It does not expressly address cyberattacks but presumably would be applicable to them, provided the countermeasures target the responsible nation and are "temporary and instrumentally directed" to induce cessation of the violation. Similar caveats apply to such countermeasures with respect to attribution and effects on innocent parties. North Atlantic Treaty Organization (NATO) Since the 2007 attack on Estonia, NATO has established authorities relating to cyberdefense, with the goals of advancing strategy and centralizing defense capabilities across members. A policy on cyberdefense and an associated action plan were adopted in 2011, and the NATO Communications and Information Agency (NCIA) was established in 2012 to facilitate the centralization effort. The NATO Cyber Center of Excellence located in Tallinn, Estonia, is another source of legal analysis. International Telecommunications Regulations The International Telecommunication Union (ITU) regulates international telecommunications through binding treaties and regulations and nonbinding standards. Regulations prohibit interference with other nations' communication services and permit control of non-state telecommunications for security purposes. The regulations do not, however, expressly forbid military cyberattacks. Also, ITU apparently has little enforcement authority. Other International Law Some bodies of international law, especially those relating to aviation and the sea, may be applicable to cybersecurity; for example by prohibiting the disruption of air traffic control or other conduct that might jeopardize aviation safety. Bilaterally, mutual legal assistance treaties between countries may be applicable for cybersecurity forensic investigations and prosecution. Defense Instruments The United States has signed 16 treaties and other agreements with 13 other countries and the European Union that include information security, mostly of classified military information, or defense-related information assurance and protection of computer networks. According to news reports, the United States and Australia have agreed to include cybersecurity cooperation within a defense treaty, declaring that a cyberattack on one country would result in retaliation by both. Other International Organizations A number of regional associations of nation states have issued declarations of goals and statements of intent relating to cybersecurity, including: the G8 Group of States, the Asian Pacific Economic Cooperation (APEC), the Organization of American States (OAS), the Association of South East Asian Nations (ASEAN), the Arab League, and the Organization for Economic Cooperation and Development (OECD). However, none of the documents issued by these organizations appear to be binding in effect. SCO-Proposed International Code of Conduct for Information Security In September 2011, members of the Shanghai Cooperation Organization, including Russia and China, submitted a proposed voluntary code of conduct for cybersecurity and requested that it be placed on the U.N. General Assembly agenda. Its focus on the rights of governments, such as "reaffirming that policy authority for Internet-related public issues is the sovereign right of States," among other concerns, led to resistance from the United States and other countries. OSCE Early Warning Resolution Under the auspices of the Organization for Security and Cooperation in Europe (OSCE), in 2011 and 2012, the United States, Russia, and other countries negotiated a possible agreement that would warn parties early on when cyber-operations might lead to unintentional conflict, but they were unable to reach consensus on the resolution. Although some observers have expressed interest in such an agreement, others doubt its effectiveness, arguing that conflicting interests and the difficulties of attribution, among other problems, make it unfeasible. ITU Dubai Summit The ITU convened the World Conference on International Telecommunications (WCIT) in Dubai, United Arab Emirates, during December 3-14, 2012, to review the International Telecommunications Regulations. In the run-up to the summit, many security observers expressed concern over the closed nature of the talks and feared a shift of Internet control away from private entities such as ICANN toward the U.N. and national governments. Although these concerns proved to be largely baseless, a controversial deep packet inspection proposal from the People's Republic of China was adopted at the summit. Dissenting countries, including Germany, fear that this recommendation will result in accelerated Internet censorship in repressed nations. Issues for Congress Authorities: Is Current Law Enough? Does the military have the authorities it needs to effectively fight and win wars in cyberspace? Some have argued that to fulfill its homeland defense mission, USCYBERCOM should be given increased authority over private sector critical infrastructure protection. Yet business owners, particularly in the IT sector, contend that this would represent a "militarization of cyberspace" that would create distrust among consumers and shareholders, and could potentially stifle innovation, leading to decreases in profits. Others argue that the military's role is to fight and win wars, rather than to bolster a private company's cyber defenses. As discussed, the international community must contend with a certain amount of ambiguity regarding what constitutes an "armed attack" attack in cyberspace and what the thresholds are for cyberattack as an act of war, an incident of national significance, or both. Without clear redlines and specific consequences articulated, deterrence strategies may be incomplete. On the other hand, a lack of redlines and consequences could constitute a form of strategic ambiguity that gives the U.S. military operational maneuverability. Congress may wish to consider these concerns as new legislation regarding critical infrastructure protection is proposed. Skilled cyber operators are in demand in the military, and the national supply of cyber professionals tends to reside in the private sector. Some of the services are looking at bolstering opportunities for officers who wish to pursue careers in cybersecurity by creating new occupational specialties and career tracks. Yet barriers to hiring skilled civilians for the DOD cyber mission may hinder the development of a robust workforce. Congress may choose to consider ways to incentivize and bolster recruitment of talent outside of the military, such as providing special hiring authorities for certain mission critical positions, streamlining or revising the clearance process for national security personnel, and compensation comparable to private sector equivalent jobs. How Do DOD and Cyber Command Responsibilities for Cybersecurity Fit Within the Interagency and Private Sector? Reports have described the USCYBERCOM cyber force's "National Mission Teams" as protecting the networks that undergird critical infrastructure. Given that the majority of this critical infrastructure resides in the private sector, for which DHS has coordinating authority, how do USCYBERCOM teams protect these assets during peacetime without violating Posse Comitatus , the prohibition against using the military for domestic policing? How do these national teams interact and coordinate with DHS? Should U.S. Cyber Command Be Its Own Unified Combatant Command? The Unified Command Plan organizes combatant commands into geographic and functional areas. U.S. Cyber Command is currently organized under the functional Strategic Command, and co-directed and located with the National Security Agency (NSA). With the complicated lines of authority (Title 10 vs. Title 50) associated with this structure, some have suggested separating the two organizations and giving civilian control to the NSA while elevating Cyber Command to the level of a full unified combatant command. DOD has been tasked by Congress to study and report on the possible implications of this realignment. Specifically, The National Defense Authorization Act for Fiscal Year 2013 ( P.L. 112-239 ) asks in Section 940 "how a single individual could serve as a commander of a combatant command that conducts overt, though clandestine, cyber operations under Title 10, United States Code, and serve as the head of an element of the intelligence community that conducts covert cyber operations under the National Security Act of 1947." Is a Separate Cyber Force Necessary? Given that the DOD views cyberspace as one of five global domains, some proponents in Congress contend that a separate cyber force, akin to the Army, Navy, Air Force, or Marine Corps, is necessary to properly address the military aspects of the domain. However, critics point to the multi-layered aspect of cyberspace in which all services have equities. What Are the Authorizing and Oversight Committees and Jurisdictional Implications? As previously discussed, blurred lines between operations undertaken under Title 10 and Title 50 authorities can complicate efforts to determine the chain of command and jurisdictional review process. What does this ambiguity mean for congressional oversight committees? Have some operations taken place without congressional notification? What has been the Department of Defense's role in responding to cyberattacks on private networks? Current Legislation The National Defense Authorization Act for Fiscal Year 2015 ( P.L. 113-291 ) contains some provisions related to DOD cybersecurity and cyber operations. These provisions: require reporting on cyber incidents with respect to networks and information systems of operationally critical contractors and certain other contractors. require the Principal Cyber Advisor to identify improvements to ensure sufficient civilian workforce to support USCYBERCOM and components. direct a program of decryption to inspect content for threats and insider activity within DOD networks. state the Sense of Congress that as ICANN turns to global community for leadership, support should be given only if assurances are provided for current legacy IP numbers used by DOD and the U.S. government. direct that a new mission forces, training, manning and equipping plan and associated programmatic elements be submitted to Congress. state a Sense of Congress for consideration regarding role of reserve components in defense against cyberattacks given their unique experience in private and public sectors and existing relationships with local and civil authorities for emergency response. Appendix. Timeline of International Attacks95 February-June 1999: Kosovo was the arena for the first large-scale Internet war, involving pro-Serbian forces cyberattacking the North Atlantic Treaty Organization (NATO). As NATO planes bombed Serbia, pro-Serbian hacker groups, such as the "Black Hand," attacked NATO, U.S., and UK Internet infrastructure and computers via DoS attacks and virus-infected email. In the United States, the White House website was defaced. The UK admitted to losing database information. At NATO Headquarters in Belgium, a public affairs website for the war in Kosovo was "virtually inoperable for several days." Simultaneously, NATO's email server was flooded and choked with email. During the Kosovo conflict, a NATO jet bombed the Chinese embassy in Belgrade in May 1999. The Chinese Red Hacker Alliance retaliated by launching thousands of cyberattacks against U.S. government websites. October 2000: Riots in the Palestinian territories sparked rounds of cyberattacks between Israelis and Palestinians. Pro-Israeli attacks targeted the official websites of the Palestinian Authority, Hamas, and the government of Iran. Pro-Palestinian hackers retaliated against Israeli political, military, telecommunications, media, the financial sector, commercial, and university websites. Since 2000, the Middle East cyberwar has kept pace with the ground conflict. April-May 2007: DDoS attacks shutdown websites of Estonia's parliament, banks, ministries, newspapers, and broadcasters. Estonian officials accused the Russian government of responding to their decision to move a Soviet-era war memorial with retaliatory cyberattacks. September 2007: Israel disrupted Syrian air defense networks during the bombing of an alleged nuclear facility in Syria. July 2008: Government and corporate websites in Lithuania were defaced. The Soviet-themed graffiti implicated Russian nationalist hackers. August 2008: Georgian government and commercial websites were shut down by DoS attacks at the same time that Russian ground troops invaded the country. January 2009: DoS attacks originating in Russia shut down Kyrgyzstan's two main Internet servers on the same day that the Russian government pressured Kyrgyzstan to bar U.S. access to a local airbase. July 2009: Servers in South Korea and the United States sustained a series of attacks, reportedly by North Korea. June 2010: "Stuxnet" worm damaged an Iranian nuclear facility. The United States and Israel were implicated in the attack. September 2011: "Keylogger" malware was found on ground control stations for U.S. Air Force unmanned aerial vehicles (UAVs) and reportedly infected both classified and unclassified networks at Creech Air Force Base in Nevada. May 2012: An espionage worm called "Flame," allegedly 20 times more complex than Stuxnet, was discovered on computers in the Iranian Oil Ministry, as well as in Israel, Syria, and Sudan. August 2012: "Gauss" worm infected 2,500 systems worldwide. The malware appeared to have been aimed at Lebanese banks, and contained code whose encryption has not yet been broken. August 2012: The "Cutting Sword of Justice," a group reportedly linked to the government of Iran, used the "Shamoon" virus to attack major oil companies including Aramco, a major Saudi oil supplier, and the Qatari company RasGas, a major liquefied natural gass (LNG) supplier. The attack on Aramco deleted data on 30,000 computers and infected (without causing damage) control systems. September 2012-June 2013: The hacker group Izz ad-Din al-Qassam launched DoS attacks against major U.S. financial institutions in "Operation Ababil." Izz ad-Din al-Qassam is believed to have links to Iran and Hamas. January 2013: The New York Times , Wall Street Journal , Washington Post , and Bloomberg News revealed that they were targeted by persistent cyberattacks. China was the suspected source. May 2013: Israeli officials reported a failed attempt by the Syrian Electronic Army to compromise water supply to the city of Haifa. August 2013: Leaks revealed that the U.S. government purportedly conducted 231 cyber intrusions in 2011 against Russia, China, North Korea, and Iran. Most of the intrusions were related to nuclear proliferation. April 2014: The disclosure of the Heartbleed bug revealed vulnerability in the OpenSSL protocol previously considered the standard for Internet security. Canada reported more than 900 compromised social security numbers. May 2014: The United States indicted five Chinese military officers on charges of computer hacking, economic espionage, and other offenses against six targets in the United States' nuclear power, metals, and solar power industries. China has denied the charges. According to U.S. Attorney General Eric Holder, "This is a case alleging economic espionage by members of the Chinese military and represents the first ever charges against a state actor for this type of hacking." July 2014: The United States charged a Chinese entrepreneur with breaking into the computer systems of the U.S. defense giant Boeing and other firms to steal data on military programs concerning warplanes, including C-17 cargo aircraft, and the F-22 and F-35 fighter jets. At the same time, the security firm Kapersky reported a massive cyber operation dubbed "Energetic Bear," which targeted more than 2,800 industrial firms around the globe. Although some reports identified a Russian hacker group as the source, Kapersky refrained from attributing the attack to any one country. December 2014: U.S. cybersecurity firm Cylance reported that an Iranian hacker group has breached airlines, energy and defense firms, and the U.S. Marine Corps intranet in an attack known as "Operation Cleaver."

Cyberspace is defined by the Department of Defense as a global domain consisting of the interdependent networks of information technology infrastructures and resident data, including the Internet, telecommunications networks, computer systems, and embedded processors and controllers. Attacks in cyberspace have seemingly been on the rise in recent years with a variety of participating actors and methods. As the United States has grown more reliant on information technology and networked critical infrastructure components, many questions arise about whether the nation is properly organized to defend its digital strategic assets. Cyberspace integrates the operation of critical infrastructures, as well as commerce, government, and national security. Because cyberspace transcends geographic boundaries, much of it is outside the reach of U.S. control and influence. The Department of Homeland Security is the lead federal agency responsible for securing the nation's non-security related digital assets. The Department of Defense also plays a role in defense of cyberspace. The National Military Strategy for Cyberspace Operations instructs DOD to support the DHS, as the lead federal agency, in national incident response and support to other departments and agencies in critical infrastructure and key resources protection. DOD is responsible for defensive operations on its own information networks as well as the sector-specific agency for the defense of the Defense Industrial Base. Multiple strategy documents and directives guide the conduct of military operations in cyberspace, sometimes referred to as cyberwarfare, as well as the delineation of roles and responsibilities for national cybersecurity. Nonetheless, the overarching defense strategy for securing cyberspace is vague and evolving. This report presents an overview of the threat landscape in cyberspace, including the types of offensive weapons available, the targets they are designed to attack, and the types of actors carrying out the attacks. It presents a picture of what kinds of offensive and defensive tools exist and a brief overview of recent attacks. The report then describes the current status of U.S. capabilities, and the national and international authorities under which the U.S. Department of Defense carries out cyber operations. Of particular interest for policy makers are questions raised by the tension between legal authorities codified at 10 U.S.C., which authorizes U.S. Cyber Command to initiate computer network attacks, and those stated at 50 U.S.C., which enables the National Security Agency to manipulate and extrapolate intelligence data—a tension that Presidential Policy Directive 20 on U.S. Cyber Operations Policy manages by clarifying the Pentagon's rules of engagement for cyberspace. With the task of defending the nation from cyberattack, the lines of command, jurisdiction, and authorities may be blurred as they apply to offensive and defensive cyberspace operations. A closely related issue is whether U.S. Cyber Command should remain a sub-unified command under U.S. Strategic Command that shares assets and its commander with the NSA. Additionally, the unique nature of cyberspace raises new jurisdictional issues as U.S. Cyber Command organizes, trains, and equips its forces to protect the networks that undergird critical infrastructure. International law governing cyberspace operations is evolving, and may have gaps for determining the rules of cyberwarfare, what constitutes an "armed attack" or "use of force" in cyberspace, and what treaty obligations may be invoked.

Introduction The Navy has been procuring F/A-18E/F Super Hornet strike fighters since FY1997. Super Hornets and older F/A-18A/B/C/D Hornets currently account for the majority of the aircraft in the Navy's 10 active-duty aircraft carrier air wings (CVWs)—of the 70 or so aircraft in each CVW, more than 40 typically are Hornets and Super Hornets. In FY2006, the Navy also began procuring the EA-18G Growler, an electronic warfare version of the Super Hornet. Growlers are replacing older Navy and Marine Corps EA-6B Prowler electronic attack aircraft. Super Hornets and Growlers were procured in FY2005-FY2009 under a multiyear procurement (MYP) arrangement. The Navy's proposed FY2012 budget requests about $2.4 billion for the procurement of 28 F/A-18E/F Super Hornet strike fighters and about $1.1 billion for the procurement of 12 EA-18G Growler electronic attack aircraft. The Navy's FY2011 request for 22 F/A-18E/Fs comes in the context of a projected shortfall in Navy and Marine Corps strike fighters. Estimates of the extent of the shortfall vary, with the peak of the shortfall ranging from 100 aircraft by one estimate to 243 or more aircraft according to other estimates. Background F/A-18E/F Super Hornet Program The F/A-18E/F Super Hornet is a Navy strike fighter, meaning a tactical aircraft that can perform both air-to-ground (strike) and air-to-air (fighter) operations. The Super Hornet is a larger, more modern, and more capable version of the earlier F/A-18A/B/C/D Hornet, which is operated by both the Navy and Marine Corps. The Navy has been procuring F/A-18E/F Super Hornets since FY1997. Hornets and Super Hornets currently form the core of the Navy's aircraft carrier air wings (CVWs)—of the 70 or so aircraft in each CVW, more than 40 typically are Hornets and Super Hornets. In FY2012, he Navy is also procuring the F-35C—the Navy version of the F-35 Joint Strike Fighter (JSF). Navy plans call for phasing Hornets out of service and for CVWs in the future to include a strike fighter mix of Super Hornets and F-35Cs. As shown in Table 1 , through FY2011 the Navy has procured a total of 489 F/A-18E/Fs. Super Hornets were procured in FY2000-FY2004 under an MYP arrangement, and both Super Hornets and Growlers were procured in FY2005-FY2009 under a second MYP arrangement. In September 2010, during consideration of the FY2011 defense budget, Congress approved a third MYP arrangement retroactive to FY2010. The Navy's proposed FY2012 budget requests funding for the procurement of 28 F/A-18E/Fs, estimating the total procurement cost of these aircraft at $2,369.0 million, or an average of about $84.6 million each. These 28 aircraft received $2.3 million in prior-year advance procurement funding, leaving $2,366.7 million to be provided in FY2012 to complete their procurement cost. The proposed FY2012 budget also requests $65.0 million in advance procurement funding for F/A-18E/Fs to be procured in future fiscal years, and $77.2 million in funding for F/A-18E/F initial spares, bringing the total amount of procurement funding requested for FY2012 to $2,508.9 million. The estimated average procurement cost of about $84.6 million for the 22 F/A-18E/Fs requested for FY2012 is higher than the estimated average procurement costs of the 23 F/A-18E/Fs procured in FY2008 (about $80.8 million), but less than the 18 F/A-18E/Fs procured in FY2010 (about $86.9 million). This may reflect the fact that the F/A-18E/Fs procured in FY2009 were procured under an MYP arrangement. The FY2012 budget submission projects a total procurement of 556 F/A-18E/Fs, with the final 39 aircraft to be procured in FY2013-2014. This is 41 aircraft more than envisioned in the FY2011 budget submission "to mitigate Joint Strike Fighter delays." The Navy's FY2012 budget justification materials state that F/A-18E/F advance procurement funding requested in FY2012 is to support the planned procurement of 28 aircraft in FY2013. The F/A-18E/F was approved for export in June 2001. A sale of 24 to Australia was completed in May 2007. The first of the 24 was accepted by Australia on July 8, 2009, and 12 of the 24 are being wired to provide an option for converting them relatively easily into EA-18Gs. The F/A-18 is currently competing in a major fighter procurement in Brazil. Decisions on sales to other countries reportedly could be announced in 2012. EA-18G Growler Program The EA-18G Growler is an electronic warfare aircraft for jamming enemy radars and communications. The EA-18G shares the F/A-18F's airframe and avionics and is built on the same assembly line. The Department of the Navy is procuring EA-18Gs as replacements for aging Navy and Marine Corps EA-6B Prowler electronic attack aircraft, which help protect Navy, Marine Corps, and Air Force aircraft operating in hostile airspace. As shown in Table 1 , through FY2011 the Navy has procured a total of 90 EA-18Gs. The Navy's proposed FY2012 budget requests funding for the procurement of 12 EA-18Gs. The FY2012 budget estimates the total procurement cost of these aircraft at $1,134.4 million, or an average of about $94.5 million each. These 12 aircraft received $55.1 million in prior-year advance procurement funding, leaving $1,079.4 million to be provided in FY2012 to complete their procurement cost. The proposed FY2012 budget also requests $28.1 million in advance procurement funding for EA-18Gs to be procured in future fiscal years, bringing the total amount of procurement funding requested for FY2011 to $1,107.5 million. Although the Navy had testified that it is planning a total procurement of 88 EA-18Gs, the administration's FY2012 request projects a fleet of 114, which would leave a final 12 aircraft to be procured in FY2013. In March 2008, it was reported that the Australian government was considering to purchase some number of EA-18Gs for that country's air force. As mentioned earlier, it was reported in July 2009 that 12 of the 24 F/A-18E/Fs purchased by Australia are being wired to provide an option for converting them relatively easily into EA-18Gs. Recent Developments Multiyear Procurement The FY2012 budget submission includes an analysis of the multiyear procurement plan authorized by Congress in September 2010. Under this plan, 107 F/A-18E/F and 58 EA-18Gs will be acquired from FY2010 through FY2014 under a fixed price incentive fee contract. DOD estimates the total cost avoidance by using multiyear procurement to be $580.9 million. Navy-Marine Corps Strike Fighter Shortfall The Navy and Marine Corps, which are both part of the Department of the Navy (DON), each operate strike fighters. Strike fighters constitute the majority of the aircraft in each of the Navy's 10 active-duty aircraft carrier air wings (CVWs) —of the 70 or more aircraft typically embarked on a Navy aircraft carrier, 44 typically are strike fighters. Strike fighters also constitute a significant portion of the Marine Corps' three active-duty Marine air wings (MAWs). Some Marine Corps strike fighters are assigned to Navy CVWs. As of early 2009, the Navy operated about 380 F/A-18E/F Super Hornet strike fighters, the Navy and Marine Corps operated a total of about 620 older F/A-18A-D Hornet strike fighters, and the Marine Corps operated about 125 AV-8B Harrier II short takeoff, vertical landing attack aircraft. In coming years, the Navy plans to retire its Hornets and shift to a combination of Super Hornets and F-35Cs, while the Marine Corps plans to retire its Hornets and Harriers and shift to strike fighter force composed entirely of F-35Bs. DON's inventory of strike fighters currently falls short of the number that Navy officials state is required to fully support requirements for Navy and Marine Corps air wings, and the Navy is projecting that this shortfall will grow in coming years. DOD's addition of 41 aircraft to the F-18 force is intended to partially mitigate this shortfall. How Large Is the Shortfall? In testimony to the House Armed Services Committee, Secretary of Defense Robert Gates projected the shortfall at "about a hundred aircraft in 2018," noting that "there are a number of strategies that people have in mind for—for mitigating that shortfall." In testimony before the House Armed Services Committee on March 24, 2010, the Navy's acquisition chief put the shortfall at "177 aircraft in a 2017 timeframe." Commentators have referred to other estimates, including Navy testimony, putting the shortfall as high as 243 aircraft. Asked to reconcile the various numbers, Rear Admiral Allen G. Myers, USN Director of Warfare Integration, stated: Last year in PB '09, I briefed that we were forecasting in the later teens, starting in 2016 through 2018, a Strike Fighter shortfall with the U.S. Navy of 69 aircraft, and the Department of Navy, 125. That was assuming that all of our legacy F-18s, A through D, could get to 10,000 hours. So that was sort of a bookend. The other bookend was if none of those aircraft got past 8,600 hours, that it'd be 125 and a 243 shortfall. Although "(t)he current inventory of Hornets and Super Hornets is short—by about 60 planes—of the 'validated requirement' of 1,240," Secretary "Gates said talk of gaps, and how to fill them, misses the point. 'Before making claims of requirements not being met or alleged "gaps"—in ships, tactical fighters, personnel or anything else—we need to evaluate the criteria upon which requirements are based in the wider, real-world context,'" Gates said during a May 8 (2010) speech. Service Life Issues As Admiral Myers's testimony indicated, the projected Navy-Marine Corps strike fighter shortfall could be affected by Hornet and Super Hornet service life. The F/A-18A-D Hornets currently operated by the Navy and Marine Corps were originally built for a service life of 6,000 flight hours. This was later extended to 8,000 hours. It is now being extended again, to 8,600 hours, through a High Flight Hour (HFH) inspection effort that closely examines the condition of each aircraft. Extending the Hornets' service lives further, to 10,000 hours, would require significant depot work to rebuild various parts of each aircraft. The cost of such a service life extension program (SLEP) is uncertain, but on March 24, 2010, Navy acquisition chief Sean Stackley stated: Service-life extension has many pieces to it. So the first part of service-life extension I'm going to hit you with is the center-barrel replacement.… There's north of a billion dollars for 421 aircraft that we're already in process with. The second part is planning for the more extensive SLEP program, which takes the aircraft from 8600 to 10,000 hours. We are in that planning phase. As shown in the left half of Figure 1 , the Navy has projected that if about 300 older F/A-18A-D Hornets have their service lives extended from 8,600 flight hours to 10,000 flight hours, the strike fighter shortfall would peak in 2017 at 125 aircraft, including a shortfall of 69 in the Navy and 56 in the Marine Corps. As shown in the right half of Figure 1 , the Navy has projected that if the 300 or so older F/A-18A-Ds Hornets do not have their service lives extended to 10,000 hours, and are instead removed from service when they reach 8,600 flight hours, the strike fighter shortfall would peak in 2018 at 243 aircraft, including a shortfall of 129 in the Navy and 114 in the Marine Corps. (Note that these charts do not reflect the 41 aircraft added to the Future Years Defense Plan [FYDP] budget in 2011.) In June 2009, the Navy testified that strike fighter shortfall might peak sooner than indicated in Figure 1 —in 2015—because the HFH inspections on the F/A-18A-D Hornets are taking longer to accomplish than was first expected. The projections in Figure 1 assume that F-35 procurement will increase from year to year as currently planned and eventually reach a sustained rate of 50 aircraft per year. If F-35 procurement is delayed or if the sustained rate of production is less than assumed—say, for example, 35 aircraft per year vs. 50 aircraft per year—then the projected strike fighter shortfall would increase above that shown in Figure 1 . Following the HFH inspections, in March 2010, 104 Hornets were grounded after discovery that "airframes were developing cracks much earlier than engineers had thought." Following more detailed inspections, most were returned to flight, but seven aircraft "will require depot-level maintenance to replace the aft wing shear attach fitting, where the back portion of the main wing attaches to the fuselage." As one means of mitigating the projected strike fighter shortfall, the Navy is examining the option of accelerating planned purchases of F-35C Joint Strike Fighters (JSFs) for the Navy. "Lockheed Martin officials told Chief of Naval Operations Adm. Gary Roughead … that the company could ramp up the production of F-35 Joint Strike Fighters by as much as 30 additional Navy aircraft over the future years defense plan (FYDP), according to the program manager." However, the F-35 program is experiencing delays, and F-35 initial operating capability for the Navy has been moved to FY2016. When the F-35 was expected to enter Marine Corps service in 2012, the Corps believed it could manage its shortfall by extending the life of some of its Hornets to 10,000 hours. "If JSF stays on track, I have a lot of confidence, personally, that we can manage our way through any kind of gap that's out there," said Lieutenant General George J. Trautman III, USMC, then Deputy Commandant for Aviation. However, Trautman's successor says the Marines' F-35B has now "gone from 2012 to probably 2014, and my guess now it'll probably be somewhere in the 2015 timeframe." Additional information relating to the projected Navy-Marine Corps strike fighter shortfall appears in Appendix B . Issues for Congress Size of the Shortfall The size of the shortfall will drive both the impact on the naval services and the options available for its relief. The difference between Secretary Gates's projection of "about a hundred aircraft" and the earlier Navy estimate of as high as 243 is more than two carriers' inventory of strike fighters. Fixing a number will enable Congress to choose among proposals to accelerate F-35 acquisition, SLEP more Hornets and Super Hornets, stand down or retire carriers and/or air wings, or other options. How Many F/A-18E/Fs to Procure in FY2012 DOD has proposed acquiring 28 Super Hornets and 12 Growlers in FY2012. Proponents of procuring additional F/A-18s in FY2012 could argue that doing so would further mitigate the projected Navy-Marine Corps strike fighter shortfall and the operational risks associated with it. Proponents could also argue that increasing the number of F/A-18E/Fs procured in FY2012 to something more than 28 could increase economies of scale for the current F/A-18E/F multiyear purchase, reducing the average procurement cost of each FY2012 aircraft, and extend the life of the F/A-18 production line, which could offer insurance against further delays in F-35 production. Opponents of procuring additional F/A-18s in FY2012 could argue that in a situation of limited defense funding, procuring additional F/A-18E/Fs could require reducing funding for one or more other defense programs, which could lead to operational risks in other areas. Opponents could also argue that further F/A-18 production could restrict Navy combat capability by increasing its inventory of older-design fighters rather than addressing current and future threats with the most technologically advanced aircraft, and that additional F/A-18s would not help the Marine Corps, which has committed to move exclusively to F-35s. FY2012 Legislative Activity FY2012 Defense Authorization Act (H.R. 1540/S. 1253) House As passed by the House, H.R. 1540 funded the F-18 program at the requested levels. Senate As reported to the Senate, S. 1253 cut $495 million and nine aircraft from the request for F/A-18E/Fs, citing Navy projections that the fighter shortfall would be less than earlier anticipated. The committee report ( S.Rept. 112-26 ) stated: F/A–18E/F The budget request included $2,431.7 million to purchase 28 F/A–18E/F aircraft. This is 27 more than was planned in the fiscal year 2010 future-years defense program (FYDP). The Navy requested these additional aircraft as part of an overall increase of 41 F/A–18E/F in the FYDP. The Navy increased the request in fiscal year 2012 and over the FYDP made to reduce fighter shortfall to a ''manageable level of 65 aircraft.'' Since then, Congress passed the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (Public Law 112–10), which included $495.0 million to purchase an additional nine F/A–18E/F aircraft. More recent information from the Department of the Navy, which accounts for the extra nine aircraft and other changes, estimates that the shortfall is now expected to be 52 aircraft. The committee accepts the Navy's word that the Navy can manage the shortfall at a level of 65 or fewer aircraft. Therefore, the committee recommends a reduction of $495.0 million and nine aircraft from the fiscal year 2012 authorization request. FY2012 DOD Appropriations Bill (H.R. 2219) House As passed by the House, H.R. 2219 reduced the EA-18G request by $77.8 million. Of that, $26.6 million was cut for "CFE (customer-furnished equipment) Electronics cost growth," $9.2 million for "Engine cost growth," $36.0 million for "Avionics PGSE cost growth," and $6.0 million for "Other ILS cost growth." H.R. 2219 reduced the F/A-18E/F request by $63.5 million, including $29.1 million for "Engine cost growth," $15.5 million for "CFE Electronics cost growth," $4.5 million for "GFE (government-furnished equipment) Electronics cost growth," $2.6 million for "Armament cost growth," and $11.8 million for "ECO (engineering change order) increase." Senate As reported by the Senate Appropriations Committee, H.R. 2219 cut $7 million from the EA-18G request to "reduce engineering change orders to 2010 levels." The SAC also cut $99.7 million from the F/A-18E/F request, including $21.0 million for "ECO excess," $10.7 million for "Government furnished equipment engine cost growth," and $68.0 million for "Multi-year procurement savings." The SAC recommended cutting $1.7 million from advance procurement funds for "Airframe termination liability growth" and a further $54 million from the overall program ($20.9 million for "Integrated Logistics Support excess to need," $14.0 million for "Digital Communications System reduce quantities," $12.8 million for "Other support growth," and $6.3 million for "Net Centric Operations reduce A kits"). Appendix A. FY2011 Legislative Activity Summary of Action on FY2011 Aircraft Quantities and MYP Table A -1 summarizes congressional action on the number of EA-18Gs and F/A-18E/Fs to be procured in FY2011, and on whether bill language is provided to authorize a new multiyear procurement (MYP) arrangement for EA-18Gs and F/A-18E/Fs starting in FY2010. FY2011 Defense Authorization Act ( H.R. 5136 / S. 3454 ) House In its report accompanying the FY2011 defense authorization bill ( H.Rept. 111-491 , accompanying H.R. 5136 ), the House Armed Services Committee added $500 million to the president's $1.8 billion request for 22 F/A-18E/Fs. The panel said the Navy should use the added funds—coupled with the $130.5 million in savings realized as a result of a multiyear procurement deal for the Boeing-built aircraft—to buy eight more of the planes. Under Items of Special Interest in Aircraft Procurement, Navy, the House report stated: Department of Navy tactical aircraft inventory The budget request contained $1.8 billion for the procurement of 22 F/A–18E/F Super Hornet strike-fighters. The committee is concerned by the manner in which the Navy and the Marine Corps are managing and accepting an unprecedented level of operational risk within the Department of the Navy tactical aircraft force structure while waiting for the F–35B and F–35C to complete development, testing, and fielding. The committee does not expect that the Navy and Marine Corps will be able to fully meet future operational strike-fighter requirements of any combatant commander if the tactical aircraft inventory management plan remains unchanged. The committee remains concerned with five areas of the Navy and Marine Corps tactical aircraft portfolio: (1) strike-fighter inventory requirements and estimated shortfalls; (2) sustainment and viability of the strike-fighter legacy fleet; (3) courses of action that are being implemented, resulting in unprecedented levels of operational risk; (4) F–35B and F–35C affordability; and, (5) closure of the F/A–18E/F production line. The committee is disappointed with the manner in which officials of the Department of the Navy have conveyed strike-fighter inventory requirements and estimated shortfalls over the past several years. The committee notes that the validated strike-fighter inventory requirement is 1,240 aircraft, but currently the Navy is using the current operational demand figure of 1,154 aircraft as its baseline for projections of future shortfalls. This is an inaccurate depiction of the actual shortfall of tactical fighters in the inventory, and the Navy and Marine Corps strike-fighter shortfall mitigation strategies are either optimistic or not credible since the mitigation strategies are not funded. Elsewhere in this report, the committee describes the ongoing development problems with the F–35 series Joint Strike Fighter (JSF) and notes that the JSF is significantly delayed, well over cost projections, and not likely to arrive in the Navy-Marine Corps inventories in sufficient numbers to offset the pending retirements of F/A–18 series and AV–8B aircraft. The committee estimates that by fiscal year 2017 the Navy-Marine Corps inventory could easily be 250 aircraft short of requirements, or the equivalent of 5 carrier air wings. This is an unacceptable outcome and the committee will not support future budget requests that fail to address the factual realities of a naval strike-fighter shortfall. Absent a complete reversal of development and production performance in the JSF program, the committee expects future budget submissions to extend the production of the F/A–18E/F series aircraft to prevent U.S. naval airpower from losing significance in the nation's arsenal. Although the Marine Corps chose not to recapitalize its current fleet of fixed-wing F/A–18A/D aircraft with F/A–18E/F aircraft, the committee believes that procuring F/A–18E/F aircraft should be considered as a means in resolving the Marine Corps' inevitable strike-fighter inventory shortfall. The committee recommends an increase of $500.0 million, which when combined with $130.5 million excess funding as a result of the third multiyear procurement, shall be available for the procurement of an additional eight F/A–18E/F Super Hornet strike-fighters. Senate Section 123 of the Senate report accompanying the FY2011 defense authorization bill ( S.Rept. 111-201 , accompanying S. 3454 ), included the following language: Reports on service life extension of F/A–18 aircraft by the Department of the Navy (sec. 123) The committee recommends a provision that would require the Secretary of the Navy to conduct a business case analysis comparing two options: (1) conducting a service life extension program (SLEP) for legacy F/A–18 aircraft beyond 8,600 hours; and (2) buying new F/A–18E/F aircraft. The provision also would specify the elements of that analysis. The Secretary would be required to complete that analysis and submit it to the congressional defense committees before he could begin such a SLEP effort. The Department of the Navy has testified that, among the alternatives available to the Department for managing the shortfall it has projected in tactical aircraft inventory, one is to conduct a SLEP for some portion of the F/A–18 fleet that extends their service life beyond 8,600 flying hours. However, several objective reports have suggested that extending the service life of legacy F/A–18A–D aircraft to 10,000 hours may require significant depot work to rebuild parts of each aircraft. Such a situation raises uncertainty about the costs of such a program. The provision would also require the Secretary of the Navy to submit to the congressional defense committees a report on the operational risks and effects of any decision to reduce the size of F/A–18 squadrons before the Secretary takes any such action. The provision would also specify topics or issues that this report should address. The committee understands that the Department of the Navy is planning to ask for funding to extend the service life of F/A–18 aircraft in fiscal year 2012 and will start reducing the size of its land-based F/A–18 squadrons in fiscal year 2011. Therefore, the committee directs the Secretary of the Navy to submit the reports at the time the President submits his fiscal year 2012 budget proposal to Congress. One of the ways that the Navy has decided it could deal with the shortfall of strike fighter aircraft would be to reduce the squadron size for expeditionary F/A–18 squadrons from 12 to 10 planes, beginning in fiscal year 2011. The committee understands that the Navy also intends to reduce the size of F/A–18 training squadrons. The committee, however, has seen no evidence that the Department of the Navy has conducted an operational risk assessment and analysis of the effects of these reductions. The committee believes that a final decision on reducing operational or training squadrons should be made only after the Department has completed those analyses and has reported on them to the congressional defense committees. Also, Section 125 of the Senate report stated: Multiyear procurement authority for F/A–18E, F/A–18F, and EA–18G fighter aircraft (sec. 125) The committee recommends a provision that would amend section 128 of the National Defense Authorization Act for Fiscal Year 2010 (Public Law 110–84). Section 128 of the National Defense Authorization Act for Fiscal Year 2010 provided specific authorization, the Secretary of the Navy to enter into a multiyear contract for the purchase of additional F/A–18E, F/A–18F, or EA–18G aircraft under certain conditions, including that: (1) the statutorily required written certifications be submitted to the congressional defense committees; and (2) the Secretary sign the contract by a certain time. This provision would change the effective dates in section 128 to reflect the fact that the Department was unable to meet those specified dates. The committee strongly cautions the Department that how it proceeded here is neither preferred nor desirable, and should not be viewed as setting any precedent for acquiring major systems on a multiyear basis in the future. However, the committee believes that, against the backdrop of challenges to the Navy's managing its projected shortfall in tactical aviation (discussed elsewhere in this report), the savings of $590.0 million identified by the Secretary of Defense is ''substantial'' within the meaning of section 2306b of title 10, United States Code, and sufficient reason to accept the delayed agreement. Therefore, the committee recommends authorizing the Secretary of the Navy to sign a multiyear contract for these aircraft before the end of the fiscal year. Extracting substantial savings from major systems near the end of their production is hard to achieve. In this case, the committee approves of the Department's proposal to: (1) implement certain cost reduction initiatives; (2) avoid certain sources of cost peculiar to this program; (3) implement a proposed multiyear contract free of certain ''reopener'' clauses that, if exercised, could easily extinguish its savings estimate; and (4) adopt a fixed price-type contract as the vehicle for implementing the multiyear agreement. Under Budget Items, Navy: F–18 multiyear procurement savings The budget request included $1,083.9 million to purchase 12 EA–18G and $1,787.2 million to purchase 22 F/A–18E/F aircraft. Since the Navy had not completed negotiations for proposed multiyear procurement contract for these F–18 aircraft, the Navy based the budget estimates on executing a series on annual procurements. The committee understands that a multiyear contract for F–18s will result in $130.5 million savings in fiscal year 2011 compared to the budget request, consisting of $45.9 million savings for EA–18G and $84.6 million for F/A–18E/F. The committee has included a provision elsewhere in this Act that would enable the Navy to sign the multiyear contract, and, therefore, recommends a reduction of $130.5 million to the budget request. F/A–18E/F The budget request included $1,787.2 million to purchase 22 F/A–18E/F aircraft. This is four more than were approved in the fiscal year 2010 budget. This is also an increase of 5 aircraft from the fiscal year plan for 17 aircraft included in the last future-years defense program (FYDP) by President Bush. The committee has expressed concern that the Navy is facing a sizeable gap in aircraft inventory as older F/A–18A–D Hornets retire before the aircraft carrier variant (F–35C) of the Joint Strike Fighter is available. The committee raised this issue in the committee reports accompanying: (1) S. 1547 (S. Rept. 110–77) of the National Defense Authorization Act for Fiscal Year 2008; (2) S. 3001 (S. Rept. 110–335) of the National Defense Authorization Act for Fiscal Year 2009; and (3) S. 1390 (S. Rept. 111–35) of the National Defense Authorization Act for Fiscal Year 2010. Two years ago, the committee received testimony from the Navy about a projected shortfall in Navy tactical aviation. The Navy indicated that, under assumptions current at that time, it would experience a shortfall of 69 tactical aircraft in the year 2017, a number that swells to 125 when requirements of the United States Marine Corps are included. Last year, the Chief of Naval Operations said that the projected gap may be as high as 250 aircraft total for the Department of the Navy. This year, the Navy says that through various ''management techniques,'' the maximum shortfall is now projected to be around 150 aircraft, or 3–4 carriers' worth of airplanes. This change is not based on a change in overall requirements. The committee is disappointed that, despite promises that the Department of Defense intends to review the whole issue of tactical aircraft force structure in the pending Quadrennial Defense Review, no decision on force structure came from that effort. The committee had hoped that the Department's tactical aviation procurement strategies would have been informed by the Quadrennial Defense Review. The committee is still seeking details behind the changed assumptions that lead to the new estimates. At first impression, some of these appear to be legitimate actions that the Navy should take. For example, changing the fielding plan for the Marine Corps F–35B to replace older F/A–18 aircraft, rather than first replacing AV–8B aircraft that still have service life remaining, seems to be reasonable. Other changed assumptions do not appear to be so legitimate. For example, a portion of the shortfall reduction comes from 12 to 10 aircraft. The committee has seen no analysis that would indicate that the effect of taking such action has been assessed in terms of war fighting capability. In fact, it represents the sort of action to modify requirements arbitrarily that the committee feared would be taken in the face of the impending shortage. The change does not derive from implementing a service life extension program (SLEP) for older F/A–18s. The Navy says that any decision on undertaking a SLEP to solve some portion of that shortfall will not be made until the time the President submits the budget request for fiscal year 2012. The committee understands that a SLEP to extend the life of select legacy F/A–18s from 8,600 to 10,000 flight hours is currently estimated to cost on average $26.0 million per plane. In light of such costs, and in anticipation of the Navy's negotiating a multiyear procurement contract that could result in substantial savings over current procurement costs, the committee expects the Navy to present a thorough business case analysis with the fiscal year 2012 budget of the appropriate mix of alternatives for addressing the potential shortfall of aircraft, including both SLEP and new procurement. The committee is encouraged by the increase in F/A–18E/F procurement in the fiscal year budget, both compared to fiscal year 2010 and compared to the plan for fiscal year 2011 in the last Bush FYDP. The committee understands that this increase was part of the Department's effort to address the shortfall and buy enough aircraft in the FYDP to make a multiyear procurement achieve the substantial savings that would make such a commitment attractive. On April 30, 2010, the Secretary of the Navy informed the Navy was still working through the details of negotiating with the contractor team on a multiyear contract that would take advantage of the authority provided by section 128 of the National Defense Authorization Act for Fiscal Year 2010 (Public Law 111–84). The committee applauds the Navy's efforts to reduce the shortfall, but believes that more action now is necessary. The committee is concerned that delays in the F–35 Joint Strike Fighter program could exacerbate the problem beyond what it appears to be now. Therefore, the committee recommends an increase of $325.0 million to buy six additional F/A–18E/F aircraft in fiscal year 2011. FY2011 Defense Appropriations Act ( S. 3800 ) Senate The Senate Appropriations Committee report accompanying S. 3800 reduced funding in Aircraft Procurement, Navy for the EA-18G by $45.9 million and for the F/A-18E/F by $84.6 million, both for "savings from multiyear procurement," and the F-18 program overall by $9.4 million for "unjustified cost growth." The F-18 Squadrons line in Research and Development, Navy was increased by $3.2 million for "High Performance Military Aircraft Noise Reduction." S. 3800 also included a general rescission from funds appropriated for the F-18 program in FY2009 of $14.1 million. Final Action In lieu of a defense appropriations bill, the House and Senate passed a series of continuing resolutions maintaining spending at FY2010 levels from October 1, 2010, through April 15, 2011. FY2011 DOD and Full-Year Continuing Appropriations Act The FY2011 Department of Defense and Full-Year Continuing Appropriations Act ( H.R. 1473 ), signed into law on April 15, 2011, provided DOD funding for the remainder of FY2011. F-18 funding in the act included an addition of $495.0 million for 9 F/A-18E/Fs above the budget request for "Strike Fighter Shortfall Mitigation." H.R. 1473 also cut funds from the Aircraft Procurement, Navy account as follows: EA-18G Multi-year Procurement Savings, $49.8 million; EA-18G Support Funding Carryover, $7.7 million; F/A-18E/F Multi-year Procurement Savings, $92.7 million; F/A-18E/F Support Funding Carryover, $8.0 million; ECP 904 Modification Kit Cost Growth, $2.3 million; ECP 583R2 Installation Equipment Kit Cost Growth, $3.8 million; ATFLIR Installation Equipment Kit Cost Growth, $11.8 million; Mission Planning/Unique Planning Component Growth, $2.4 million; OSIP 002-07 Excess ECO Funding, $9.0 million; ECP6279 Radar Modification Kits Ahead of Need, $7.9 million; OSIP 001-10 Integrated Logistics Support Growth, $2.5 million; Unjustified Cost Growth, $9.4 million. In total, H.R. 1473 increased the F-18 program budget by $287.7 million. Appendix B. May 19, 2009, Hearing on Naval Aviation Programs This appendix presents material relating to the Navy-Marine Corps strike fighter shortfall and F/A-18E/F procurement from a May 19, 2009, hearing on naval aviation programs before the Seapower and Expeditionary Forces subcommittee of the House Armed Services Committee. Excerpts from Chairman's Opening Statement The chairman of the subcommittee, Representative Gene Taylor, stated the following in his opening statement for the hearing: I'd like to outline the program and policy issues that, at a minimum, I would like our witnesses to address. First, the primary policy issue I would like to address is that of the strike fighter inventory for the Navy and Marine Corps. Over the last three years, all four congressional defense committees have had a steady stream of Navy and Marine Corps witnesses testify before them about an impending strike fighter shortfall. This shortfall is predicted to peak in the middle of the next decade. Right now, current analysis puts that peak at 243 aircraft in fiscal year 2018, but if you account for the accepted risk that each service has informed Congress that they are currently incurring, the peak shortage of aircraft climbs to 312 in that same year. What is more troubling is that it appears there is a disconnect between the Office of the Secretary of Defense (OSD) and the Department of the Navy. Officials from OSD have recently briefed this committee that there is no strike fighter shortfall but that the totality of the strike fighter inventory is a matter for analysis in the Quadrennial Defense Review (QDR). In other words, OSD has already predetermined the answer and now they'll use the QDR to build the equation. I request that the witnesses explain today what the position of the Department of the Navy is regarding the strike fighter shortfall and if they are aware of any new analysis by the Joint Staff or OSD which would contradict what is apparently simple arithmetic. Because, the last time I checked, an aircraft carrier is only worth its weight in gold if it has an embarked air wing. Otherwise, 90,000 tons of American sovereignty becomes 90,000 tons of American helicopter transportation. Excerpt from Ranking Member's Opening Statement The ranking member of the subcommittee, Representative Todd Akin, stated the following in his opening statement for the hearing: Unfortunately, our Navy faces a significant strike fighter shortfall in the near future, and what good is an aircraft carrier without aircraft? Last year the Chief of Naval Operations (CNO) testified to a fighter shortfall of approximately 125 planes for the Department of the Navy by 2017. This year, based on an updated analysis, the Navy has told Congress that a more realistic estimate is a shortfall of over 240 planes. This assumes that the Joint Strike Fighter delivers on time and that the Navy will continue to resource its carrier air wings with fewer aircraft than is called for in the national military strategy. Should the Navy resource to its full strike fighter requirement, the shortfall would be greater than 300 aircraft. What does all of this mean? Simple math shows that at least five of our eleven carriers would be without fighter aircraft, or we would be forced to severely limit the number of aircraft per carrier and available for training. In either case, the solution would pose a significant strategic risk. I am deeply concerned that this budget actually makes the shortfall worse, by cutting the number of Super Hornets the Navy is buying. Facing a gap of at least 243 planes, the Navy is only asking for nine Super Hornets. In a few months, the Navy has gone from considering another multiyear procurement of Super Hornets, to cutting the buy of F/A-18s in half. This makes no sense. As I told the CNO last week, we either need more planes or fewer carriers, and I do not think anyone in this room believes that fewer carriers are the solution. Unfortunately, as Congress has tried to wrestle with this issue, the Department of Defense (DOD) has refused to obey the law and has been anything but transparent. The DOD has: •    not delivered a report on costs and benefits of a multi-year procurement of F/A-18's required by law by March 1, 2009; •    not delivered the 30 year aviation plan required by law; •    not delivered a future-years defense program with the budget, as required by section 221 of title 10, United States Code; "and •    has refused to brief Congress on the apparently differing estimates on the size of the fighter shortfall. Is this the transparency that President Obama promised? Does the Department of Defense consider itself above the law? Let us be clear—the mere existence of a Quadrennial Defense Review (QDR) does not exempt the Department from fulfilling its legal obligations. While I understand that the witnesses this afternoon are not responsible for these decisions to violate the law, let me say at the outset that the Department cannot expect to use the QDR as a get out of jail free card. Our witnesses should understand that this Committee expects and deserves answers, not evasive maneuvers. First Excerpt from Transcript AKIN: Thank you, Mr. Chairman. And I appreciate you all being here today. And there have been a number of themes that we've heard throughout a series of hearings on where we are and probably wouldn't surprise you that we would pick up on one of those. And that is the situation with the lack of aircraft, particularly, because of the planes having to be retired with over 8,000 hours on them. And I understand that the 10,000 hours doesn't really work; that it costs too much to try to take care of the—changing the different parts that would be stressed. So that resulted, this year, in an estimate of—instead of 120- some aircraft shortfall on our aircraft carriers, to about 240-some. I guess my question—and everybody is saying—and I guess really what they're saying is give us more time to figure this out. But what they're saying is "we've got to do this quadrennial review." Well, it isn't like this is too complicated. We say we're going to have 11 aircraft carriers. For a certain brief window, we're going to be down to 10. You got 44 aircraft on an aircraft carrier. If you're 240-some aircraft short, you got five aircraft carriers with no planes on them. So my question is: One, first of all, how does that affect the number of missions that you have to fly just to practice? Because I was watching night landings of these things. It looked to me like it was pretty tricky business. And I would think you would want to have plenty of practice for your pilots. And if you've got fewer planes, then I would think it would affect your training schedule. That's the first question. Second question would be: Let's say that you can't have 44 aircraft on an aircraft carrier. Is an aircraft carrier just about as good if you've got 20 aircrafts? You could split the aircraft half and half? If that's not the case—let's just answer those first two question. MYERS: [Congressman] Akin, I'd like to take the first stab at that. First of all, to go back to your numbers. Last year in PB '09, I briefed that we were forecasting in the later teens, starting in 2016 through 2018, a Strike Fighter shortfall with the U.S. Navy of 69 aircraft, and the Department of Navy, 125. That was assuming that all of our legacy F-18s, A through D, could get to 10,000 hours. So that was sort of a bookend. The other bookend was if none of those aircraft got past 8,600 hours, that it'd be 125 and a 243 shortfall. Now, that was last year and what I'd like to do is talk to you for a few minutes and outline what's changed. AKIN: OK, it's got to be pretty short because—so just a minute—just get to the number, that'd be... TAYLOR: I want to remind the ranking member that, as the ranking member, you have all the time you want. AKIN: Well, OK, shoot, then. Well, proceed then. MYERS: OK. Those were the bookends. And what we've discovered since then is that doing the analysis for the service life extension—has informed us that there are a number of areas that we want to be focused on when we open these aircraft up when they go to the depot. To cut to the end, we're not sure exactly the number of aircraft that we're going to be able to get through. And the reason we're not sure... AKIN: Between about 142 and 240—it's somewhere between there, would be your guess? MYERS: We're not sure right now, Representative Akin. And the reason is because we're still discovering a lot by looking at these aircraft when they go through the depot. We've had 39 aircraft that have gone through the depot, to date. We thought there was about 159 focus areas, or areas of interest, on the airplane. We've got about nine that have come through the depot. And what we found is there were 50 additional areas. Each airplane is going to be a little bit different. But as we go through a three-phase process to determine what the limits are on service life extension, we're going to be able to refine the technical baseline, and understand more. Now, currently today, the Navy has the—currently has the aircraft necessary to fulfill the missions that the COCOMs have laid upon us. So we have the aircraft we need today. So the focus is, how do we get through the next summer? What are the levers that we need to look at to understand, not only what the Strike Fighter shortfall is, but how to mitigate it? And there's four ways to mitigate it. One is to maintain our continued, unwavering support for the Joint Strike Fighter. Second is to maintain our buys of F-18 EFs. Third is to maintain the funding, in terms of logistics, or our current legacy aircraft—our Strike Fighters. And fourth is to understand how many of these F-18s, A through Ds, we can get through this lev (ph) process. And it's going to take time. Now, you had another question about the number "44" on our carriers. Forty-four is the requirement for the Navy for Strike Fighters on our aircraft carriers. Forty-four represents the number that the combatant commanders are expecting when those carriers show up overseas to provide the necessary backs (ph), for everything from contingency ops, to major combat operations. And it also represents the most effective use of a Nimitz class size flight deck. So 44 is a number that's required for our aircraft carriers, and that's what we intend to do. AKIN: So—then following up, you are saying, you would not deploy a carrier that had significantly number less than 44 planes on it. You'd want to keep that number pretty close if you had a carrier that size. Is that what you're saying? MYERS: Congressman, what I'm saying is that 44 is the requirement. And that's what we're basing—from the Navy staff and from a programming perspective, that's what we program towards. AKIN: OK. So if you had a shortfall, then you're saying you would rather have some aircraft carrier left behind then to have one with half the planes on it or something? You wouldn't consider that probably. Or are you saying that you just don't know, or... MYERS: That's a fleet commander decision on exactly how he loads out a carrier airwing. We understand the requirement. We understand the way that we're deploying ships and our aircraft carriers and their airwings today. But how that would be done in the future would depend on the needs of the combatant commander and the fleet commander. But currently, the requirement is for 44, and that's what we're doing right now. AKIN: Right. Now, what I heard you say, though—you gave me a lot of detail. But what I heard you say was still the shortfall is probably going to be between the 125 number and the 243 number. Because 243 was worst case. That's assuming you can't get any more than 8,600 hours. And the 125 was assuming that you could get 10,000 hours. And you're saying until you actually look at the planes, you won't know exactly how many of them fit into which category. But it's going to fall in that number. Is that correct? MYERS: There's a possibility that some of them could fall outside that number. And that's part of the analysis. The second phase of the analysis—it's ongoing right now that NAVAIR is doing. And working with their depots to understand exactly the extent of whether or not it's going to be exactly in that... AKIN: ... in that bracket even? MYERS: Yes, sir. AKIN: You're not even sure that bracket—is what you're saying? MYERS: The bracket is the best information that we have at this moment, but we've still got work to do, Congressman. AKIN: Now, what would it cost—let's say that you find some aircraft that are 8,600 hours and they're going to need some repairs. Do we have any idea of what that would cost? I have—my understanding was it was prohibitive to do that; that it would be cheaper just to get some news ones. Is that true? Or not necessarily? Or do we know? MYERS: It's not necessarily true. What we know is that a center barrel costs about $5 million. And a center barrel is going to be required on the earlier lot aircraft, meaning lot 16 and earlier. What we know is that the inner wing could cost as much as $4 million or $5 million. What we know is that the inner wing is a focus area of the aircraft that have gone through the depot, in terms of the additional hot spots we're focused—but what we don't know is whether or not all of the aircraft that go through are going to need all of those repairs. So it could be expensive, and it might not. And right now, that's what the second phase... AKIN: So we don't have a current cost estimate of what it would take—if we wanted to extend the service life on them? We don't really know what that number is, is what you're saying? Depends on the individual plane—is that what you're basically saying? MYERS: Yes, sir. It depends on the plane. We have programmed some monies, because we do know about the center barrel replacements. And the analysis that will go on through the summer, and is expected to finish in the March 2010 timeframe, is set to be a palm (ph) 12 [sic: POM 12] issue, and that's the way we've set up the analysis—to feed into palm (ph) 12 [sic: POM 12]. And that would be—give us enough time to buy the equipment and make sure that we programmed in place everything we need in the depots or the SLEP [Service Life Extension Program]. AKIN: I think the Navy has completed its analysis of the benefits of the multiyear procurement of the F-18As. What's the minimum number of aircraft required to be purchased over the contract period that would result in a savings of at least 10 percent, as required by law? Is there some particular number that you've got to get? Because we saved, what, a billion dollars on that before on multi-year two? ARCHITZEL: Sir, if I could take that question. You're correct on the—on the multiyear on the Hornets, that have been two. The first multiyear was for 210 aircraft. It resulted in about a $710 million savings. It was a five-year program. We followed that with a multiyear two, which just ended in '09. That saved about $1.1 billion over the same five-year period. To make a multiyear value, we need economic ordered quantities, which means we have to have volume. We've also got to have a lengthy of period of time. It wouldn't do us any good to give volume, and put it in one or two or three years. We need to have some length of time to get that return on investment. So to answer your question, if we look at multiyear one, we had about a 7.5 or 6 percent savings. That equates to multiyear two, about 11 percent savings. You have those kinds of savings when you go five years and get economic order quantity buy. We want to have a significant savings which is on the order of 10 percent, or $500 million would be the kind of bookends, if you were using that term here, that we'd seek to get in a multiyear procurement, sir. AKIN: Well, I still didn't hear the answer to my question. I guess the question is: What number do you have? Let's say we're say we're starting 2010, right now. ARCHITZEL: Yes, sir. AKIN: And let's see, JSF is scheduled to be ready to go at 2015. Are we sure that, that's going to happen on time? That gives you five years, right—10 to 15? ARCHITZEL: Yes, sir. AKIN: So let's assume JSF actually is there at 2015. So you do have the five years. So what would the number be to get to the 10 percent? Have you figured that? ARCHITZEL: Sir, let me—FY '10 is a single year buy of Hornets. As you know, the Growler (ph), we put into the multiyear for multiyear two. And we were able to take advantage of that. With the single year buy, we don't have the economic order quantity to do it. So '10 is in the books. We don't have that ability to incorporate that into a multiyear now. AKIN: So we're talking '11 now—'11 to '15? ARCHITZEL: Yes, sir. AKIN: Are you sure that we're going to have JSF in '15? ARCHITZEL: I know—I can speak to the IOCs we have today, which is for the Marine Corps. and the Navy and say that, on plan we have today, we will, sir. I mean, we're developing those programs to go forward on those timelines. But I also will say that we will have to wait to find out what the department's direction is on aircraft. We need to know the numbers, so we can get that common quantity, and timeframe involved, before we can enter into a multiyear. But if we were to—but the multiyear is certainly something we do aggressively go after when we can—and multiple programs, as you're aware. B22 is an example—60 Romeo (ph), 60 Sierras (ph)—so we definitely want to get multiyears when we have them there. AKIN: Yes, I'm having a hard time getting anything. I feel like I'm trying to mail jello to a wall, gentlemen. You know, I'm asking for a time for a multiyear. And you're saying, "No, we really don't know what the requirements are." I thought we were looking at 125, and then 243. Now, you're saying, "Yes, but it could be this other way." Somewhere along the line, we got to make a plan as to what we're going to do. I mean, maybe JSF could be there 2015. And that's obviously something that's very important. I know the Marine Corps. has a keen interest in the Stovall (ph) [sic: STOVL, meaning short takeoff and vertical landing] version because you're kind of putting all your eggs in that basket; where the Harriers, I guess, are getting older and older. But somewhere along the line, we've got to be able to do some planning. And it seems like no matter how you look at the numbers, you're coming out short on fighter planes. So I guess that's the reason we're having the hearing—is, where are we? MYERS: Yes, sir. Congressman, for the record, just want to correct the correct number that we should be referring to is "69 to 129" for the U.S. Navy. And that's what I briefed last year. That—those were the bookends of 10,000 hours for 300 aircraft and 8,600 no aircraft SLEP'ed. So that gives you about a 70 aircraft shortfall. And... AKIN: But let's start with 70. If you had 70 additional aircraft over a five-year period, would you get 10 percent then? ARCHITZEL: Sir, I'm not trying to be anything but direct in answering. If I can, from an acquisition standpoint, if we were to get to—two things, we need to have an economic order quantity. We need to have an economic rate of production, which would be—the minimum sustained rate for the—is about 24 aircraft to go through. The economic requirement is somewhere between 30 and 36, depending on the numbers we have. So if you can generate on the order, 30 per year for five years, you would be able to enter into a multiyear that would produce 10 percent savings. MYERS: But... AKIN: You're saying 30 per year, so that'd be 150 then? ARCHITZEL:If they—in the scenario of a multiyear, that's what would happen, sir, regardless of what aircraft we're dealing with. When you can get those types of quantities and be able to produce them to allow economic order quantity buys, or some significant period of time, then you will definitely get savings in a multiyear. That's why—that's the only reason we're allowed to enter multiyears is if we can assure significant savings. AKIN: So are you saying the minimum you'd have to buy is about 150 over five years today in order to get that 10 percent? ARCHITZEL: Sir, under the scenario you presented to me, yes, sir, that would be what we'd have to do. I would say that. But again, we—I don't set the requirements. This is from an acquisition standpoint. You asked me to give you the numbers as they applied to multiyear, and that's what I've done, sir. MYERS: And to reinforce Admiral Architzel, the requirement is 44 Strike Fighters on our carrier wings and based on the PB '09 data, the shortfall for U.S. end (ph) is still about 70 aircraft, best case, right now. But we still have some discovery to do this summer as we go through SLEP and we still have some levers to pull. AKIN: The numbers was higher because you had Marine Corps F-18s that you were including also? Is that correct? MYERS: What I gave you was an inclusive Department of Navy and U.S. Navy before. The 69, 129 is a U.S. Navy number. And the 125, 243 is a Department of Navy number. It included Navy and Marine Corps and that was what was briefed last year—yes, sir. ARCHITZEL: Sir, if I may comment? Maybe help with the variables that are involved here. First of all, the PB '09 numbers are no longer relevant to this discussion, in my opinion. For example, if the program purchases more point (ph) [sic: Joint] Strike Fighters than we did in PB '09, which it does, the Strike Fighter shortfall would come down by a commensurate number of F-35, both B and C models. Secondly, this issue of the service life assessment program and the service life extension program—is very much filled with variability at this point. We're are part way through phase B of a three-phase process of examining these airplanes to decide how many of the 623 existing A through D hornets can be extended. By talking to NAVAIR as recently as Friday, there are approximately 330 A through Ds, which she identified as "prime candidates" to be extended. And so, we will extend by bureau number by bureau number, making wise business case decisions associated with the choices that will have to be made to extend those aircraft going forward. AKIN: So you say you've identified 130... ARCHITZEL: Three hundred thirty. AKIN: ... A through D? Oh, 330. ARCHITZEL: Three hundred thirty of the 623 existing are prime candidates for extension. There are no technical impediments to extension at this point. AKIN: So are you saying that this means you wouldn't have to put more money in them? Or they would be prime candidates to put more money into them to get them to 10,000? ARCHITZEL: You said it right, sir... AKIN: The second time? ARCHITZEL: Yes, sir. Putting more money into them on a case by case basis to decide how much would need to be extended. But even that has variability. For example, the majority of the interest areas are in the center barrel. That's the majority interest area. We already have $1.14 billion in the budget to pay for 417 center barrels to be replaced. Second most are in the wings. There are options with regard to the wings. One is repair. Two is to remove and replace. And the admiral gave you the cost of a new wing. But the third is to take wings out of AMOR (ph) [sic AMARC, or the "Boneyard"] which we're doing right now, and replace those wings with wings that are essentially free. And then the third large area that we're concerned about, as we go through the assessment program, is in the aft-end (ph) of the A through Ds. That's probably where most of the uncertainty lies now with regard to the cost. Second Excerpt from Transcript AKIN: Yes, I had just a couple more questions. General Trautman, my understanding is that the Marine Corps currently has four F/A 18 fighter squadrons that are supposed to have 40 aircraft allocated to them, but actually have no aircraft allocated to them. And the Marine Corps does not apparently include those in the shortfall. And if so, why did you not include them in the shortfall? TRAUTMAN: Sir, about three years ago we made a proactive decision to cadre two active and two reserve fighter attack squadrons. We did this in anticipation of the arrival of the Joint Strike Fighter. We learned when we transitioned to the V-22 from our large medium-lift population of CH-46s that one thing you need to do when you have a large population changing as our tactical aircraft are going to change beginning in 2012, is to create a manpower pool from which you can draw because, particularly when you're changing from a 46 to a V-22 or from a Legacy Hornet to a Joint Strike Fighter, it's not a lightswitch. It's a rheostat and you have to have time to train and prepare both air crew and maintainers. So we set aside those cadre personnel and now thank goodness we did because over the last few months we picked the squadron commander for our first fleet readiness squadron, the VMFAT-501, which will stand up beginning this summer. We picked the first six aviators that will go into that squadron. We're detailing the maintainers that will go into that squadron. And beginning in 2012 and 2013, we'll bring back those two active cadre squadrons as Joint Strike Fighter squadrons and that's been our plan. With regard to the two reserve cadre squadrons, we'll bring them back three, four, five years into the Joint Strike Fighter transition about the time that reserve aviators and maintainers are looking for a place to go if they decide to remain engaged in the Marine Corps via the Reserves. So we think we've got this laid out right, and that's why we did what we did. AKIN: So in a sense your strategic decision of three years ago was while you started with four squadrons, you're going to go down to two, so in the transition you've got just less aircraft available to you so you realize that you are at a lesser strength and you accept that risk because you're transitioning from one aircraft to another. That's what I think I'm hearing you say. TRAUTMAN: That's exactly right, sir. These transitions are challenging and that's why we take the decision that we took to set aside that manpower pool to make it right. AKIN: Right. And as long as the other plane comes online, you're saying we can live with being at half strength for some—a few years to make that transition. If they're not on line in time, then that becomes increasingly problematic, I suppose. TRAUTMAN: Well, it does. The good news is that we are—we're meeting our current obligations with the force structure that we have. The challenge is, of course, that Marine TacAir is at a higher op tempo than either the Navy or the Air Force TacAir, and so in some ways we're playing out the risk on the backs of our Marines and we don't like to do that. But we think it's a proactive step that was worth taking in order to get to the Joint Strike Fighter in 2012 and '13. AKIN: Yes, OK, so those 40 are not counted in the shortfall then that we were talking about before. TRAUTMAN: Well, they're not really a shortfall sir. For example, if we decided to have those squadrons up and we didn't want to take the manpower, we could take the 30 Lot (ph) 10 and 11 F-18Cs that we're putting into preservation. We could have those round out those squadrons in the near term if we chose to do so. I think that would not be a very wise decision, though. I prefer the decision we made. AKIN: You're saying there are aircraft around, but they're just old? TRAUTMAN: Lot (ph) 10 and 11, that's right. AKIN: Yes. OK. And you also mentioned the idea of reworking some of the F-18s. You're saying that's a possibility depending on the analysis of what those look like. The numbers we're seeing in that is you're looking at about $15 million if you got to put that rework in and that gets you, whatever it is, 1,000, 500 hours or something. It seems like to me that's almost costing you twice the cost per hour and a lot less capability than if you just got a new F-18. Is that—would you ever look at doing that? TRAUTMAN: I was advised that putting any kind of number on the cost of extending a Hornet from 8,000 to 10,000 at this point would be premature. As I said, we're only half way through phase B of a three- phase process. Until we get through that process, there are too many variables associated to put a number on it. I haven't heard a number as high as $15 million. That's a new one to me. I've heard lower numbers. AKIN: I thought that was—what's the engine? About five? Or is it 10? What was the engine, the central component? What was it? I forgot. TRAUTMAN: The center barrel? AKIN: Yes. TRAUTMAN: Yes, sir. We already have $1.1 billion in the budget. It's already paid for to do 417 center barrels. So the good news is that's a risk mitigator against the challenge that we face in order to do the service life expansions. And as I said, most of the areas of interest are in the center barrel area. AKIN: It still costs money though whether it's—right? TRAUTMAN: No doubt, sir. You're exactly right, and we'll have to make wise case-by-case, bureau number-by-bureau number assessments and then decisions about how to expend our scarce resources. AKIN: If you had to do a center barrel and you had to do the wing sections, what are you talking actual dollars to do that on a plane? TRAUTMAN: Well, for example, if we already have the center barrel budgeted, if we went to AMARC as we're doing this year to get 24 wings out, we could do both of those for no additional dollars. If we had to buy a center wing, I'm not sure what the current cost of that is. I'll have to defer to Admiral Architzel or to Admiral Myers. ARCHITZEL: Sir, I'll give Admiral Myers a second too, but so that the whole, what you have to do with the center barrel, that's Lot (ph) 17 and prior. If you did a center barrel replacement, which we funded in the first lot (ph), it would take about 6,000 hours. That's for those number of Hornets and I think the number is somewhere around 400-plus numbers we have there. That's funded in the budget when we go forward. That runs at about, just for the center build, about $2.5 billion—$2.5 million excuse me. So if you would then add in... AKIN: OK. So $2.5 million for a center barrel and then you've got the—let's say you had to do the wings. ARCHITZEL: Well, the number I have is 2.5, and so we'll have to get back to you then. They're being quoted 4.5 here so—but the center if you hit the wing sections and the center fill, it's just about $5 million for those. Now as General Trautman says, if you take wings off an existing aircraft, (inaudible) you still have to rework those wings. So I mean you're going to have some cost involved. You're absolutely right, sir. If you want to look at where we go to get above to the 8,600 hours and you want to go past that to 10,000, we have a high-flying hour inspection. That inspection alone is running around—up more than $75 million. That's—you get to the point where you can open, inspect and look at the airplanes to see what you have. And I agree with General Trautman, we don't know what we'll have in those airplanes. Probably in those where we designed into the center barrel on that Lot (ph) 18 and beyond, we should not expect to replace center barrels. But in those areas that are fatigued hot points on the aircraft, we have to do—and we have to do extensive work or maybe, depending on what we have, some fatigue stress cracking or issues on the empanage or tail and then on top of that you also have to do system work on the airplane. So that's I think—the quandary comes in is what is the exact cost of each aircraft, and you won't know until you open them up and find out what you have, sir. AKIN: Basically I think you've made it clear to me today that you don't really know what the fighter aircraft shortfall is. You're saying it's somewhere and I thought it was variable between two numbers. You said that you can't even count on that. When will you know for sure what your shortfall is? When will you actually have a number? MYERS: The shortfall right now is about 70 aircraft and that's based on the analysis that I brought to you. TAYLOR: Would the gentleman yield? AKIN: Yes, sir. TAYLOR: Seventy aircraft when, Admiral, give me your... MYERS: It peaks in the 2016 to 2017 timeframe. TAYLOR: OK. And when does your shortfall kick in, what year? MYERS: Shortfall starts to develop in the mid- to later-2013 timeframe, now that's, Chairman and Congressman, that's based on the analysis that was brought last year. What's ongoing right now is, as General Trautman mentioned, we're in the second phase of a three-step process and we're refining the technical baseline and cost estimates to see exactly what we want that's left and what is in the realm of the possible. What we knew last year was conceptually what the cost would be and a preliminary estimate on what it would take, and that's why we gave bookends. What we're starting to do now is better understand. Last year when we came to you, the 8,600 and 10,000 numbers, the 69 and 129 was based on 295 aircraft being able to be SLEP'd. Right now the number is about 330 aircraft that we think might be candidates or are targeted to be SLEP'd, but through the summer we're going to have a lot more information and the second phase is set to complete next March. We've got lots of work to do, and I want to make sure that everybody understands that it's not just the SLEPing of the aircraft that is our focus on mitigating the shortfall. It also means that we maintain our buy of the JSF. It means that we maintain the logistics support of the current fleet, and it also means that we maintain the current buy of our F/A -18E/Fs. TAYLOR: I appreciate the gentleman yielding, please continue. AKIN: Well that brief—I mean I've got a chart here that shows the number you're talking about 69 it says here for '17. I think that was the Navy, if I'm correct. MYERS: Yes, sir. AKIN: The total number is 125. And then I think the chart also says what happens if you can't get to the 10,000 hours and then that jumps it to 129 and 243. Have you seen this? MYERS: Yes, sir. AKIN: That's what I was pulling my numbers off of, was this chart. MYERS: Yes, sir, and... AKIN: Are these numbers still the best we know for the moment? MYERS: Those numbers have not been officially changed and updated. We are currently doing analysis and looking at assumptions that might impact those numbers and that's also ongoing. We're taking a look at... AKIN: And so the answer to when we'll know pretty sure is going to be a year or next March. Would that—would we have a pretty good handle on it at that point? MYERS: We will know a lot more through the summer, sir, and through the summer we'll also be able to better understand what the assumptions are if it will go into that model in terms of our productive ratio or the efficiencies that we used on the air wings that are not deployed. There's a lot of things that go into the model besides just 44 and the Marine Corps requirement, and that's one of the things that the Marines and the U.S. Navy are currently undergoing is some understanding of ways that we can more efficiently get aircraft out to the warfighter. TRAUTMAN: Congressman, if I could add to Admiral Myers' excellent answer about the variability. That chart that you held up last year is no longer relevant. It is not an accurate depiction at this point, and I can just give you the simplest example I can is if we have decided to buy additional F-35Bs and Cs compared to last year, which we have done, that changes all of those equations, just for example. AKIN: You could picture yourself in our shoes. We got this information from you in March, and I'm hearing you say that it's increasingly irrelevant right now. That's hard for us to get a number. I'm just saying when are we going to have something that we can understand what we're planning? TRAUTMAN: We owe you better and more current information. And in March, sir, that was the best that we had. AKIN: Right. TRAUTMAN:And we owe you the benefit of understanding what we think the future is going to hold in terms of F-35 production and in terms of the ongoing SLAP [Service Life Assessment Program] and SLEP analysis. AKIN: So are you saying then at the end of this summer you think we're going to have some pretty reliable numbers? Or is it going to be March of next year? I mean where are we going to be within plus or minus 10 percent on the number? TRAUTMAN: I'll have to get back to you, sir, and take that back to our leadership not only in the fleet, but also in the Systems Command to make sure that we get you... AKIN:Well, we're trying to put budgets together. We've got to have something to work with. Thank you very much. TRAUTMAN: Yes, sir.

The Navy's proposed FY2012 budget requests about $2.4 billion for the procurement of 28 F/A-18E/F Super Hornet strike fighters and about $1.1 billion for the procurement of 12 EA-18G Growler electronic attack aircraft. The F-18s will be procured under a multiyear procurement contract approved by Congress in FY2011. FY2012 defense authorization bill: The House Armed Services Committee funded the F-18 program at the requested level. The Senate Armed Services Committee cut $495 million and nine aircraft from the request for F/A-18E/Fs, citing Navy projections that the fighter shortfall would be less than earlier anticipated. FY2012 DOD appropriations bill: The House and Senate Appropriations Committees both approved the requested number of aircraft, but reduced the funds available to the program. The HAC cut $77.8 million from the EA-18G request and $63.5 million from the F/A-18E/F request. The SAC cut $7 million from the EA-18G request, $99.7 million from the F/A-18E/F request, and a further $54 million from the overall program.

Introduction After the collapse of the Soviet Union, the world's security landscape is said to have undergone a transformation from the seeming stability of the bi-polar balance of power to a system in whichnot only any nation, but sub-national groups as well, may be able to acquire weapons of massdestruction (WMD). Strategies based on containment and deterrence, it is argued, are insufficientto guarantee security in the twenty-first century threat environment; terrorists and "rogue" nationsare not amenable to being deterred or contained. (1) The need to prevent the proliferation of chemical,biological, and nuclear weapons was highlighted in the National Security Strategy of the UnitedStates of America issued in September, 2002. (2) According to the Bush Administration, in order tostrengthen nonproliferation efforts to prevent rogue States and terrorists from acquiring weapons ofmass destruction, [w]e will enhance diplomacy, arms control, multilateral export controls, and threat reduction assistance that impede states and terrorists seeking WMD, andwhen necessary, interdict enabling technologies and materials. (3) Toward that end, President Bush issued his National Strategy to Combat Weapons of MassDestruction in December, 2002. The Administration's plan combines efforts aimed atcounterproliferation, (4) nonproliferation, and WMDconsequence management. Its purported intentis to eliminate or "roll back" WMD from certain states and terrorist groups who possess suchweapons or are close to acquiring them, including potentially the use of force and aggressivemethods of interdiction of WMD-related goods, technologies, and expertise. (5) The use of interdictionas a counterproliferation measure appears to be part of a strategy that foresees the U.S. taking"anticipatory action to defend ourselves" against terrorists and rogue states, "even if uncertaintyremains as to the time and place of the enemy's attack," (6) and "to detect and destroy an adversary'sWMD assets before these weapons are used." (7) A high-profile incident involving the interception of Scud missiles and rocket fuel on board a ship traveling from North Korea in December, 2002, however, illustrated possible legal impedimentsto the strategy. Acting on intelligence from the United States, a Spanish frigate stopped and boardedthe So San , an unmarked North Korean commercial vessel, and discovered the missiles. However,after confirming that the missiles were purchased by Yemen, the United States allowed the vesselto proceed on its voyage. The Bush Administration concluded that there was no legal basis to arrestthe vessel or seize its cargo, because North Korea had not violated any law. (8) In May 2003, President Bush announced a new facet of the WMD strategy, to be known as the Proliferation Security Initiative (PSI). (9) The PSI isan effort to reach agreements among nations toallow searches of ships and aircraft carrying suspected weapons-related cargo. (10) Undersecretary ofState for Arms Control and International Security John Bolton told Congress: The initiative reflects the need for a more dynamic active approach to the global proliferation problem. It envisions partnerships of states working inconcert, employing their national capabilities to develop a broad range of legal, diplomatic,economic, military and other tools to interdict threatening shipments of WMD and missile relatedequipment and technologies. To jump-start this initiative, we have begun working with several close allies and friends to expand our ability to stop and seize suspected WMD transfers.Over time we will extend this partnership as broadly as possible to keep the world's most destructiveweapons away from our shores and out of the hands of our enemies. We aim ultimately, not just toprevent the spread of weapons of mass destruction, but also to eliminate or roll back such weaponsfrom rogue states and terrorist groups that already possess them or are close to doing so. (11) Rather than seeking to change existing treaties or negotiate new ones, the PSI appears to relyon international agreements that will enhance cooperation in interdiction efforts, including sharinginformation and conducting exercises using military or civilian assets to develop the participatingnations' ability to conduct air, ground, and maritime interception. (12) However, recognizing thatcooperation may not always be forthcoming from all nations whose assistance is requested, theAdministration has intimated that it will act unilaterally, if necessary. (13) These developments raise questions related to the international law of jurisdiction. International law outlines the bounds of the permissible conduct for purposes of self-defense and law enforcementactivities abroad, insofar as some activities could be viewed as unwarranted or unlawful interferencewith the rights of other nations to conduct international commerce and maintain sovereignty overtheir territory. This report provides an overview of the international law of the sea as it relates to thepermissible range of methods for interdicting WMD-related contraband on the sea and in the air, andalso of selected pertinent international regimes and agreements. After a short outline of the currentlegal regime for the international control of WMD, the report outlines the basic concepts ofjurisdiction in international law. Next, the report describes concepts central to the law of the sea,the rights and limitations. The report then turns to the international legal framework limiting theconduct of nations as it applies during times of war and peace, as well as during what might be called"quasi war," as is often deemed to be the case today. Weapons of Mass Destruction - International Legal Regime From a U.S. perspective, the problem of controlling the proliferation of WMD is particularlythorny because, unlike the control of illicit drugs, it does not suffice to keep the materials fromentering the United States or to prevent their manufacture and dispersal on U.S. territory. Completesecurity from the dangers of a WMD attack would require that dangerous materials be kept out ofthe hands of any potential enemy. Moreover, some materials that can be used in the production ofWMD also have peaceful uses, and may even be necessary for the operation of wholly legitimateindustries. Interference in the trade of "dual use" materials could impair the ability of other Statesto carry out legitimate trade, possibly leading to international discord. Finally, under internationallaw, sovereign States have the right in general to possess weapons for their self-defense. Only theuse of such weapons is constricted by customary international law. (14) While many States have agreedto limit their production and possession of some types of WMD and conventional weapons, they mayhave conditioned their consent on the conduct of other States, and may be able to revoke theirconsent in accordance with any such conditional agreement. While secret development of WMDon the part of a State that has agreed not to engage in such conduct would constitute a breach of atreaty obligation, it is not necessarily a crime or an act of aggression under international law merelyto possess such weapons. Nuclear Weapons The center of the nuclear nonproliferation regime is the Nuclear Nonproliferation Treaty ("NPT"). (15) The treaty defines nuclear weaponsStates as those States that had manufactured anddetonated a nuclear weapon prior to January 1, 1967. (16) The treaty thus allows five nuclear powers- the United States, Great Britain, Russia, France and China - to manufacture and possess nuclearweapons, but prohibits the transfer of such weapons to other States. (17) All other States Parties to theNPT have agreed not to acquire nuclear weapons in return for assistance in developing peaceful usesfor nuclear power. (18) The five declared nuclearpowers are committed under the treaty to "pursuenegotiations in good faith on effective measures relating to cessation of the nuclear arms race at anearly date and to nuclear disarmament, and on a treaty on general and complete disarmament understrict and effective international control." (19) StatesParties may withdraw from the NPT on threemonths' notice if "extraordinary events, related to the subject matter of [the NPT], have jeopardizedthe supreme interests of its country." (20) The chief means of verification is through inspections carried out by the International Atomic Energy Agency ("IAEA"). Non-nuclear-weapon States Parties may stockpile weapons-grade nuclearmaterial, provided that the nuclear material is subject to IAEA safeguards. Each non-nuclear StateParty is required to negotiate a set of safeguards for verification and accounting of nuclear materialsat its declared nuclear sites. No State Party is permitted to transfer nuclear materials or equipmentfor processing them to any non-nuclear State for peaceful purposes unless the transferred goods aresubject to IAEA safeguards. (21) The IAEA isempowered to conduct "special inspections" if a StateParty reports a loss of inspected material, but is not empowered to take any action if it suspects thatclandestine nuclear programs are taking place at undisclosed sites. In the event it discovers aviolation, the IAEA is to report the noncompliance to the U.N. Security Council and GeneralAssembly, as with other arms control agreements. Neither the NPT nor IAEA regulations providesfor any penalty in case of breach. (22) The restriction on the transfer of nuclear weapons and related technology is implemented at the national level through export control laws. (23) Some nations have joined together to form multilateralexport control groups in order to coordinate nonproliferation efforts. (24) These groups harmonize listsof sensitive materials and technologies that must be controlled in order to prevent proliferation ofnuclear weapons and methods by which member countries are to prevent their transfer. Regimemembers agree to restrict such trade by implementing laws, regulations, and licensing requirementsapplicable to citizens and residents. They may also agree to share information about exports andlicenses. The regimes are voluntary and non-binding. (25) Chemical Weapons International efforts to prohibit the use of chemical weapons began more than a century ago as part of the effort to regulate warfare. The Hague Convention of 1907 explicitly forbade the use ofpoison or poisoned weapons. (26) The 1925 GenevaProtocol prohibited the use of asphyxiating,poisonous, or other gases, all analogous liquids, materials or devices, and bacteriological methodsof warfare. (27) The first convention to prohibit themanufacture and stockpiling of chemical weaponsis the Chemical Weapons Convention ("CWC"). (28) The CWC calls for all State Parties to eliminatetheir chemical weapons supplies by 2007 and restrict their trade in "precursors" - chemicals that canbe used in the production of weapons as well as for peaceful uses - to other States Parties. StatesParties agree to cease production and stockpiling of weapons, declare all facilities that producerestricted chemicals for non-prohibited uses, submit to verification inspections, and pass legislationimplementing the CWC, including criminalizing violations. (29) The convention also creates the Organization for the Prohibition of Chemical Weapons ("OPCW") to monitor the implementation of the convention. The OPCW carries out routineinspections of the relevant facilities on the territory of States Parties to verify the accuracy of annualdeclarations regarding scheduled chemicals. The OPCW may also carry out a "challenge" inspectionin response to allegations of noncompliance by one State Party with respect to another. TheConference of States Parties addresses concerns over noncompliance, but other than requesting abreaching member to comply or requesting action on the part of the U.N. Security Council, the extentof remedial measures that might be imposed by the Conference is not defined. (30) Biological Weapons Biological weapons were first addressed in the Geneva Protocol of 1925, (31) which banned onlytheir use and not their manufacture, stockpiling, or transfer to other States. The Biological WeaponsConvention ("BWC") (32) addresses thedevelopment, production, acquisition, or stockpiling of"[m]icrobial or other biological agents, or toxins whatever their origin or method of production, oftypes and in quantities that have no justification for prophylactic, protective or other peacefulpurposes" as well as "[w]eapons, equipment or means of delivery designed to use such agents ortoxins for hostile purposes or in armed conflict." (33) States Parties to the BWC undertake to prohibitthe above conduct, destroy biological weapons supplies already on hand, and "not to transfer to anyrecipient whatsoever, directly or indirectly, and not in any way to assist, encourage, or induce anyState, group of States or international organizations to manufacture or otherwise acquire any of theagents, toxins, weapons, equipment or means of delivery specified in article I of [the BWC]." (34) The BWC does not contain provisions for verifying compliance of member States. Efforts are underway to negotiate a protocol to strengthen the BWC by creating a body to inspect compliancebased on the model of the CWC. (35) The BushAdministration rejected the BWC Protocol while it wasbeing drafted, objecting to its "approaches to the issue." (36) A State Party that believes another StateParty to be in breach of its obligations may complain and present evidence to the U.N. SecurityCouncil. The Security Council may initiate an investigation, with which the accused is bound tocooperate, (37) but no further remedial measures arespecified. States may withdraw from the BWC onthree months' notice. (38) Limitation on Enforcement Although most observers conclude that arms control treaties have had important restraining effects on the proliferation of weapons of mass destruction, it is apparent that the conventions onlyapply to States that choose to join them and remain party to them. Non-member States may havedifficulty procuring WMD-related technology and materials from States Parties to the respectivetreaties, but may trade freely among themselves and are under no legal bounds to refrain fromstockpiling such weapons or transferring them to terrorist organizations and other entities, or fromconducting research to develop new ones. States Parties participate on a voluntary basis, and maychoose to back out of the conventions at any time, as was the case when North Korea backed out ofthe NPT. The success of the arrangements depends on the cooperation of member States and theirability and willingness to enforce their own laws prohibiting acquisitions and exports ofWMD-related materials. Jurisdiction under International Law The concept of 'sovereignty' lies at the heart of the international political system. Nation-states(States) are considered the "international persons" who are both the creators and the subjects ofinternational law. Each State is independent and has supreme authority over its territory and generalauthority over its citizens. The term "jurisdiction" refers to the authority of the State to affect thelegal interests of individuals and entities. Jurisdiction may describe a State's authority to make itslaw applicable to certain actors, events, or things (jurisdiction to prescribe); a State's authority tosubject certain persons or things to the processes of its courts (jurisdiction to adjudicate); or a State'sauthority to compel compliance with its laws and punish transgressors (jurisdiction to enforce). (39) The ability to interdict, seize, and destroy weapons would most significantly implicate thejurisdiction to prescribe and enforce under international law. A State's ability legally to assert jurisdiction over persons and things within its reach depends on principles of international law designed to prioritize the rights of various States which may havea claim to jurisdiction over a matter. Historically, the most commonly asserted basis for jurisdictionis the "territoriality principle" (determining jurisdiction by reference to the place where the offenseis committed). (40) Other bases of jurisdictioninclude the "nationality principle" (determiningjurisdiction by reference to the nationality of the person accused of committing the offense); the"protective principle" (determining jurisdiction by reference to the national interest injured by theoffense); and the "passive personality principle" (determining jurisdiction by reference to thenationality of the victim). Where more than one State can assert jurisdiction over a particular matter,the State with the greatest interest should prevail. (41) The right of each state to control its sovereign territory and the territorial waters extending no more than 12 miles from its coast ("territorial sea") is well-recognized in international law. Statesmay also exercise extraterritorial jurisdiction under certain circumstances, but in general, this doesnot include the right to enforce laws on the territory of another State without that State's permission. For certain crimes, there may exist "universal jurisdiction" permitting a State to try crimes thatoccurred outside of its territory that did not involve any of its nationals, but the scope of universaljurisdiction is not well-settled, and may not include the authority to take enforcement action on theterritory of another state without its permission. At any rate, the possession or delivery of WMD orrelated materials is not generally recognized as a crime subject to universal jurisdiction, like suchinternational crimes as piracy or slave trade. Under international law, the United States clearly has authority to regulate the possession or transfer of WMD materials within or across its borders and, subject to any right to innocentpassage, (42) within its territorial waters and airspace. The United States can also place restrictions onthe conduct of U.S. citizens anywhere in the world (43) with regard to WMD under the principle ofnationality; (44) however, that authority does notencompass a right to carry out law enforcementactivities in another State without its permission. Furthermore, if U.S. law enforcement or militaryforces encounter WMD trade outside the territory of the United States, even if the activity isunlawful under the laws of the State where it takes place or violates the international obligations ofany State, there is no automatic authority under international law for U.S. forces to take action tothwart it. Efforts to interdict WMD-related materials outside the territory of the United States would fall within the boundaries of customary international law, including the law of the sea, and any relevantmultilateral or bilateral agreements the United States has entered into. Specific instances determinedby the United Nations Security Council to constitute aggression or a threat to international peace andsecurity may be dealt with through action under Chapter VII of the U.N. Charter. (45) Specific threatsto the United States that amount to an armed attack or imminent threat of an armed attack may justifya belligerent response, such as the implementation of a blockade or the use of armed force in selfdefense. Such a response could draw reactions from other States and possibly escalate into afull-blown armed conflict. Thus, the permissibility of options available to combat the proliferation of WMD varies according to where the action takes place and whose laws are said to be broken. While enforcementactivity by a sovereign power over its own territory has relatively few international implications,actions in the territory of another State would implicate the sovereignty of that State, and would besubject to that State's terms of agreement or willingness and capacity to resist. Enforcement actionin places where no State has sovereign authority, such as the high seas, may meet with relatively lightresistance from other States, but remains subject to international law. The Law of the Sea The law of the sea divides authority among nations to conduct activity in or above the oceansand external waterways that both divide and connect nations. The basic rules of international lawwith respect to jurisdiction over vessels on the high seas are set forth in the Convention on the HighSeas (46) and the more recent United Nations Lawof the Sea Convention (UNCLOS). (47) The UnitedStates is a Party to the first convention and is a signatory, but not a Party, to UNCLOS. (48) However,even while objecting to certain parts of the latter convention when it was first concluded in 1982,the United States has acknowledged that its provisions concerning navigation and the uses of theoceans "generally confirm existing maritime law and practice and fairly balance the interests of allstates." (49) Both conventions affirm that the highseas are open to all States, that freedom ofnavigation is a basic freedom of the high seas, and that every State has "the right to sail ships underits flag on the high seas." (50) The law of the seabalances the rights of maritime States to navigatefreely with the rights of coastal States to maintain security. It also deals with some aspects of airtransportation, applying to aircraft some, but not all, of the rules that apply to maritime vessels. Legal Divisions of Waters Under the law of the sea, the world's waters are divided into two basic categories: national and international waters. (51) The legal status of thewaters determines the rights and obligations of Statesand their vessels, public and private. National waters include internal waters (lakes and rivers, someharbors and bays, and other waters that lie between the actual shoreline and the claimed baseline (52) )of a coastal State and its territorial sea. The State has complete sovereign control over internalwaters, and consent must be given for any vessel to enter or for aircraft to fly over it except in casesof emergency. (53) Any private vessel that entersthe internal waters of a coastal State is subject to thejurisdiction of that State and may be stopped and searched by military or law enforcement personnelin accordance with the domestic law of the State. Territorial Seas. A coastal State may claim sovereignty over the waters extending "up to a limit not exceeding 12 nautical miles" beyond thebaseline as its territorial sea. (54) A State mayexercise sovereignty over its territorial sea, but its rightsare subject to foreign vessels' right of innocent passage . UNCLOS provides that foreign flaggedvessels have the right of unimpeded passage through the territorial sea of a coastal State providedpassage is "innocent," meaning the ship's conduct is "not prejudicial to the peace, good order orsecurity of the coastal State" and takes place in conformity with international law. (55) The right ofinnocent passage does not apply to aircraft. Conduct that is considered prejudicial includes militaryexercises, launching of aircraft or weapons, intelligence collection, research, fishing, or dumpingpollutants. (56) Submarines must remain on thesurface during their voyage through territorial seas. (57) Vessels may drop anchor or participate in a rescue mission only in case of distress. (58) It is worthnoting that cargo, destination, or ultimate purpose are not among the criteria to be used to determinewhether passage is innocent. (59) The coastal State is permitted to implement certain regulations in its territorial sea if necessary to protect resources, for example, so long as the restrictions are necessary and reasonable, areimplemented in a non-discriminatory fashion, and do not have the practical effect of denying orimpairing the right of innocent passage. While the conventions do not require notification orpermission of the coastal State in order for foreign flagged vessels to transit through a territorial sea,some States have nonetheless prescribed special measures with respect to warships. (60) The UnitedStates takes the position that such measures do not comport with the law of the sea, and frequentlycarries out Freedom of Navigation (FON) exercises to demonstrate its non-acquiescence to theclaimed rights. (61) Contiguous Zones and Exclusive Economic Zones (EEZ). The Conventions also recognize that every coastal State may lay morelimited claim to a number of maritime zones in the international waters extending beyond theterritorial sea. A State may establish a zone adjacent to its territorial sea as a "contiguous zone." Within this zone the coastal State is not sovereign, but it may exercise the control necessary toprevent and punish infringements of the customs, fiscal, immigration, and sanitary laws andregulations that apply in its territorial sea. The contiguous zone may extend up to 24 miles from thecoast. Up to 200 miles from the coast may be claimed as an Exclusive Economic Zone (EEZ), inwhich the coastal State may exploit the natural resources. For the purpose of exercising jurisdictionto enforce the law, the areas beyond the territorial sea of any coastal State are treated as the high seas. Straits. Straits overlapped by the territorial seas of coastal nations that are used for international navigation from one part of the high seas or anexclusive economic zone to another similar area are subject to a special regime different from thatof ordinary territorial seas, known as transit passage . (62) The vessels and aircraft of all nations havethe right to unimpeded transit through the straits in their ordinary mode of travel (submarines mayremain submerged). Ships and aircraft navigating through straits must proceed without delay, mustrefrain from using or threatening to use force, and may not engage in any activities other than thoseincident to their normal and expeditious travel. (63) Coastal nations may not suspend or hamper theright of transit when they are not at war, even with respect to warships of belligerent nations at warwith others. (64) However, coastal States mayimpose requirements for safe navigation, such asrequiring ships to use delineated shipping lanes. (65) Archipelagic waters are treated similarly. (66) The High Seas. According to the 1958 Convention on the High Seas, the term "high seas" means "all parts of the sea that are not includedin the territorial sea or in the internal waters of a state." (67) Incorporating customary international law,the 1958 Convention further states that "no State may validly purport to subject any part of them toits sovereignty." The ships of all nations, whether coastal or land-locked, enjoy the freedom tonavigate, fish, and lay pipelines or cables. (68) UNCLOS adds two new freedoms: to conduct scientificresearch and to build artificial islands and other installations (subject to Part IV of UNCLOS). (69) These freedoms are to be exercised with "due regard for the interests of other States in their exerciseof the freedom of the high seas, and also with due regard for the rights under this Convention withrespect to activities in the Area." (70) Legal Status of Vessels For determining jurisdiction over ships on the high seas, it is necessary to know the nationality of the vessel and whether it is operated by a government or by some private entity. Ordinarily, onthe high seas, a ship is under the "exclusive jurisdiction" of the State whose flag it flies. (71) Warshipsand State-owned or operated vessels "used only on government non-commercial service" are saidto enjoy "complete immunity" from the jurisdiction of non-flag States. (72) Merchant ships, on theother hand, are subject to a number of exceptions to exclusive flag State jurisdiction. Nationality. The Convention on the High Seas and UNCLOS both mandate that ships may sail "under the flag of one State only" and that "[a] shipmay not change its flag during a voyage or while in a port of call, save in the case of a real transferof ownership or change of its registry." (73) Bothfurther mandate that every State "shall fix theconditions for the grant of its nationality to ships, for the registration of ships in its territory, and forthe right to fly its flag." (74) States may maintain"open registries" of vessels, meaning a foreignnational may register a vessel and have the right to fly that States flag as a "flag of convenience,"enjoying the protection of that State. (75) A ship thatflies the flags of two or more States, or that fliesno flag at all, is considered stateless. Status of Warships. Warships are defined as ships belonging to the armed forces of a State and bearing its flag, commanded by a commissionedofficer of that State and operated by a crew that is under the discipline of that State's armed forces. (76) Warships enjoy sovereign immunity and are not subject to arrest and search by the warships of otherStates on the high seas or in territorial seas. Police and port authorities may only board a warshipwith the permission of the Commanding Officer. Warships are exempt from foreign regulations butare bound to comply with established principles of international law. A warship is in effect thesovereign territory of the country to which it belongs whether it is at sea or pierside in a foreign port. A warship whose conduct does not conform with international principles may be asked by the coastalState to leave its territorial waters, and is bound to comply with such a request. (77) Airspace and Aircraft Prior to the advent of the airplane, the concept of sovereignty primarily concerned rights overland and sea. As aerospace technologies developed at the start of the twentieth century, making itpossible for nations to exert some actual control over activities in the skies above them, the conceptof exclusive sovereignty over airspace super-adjacent to the territory of a State quickly coalesced intocustomary international law. (78) While freedom ofnavigation for commercial purposes was supportedin theory, States also saw the military threat made possible by air power as a concern. (79) As a result,some parts of the customary law of the sea have adapted to apply to aircraft, but other law has beendeveloped through treaty. (80) Law of the Sea Conventions. Where airspace istreated in the conventions on the law of the sea, it is generally divided into national and internationalairspace, with national airspace including that above the territorial sea. There is no right of innocentpassage for overflight of the territorial sea of a coastal State, but the rules of transit passage overstraits and archipelagic waters apply to aircraft as well as ships, even though the airspace isconsidered national. The Convention on the High Seas includes the airspace above internationalwaters in the freedom to navigate. (81) It is unclearwhether rights and privileges accorded to "ships"extend by analogy to aircraft where the conventions do not specifically address them, such as theright to land an aircraft without permission in situations of distress. (82) Chicago Convention. The 1944 Convention on International Civil Aviation (Chicago Aviation) explicitly recognizes that "every State has completeand exclusive sovereignty over the airspace above its territory." (83) "Territory" includes the territorialseas. (84) Presumably, all non-territorial airspaceis international. The Chicago Convention applies on its face only to civil aircraft, but specifies which aircraft are considered state aircraft (those used in military, customs, or police services) and places someduties and restrictions on them. Article 3 states that "[n]o state aircraft ... shall fly over the territoryof another State or land thereon without authorization..." Contracting States commit to "hav[ing] dueregard for the safety of navigation of civil aircraft" when issuing regulations for their state aircraft. Contracting States also agree "not to use civil aviation for any purpose inconsistent with the aimsof [the] Convention." (85) While the Chicago Convention did not adopt the liberal freedom of navigation regime for aircraft supported by the United States, (86) theConvention does permit the civil aircraft of contractingStates that are not engaged in scheduled flights to "make flights into" each others' territories and tomake stops for non-traffic purposes without the necessity of obtaining prior permission ..." subjectto a possible requirement for landing. (87) Statesmay regulate air traffic above their territories withoutdistinction based on nationality (with respect to other contracting States). (88) However, States maydesignate areas off-limits for reasons of military necessity or public safety, provided no distinctionis made between nationality of the aircraft. (89) Scheduled flight services may be operated over or intothe territory of a contracting State only with that State's permission and in accordance with the termsit may set. (90) Overflights using pilotless aircraftrequire special authorization. (91) Nationality of Aircraft. Like ships on the seas, aircraft must be registered in one State only, (92) andmust bear the appropriate markings indicatingnationality and registrations. (93) Civil aircraft aresubject to regulation both by the State of registrationand, while flying over the territory of another State, that State's applicable regulations. Civil aircraftare also required to carry certain documents, including a certification of airworthiness, log book,radio license, a passenger list and a manifest of cargo. (94) No munitions or implements of war maybe carried as cargo over a State's territory without its permission. (95) States may make otherrestrictions with regard to cargo for reasons of public order and safety, provided the rules do notdiscriminate based on nationality. State Aircraft. Under the Chicago Convention, the status of state aircraft is determined according to use rather than strictly by state ownership. (96) TheChicago Convention does not, however, enumerate rules governing state aircraft. Military aircraft,probably comprising the largest category of state aircraft, are treated much like warships. Militaryaircraft are defined under international law as those aircraft "operated by commissioned units of thearmed forces of a nation bearing the military markings of that nation, commanded by a member ofthe armed forces, and manned by a crew subject to regular armed forces discipline," (97) and are exemptfrom other States' law enforcement measures that apply to civil aircraft flying over their territory. (98) The crew of military aircraft are immune from the jurisdiction of the territorial sovereign for actsperformed during official duties. Foreign officials may not board a state or military aircraft withoutthe consent of its commander, and in the event of a dispute regarding customs, immigration, orquarantine, the host nation is limited to requesting that the state aircraft leave the national territory. (99) Enforcement Options The following sections address the rights and obligations of States and non-public vessels andaircraft, which vary depending not only on location and status but according to whether the situationis considered one of war or peace, or somewhere in between. During peacetime, States generallyemploy law enforcement techniques, for example, to restrict trade or interdict unlawful materials. International law also permits States to enforce certain international prohibitions on or above thehigh seas. Law Enforcement in National Waters and Airspace The ability of a coastal State to assert jurisdiction over vessels of non-flag States that do not enjoy sovereign immunity depends on which maritime zone the vessel is located in and what it isdoing. Maritime law enforcement measures may be taken when there are reasonable grounds forbelieving that a vessel is violating the validly applicable laws of the coastal State. (100) A coastal Statemay interdict ships suspected of engaging in illicit drug traffic, for example, without obtaining thepermission of the flag State, if the suspect vessel is located in the State's internal waters, archipelagicwaters, territorial sea, or, in some circumstances, its contiguous zone. (101) Warships of the coastalState are permitted to conduct hot pursuit of a foreign ship beyond the limits of its territorial sea orcontiguous zone if there is reason to believe the ship violated the applicable laws and regulations ofthat State and the pursuit is not interrupted. (102) The coastal State may not discriminate against shipsbased on their nationality or based on their cargoes to, from, or on behalf of any State. (103) The coastalState should not exercise criminal jurisdiction on board a foreign ship passing innocently throughits territorial sea for crimes committed on board the ship unless the consequences of the crime extendto the coastal State, the crime disturbs the "peace or good order," the flag State or the captain of thevessel requests assistance, or such measures are necessary to suppress the illicit traffic of drugs. (104) Law Enforcement on the High Seas Ordinarily, warships and other vessels used by States to enforce their laws on the high seas may take action only against ships of the enforcing State's nationality or ships with ambiguousnationality. However, UNCLOS and the Convention on the High Seas both identify certain activitiesas unlawful and allow States to take enforcement measures to suppress them. Unlawful Acts on the High Seas. Both conventions mandate all States to take or adopt "effective measures to prevent and punish thetransport of slaves in ships authorized to fly its flag and to prevent the unlawful use of its flags forthat purpose" (105) and to "co-operate to the fullestpossible extent in the repression of piracy on thehigh seas." (106) Piracy is defined as illegal actsof violence, detention, or depredation (plundering,robbing, or pillaging) for private ends in or over international waters. (107) Mutiny and hijacking donot amount to piracy unless the ship or aircraft seized is thereafter used to commit piratical acts. (108) Acts that would constitute piracy if committed for private ends are not piratical if committed forpolitical ends, for example, by insurgents not recognized as belligerents. (109) UNCLOS further mandates that all States "co-operate in the suppression of illicit traffic in narcotic drugs and psychotropic substances engaged in by ships on the high seas contrary tointernational conventions" and "co-operate in the suppression of unauthorized broadcasting from thehigh seas." (110) Neither convention addressesthe transport of weapons of mass destruction or ofmaterials useful in the production of such weapons. Right of Approach and Visit. Merchant vessels, whether privately owned or State owned, may be stopped and boarded by the warships of non-flagStates under certain circumstances. The Convention on the High Seas specifies that a warship maystop and board a foreign merchant vessel if "there is reasonable ground for suspecting (a) [t]hat theship is engaged in piracy; or (b) [t]hat the ship is engaged in the slave trade; or (c) [t]hat, thoughflying a foreign flag or refusing to show its flag, the ship is, in reality, of the same nationality as thewarship." (111) UNCLOS reiterates thosejustifications and adds two more - (1) "the ship is engagedin unauthorized broadcasting ...," and (2) "the ship is without nationality." (112) With respect to thelatter justification, UNCLOS replicates language in the Convention on the High Seas providing that"[a] ship which sails under the flags of two or more States, using them according to convenience,may not claim any of the nationalities in question with respect to any other State, and may beassimilated to a ship without nationality." (113) Both conventions provide that in the specified circumstances a warship "may send a boat under the command of an officer to the suspected ship," "proceed to verify the ship's right to fly its flag,"and "if suspicion remains after the documents have been checked, ... proceed to a furtherexamination on board the ship, which must be carried out with all possible consideration." (114) Enforcement Measures. With the exception of piracy and international broadcasting, however, neither convention specifies what actions a warshipmay take if the initial or further examination confirms the suspicions that justified the boarding inthe first place. With respect to piracy, both conventions state that [o]n the high seas, or in any other place outside the jurisdiction of any State, every State may seize a pirate ship or aircraft, or a ship or aircraft taken bypiracy and under the control of pirates, and arrest the persons and seize the property onboard. (115) In the event the suspected pirate ship fleeing the pursuit of a warship enters a foreign territorial sea, the pursuing warship should attempt to obtain the permission of the State with sovereignty over thearea prior to entering. If circumstances do not allow such communication, the warship may be ableto enter the territorial waters of another state if necessary, but must depart immediately upon therequest of the coastal State. (116) A similar ruleapplies to piratical aircraft that flee into the nationalairspace of another State. With respect to a ship engaged in unauthorized international broadcasting, UNCLOS provides that a State having jurisdiction (117) "may ... arrestany person or ship engaged in unauthorizedbroadcasting and seize the broadcasting apparatus." (118) Otherwise, both conventions simply state that"if the suspicions prove to be unfounded, and provided that the ship boarded has not committed anyact justifying them, it shall be compensated for any loss or damage that may have been sustained." (119) Although neither convention explicitly says so, it also appears that any warship may seize a merchant vessel that has no nationality. In United States v. Cortes , (120) for instance, the United StatesCourt of Appeals for the Fifth Circuit held that the Convention on the High Seas conferred no rightswhatsoever on stateless vessels and upheld the seizure of an unregistered ship found by the CoastGuard to be transporting marijuana. It stated: To secure the protection afforded foreign merchant vessels on the high seas, a vessel must accept the duties imposed by registration. This the PITERfailed to do; her crew cannot complain of the results. (121) Thus, with the exception of piracy, international broadcasting, and stateless vessels, both the Convention on the High Seas and UNCLOS are silent with regard to whether the consent of the flagState or further international agreement is necessary for a State to seize a ship flying the flag ofanother State, confiscate its cargo, or arrest and prosecute its officers and crew for engaging in otherprohibited activities. (122) Absent consent oragreement, the exercise of jurisdiction over the allegedlyunlawful activities of a merchant vessel appears to remain the prerogative and responsibility of theflag State. Weapons of mass destruction are not mentioned in UNCLOS or the Convention on theHigh Seas. It therefore appears that the visit, search, and possible seizure of ships on the high seasthat might be engaged in transporting weapons of mass destruction or materials useful in theproduction of such weapons would not be authorized under the law of the sea as it currently stands. The subject also does not appear to be directly addressed by the agreements and informalarrangements that address the proliferation of weapons of mass destruction, (123) nor by the existingmultilateral conventions on terrorism. (124) Suchan authorization might well be negotiated on abilateral or multilateral basis, could be obtained on an ad hoc or more permanent basis, and,conceivably, could be given by action of the Security Council. (125) Otherwise, the interdiction ofvessels and aircraft on or over the high seas that are suspected of carrying WMD may only be validas a legitimate act of self defense or under a theory of "self-help," as described below. The Proliferation Security Initiative The exact contours of the PSI have not yet been finalized, but the eleven PSI States have held three meetings so far and have reportedly reached an agreement in principle, releasing a "statementof interdiction principles" (see Appendix) committing member States to take action "consistent withnational legal authorities and relevant international law and frameworks, including the U.N. SecurityCouncil." (126) According to the PSI nations'statement, the initiative will target "States or non-stateactors of proliferation concern," which are defined as those countries or entities that the PSI participants involved establish should be subject to interdiction activities because they are engaged inproliferation through: (1) efforts to develop or acquire chemical, biological, or nuclear weapons andassociated delivery systems; or (2) transfers (either selling, receiving, or facilitating) of WMD, theirdelivery systems, or related materials. (127) The Bush Administration emphasized that the initiative is an effort to coordinate export control regimes that are already in place, rather than a major departure from the current nonproliferationregimes. This statement may represent a reconsideration of the initial goal of the PSI; in announcingthe initiative, President Bush explained that the PSI would give member countries the capability to"search planes and ships carrying suspect cargo and to seize illegal weapons or missiletechnologies." (128) To the extent that the searches and seizures are carried out on the high seas, the law of the sea would clearly allow a PSI nation warship to stop and search vessels flying its flag or no flag at all,or flying the flag of a State that consents to searches of its ships for that purpose. Presumably, thePSI member States will allow ships flying their flags to be searched for WMD materials prohibitedby their laws where reasonable suspicion exists, and non-member States could be asked to consenton an ad hoc basis. However, it appears unlikely that States of proliferation concern, such as theDemocratic Republic of Korea or Iran, would consent to having their ships boarded and searched forWMD materials, and even if consent were obtained, there is no clear legal authority underinternational law, as it currently stands, for a State to seize WMD materials it finds on board, evenif the flag State is a member of the relevant nonproliferation treaty. PSI States carrying out interdiction activities at their port facilities have broad authority to inspect vessels and prescribe law restricting the kinds of cargo vessels are permitted to carry intoport. However, for a PSI State to stop and search a vessel traveling through its territorial sea couldimpede the vessel's right of innocent passage. According to the PSI statement of principles,participating States are encouraged to "stop and/or search in their internal waters, territorial seas, orcontiguous zones (when declared) vessels that are reasonably suspected of carrying [WMD-related]cargoes to or from states or non-state actors of proliferation concern and to seize such cargoes thatare identified,"and to "enforce conditions on vessels entering or leaving their ports, internal watersor territorial seas that are reasonably suspected of carrying such cargoes, such as requiring that suchvessels be subject to boarding, search, and seizure of such cargoes prior to entry." These activities,however, are to be conducted only "to the extent their national legal authorities permit and consistentwith their obligations under international law and frameworks." Under traditional international law, the right of coastal States to prescribe law applicable in their territorial seas and contiguous zones are restricted by the vessels' flag State's right of free navigation.The PSI States' ability to intercept and search vessels in those zones may require the consent of theflag-State, unless the vessels' passage is non-innocent. It is open to debate whether coastal nationshave the jurisdiction to prohibit the carrying of all WMD-related materials through their contiguouszones. (129) Non-participating States may objectto a requirement that their vessels submit to inspectionprior to entering the territorial seas of a coastal State as an effective suspension of the right ofinnocent passage. The interdiction of aircraft suspected of carrying WMD-related materials that occurs in national airspace raises fewer legal issues, since there is no right of innocent passage through airspace. However, international law calls for "due regard" to the safety of civil aircraft. Measures involvingthe use of force to deny aircraft passage or to enforce landings for inspections could raise objectionsfrom other nations. (130) Belligerent Rights During an armed conflict, of course, the rules of international law are transformed. The law of neutrality delineates the rights and responsibilities of belligerent and neutral States. In general, aneutral State maintains the basic rights of inviolable territory and the practice of commerce (unlessit involves providing contraband to the belligerents), but the neutral State must abstain fromparticipating in the conflict and maintain its impartiality as to the belligerents. Failure of a neutralship to act accordingly may result in a determination by a belligerent that the neutral has acquiredenemy character. Likewise, a belligerent must respect a neutral's inviolability and its entitlement totrade, but has the right to insist on the neutral's impartiality and non-involvement in the conflict. Belligerents are prohibited from conducting hostilities, establishing a base of operations, or seeking sanctuary in neutral territory. The neutral State is responsible for ensuring that its territoryis not being used by the belligerents in a manner inconsistent with its neutral status. In the event aneutral is unable or unwilling to police its territory for that purpose, a belligerent may take action toput an end to the misuse, even if such action requires the belligerent to enter the ordinarily inviolableterritorial sea of the neutral State. A neutral may prescribe conditions for belligerent warshipstransiting its territorial seas - or even prohibit their passage altogether - notwithstanding thecustomary right of innocent passage, as long as the regulations are applied impartially. A neutral isnot permitted, however, to impede transit through an international strait or archipelagic sea lane. Under the traditional law of war, belligerents have a right to seize and condemn or destroy the ships and aircraft of the enemy, including commercial craft, (131) to stop and search neutral vessels forcontraband, to close the enemy's ports by means of a naval blockade, and of course, to use militaryforce against enemy warships and military aircraft. These belligerent rights, however, may beexercised only on the high seas or within the territorial seas of the belligerents, not withininternational straits or the territorial sea of a neutral State. (132) The Right of Visit and Search. During an armed conflict between States, the warships of a belligerent State have the right to visit and search merchantships flying the flag of a neutral State and, if the ships are found to be carrying substantialcontraband of war to the enemy, to seize and condemn not only the contraband but the vessels aswell. (133) Goods deemed to be contraband undersuch circumstances clearly would include weaponsof mass destruction and goods useful in their development and production. The right of visit and search does not extend into the territorial seas of neutral States or international straits overlapped by neutral territorial seas. (134) Neutral merchant ships are exempt ifthey are traveling in a convoy under the protection of a neutral warship flying the same flag. Warships are also exempt, but it is unclear whether other State-operated non-commercial vessels aresubject to search. (135) Military aircraft also have the right of visit and search. (136) A military aircraft engaged in a visitand search mission would direct a suspected vessel to the vicinity of a friendly warship located onthe high seas or within the territorial waters of a belligerent State, allowing its crew to conduct thesearch, or it might direct the vessel to a belligerent port. (137) To visit and search another aircraft, themilitary aircraft would escort the suspect craft to the closest belligerent landing strip. Naval Blockades. An armed conflict could also empower a belligerent State to set up a blockade to prevent ships of every nation from reaching itsenemy's harbors with weapons or any other goods. The blockading State must declare the scope ofthe blockade and enforce it effectively and impartially. Once a blockade is declared, the ships ofneutral States with knowledge of its existence are bound to avoid the demarcated areas. Ships thatattempt to run the blockade are subject to capture and condemnation, along with their cargo. (138) Asan act of war carried out during an armed conflict between States, a blockade must be asserted inconformity to the U.N. Charter and carried out within the confines of the law of war, in particular,the principles of military necessity and proportionality. Air Blockade. A blockade may also be effective with respect to civil aircraft. Civil aircraft entering a blockaded zone may be required to land for avisit and search, and are subject to capture if they are found to be carrying contraband or enemypersonnel, are operating under enemy control, orders, charter, employment, or direction; do notpresent valid documentation; or are violating regulations established by a belligerent within theimmediate area of naval operations; or are engaged in a breach of blockade. (139) Another variation onthe concept of a blockade of airspace is the "no fly zone," such as the restrictions imposed by theSecurity Council on aircraft flying over Bosnia and Herzegovina during the conflict there. (140) Blurring the Boundary between War and Peace Historically, two different sets of rules applied regarding the use of force between States; one set applied during war and another during peace. However, since the United Nations Chartercommits member States to settling their differences peacefully and allows war only in self-defense,States have sometimes sought to carry out acts ordinarily lawful only in the context of war, whileat the same time maintaining that they are at peace. Consequently, the boundary between peace andwar has become blurred. Some commentators argue that a new paradigm is necessary to providerules necessary for the protection of States' interests in light of these changes in the character ofinternational conflict, the greater destructive power of modern weapons, and the emergence ofnon-state actors capable of mounting attacks against States. The following sections explore theuncertain legal boundaries concerning the use of military force short of war. The Right of Self Defense. The right of self-defense traditionally recognized in international law affords a State the right to takeproportionate measures, including the use of force, that are necessary to protect itself from imminentharm. (141) Traditionally, that right included theuse of force to forestall an anticipated attack as wellas to respond to an attack. As Great Britain argued in the Caroline incident in 1837 (142) or, morerecently, as Israel contended in seizing a ship filled with arms bound for Palestine, that traditionalright could include not only the visit and search of a vessel but also its seizure or destruction. However, these issues remain unsettled. The collective security provisions of the Charter of the United Nations to some extent have preempted the traditional right of States to use force aggressively, (143) but the Charter specificallypreserves "the inherent right of individual or collective self-defence if an armed attack occurs againsta Member of the United Nations ...." (144) Scholars and publicists argue about whether Article 51affirms the traditional right of States to act in self-defense in its entirety or, as literally read, to allowit only after an armed attack has occurred. Yet even the more expansive reading still includes arequirement that an attack be imminent, and for some observers, the possession of WMD does notconstitute an armed attack. Others argue that the concept of imminence as applied to WMD mayrequire some modification. Circumstances might be cited in which the transport of weapons of mass destruction poses a threat serious enough to meet that test, notably, as claimed during the Cuban Missile Crisis (seeinfra). But more commonly the threat of an attack with such weapons - particularly if they are stillin the process of development - may be distant or inchoate. To the extent that is the case, thetraditional doctrine of self-defense may not provide firm support for the use of military means to stopmerchant vessels transporting weapons of mass destruction or goods useful in the development ofsuch weapons outside the context of an armed conflict. (145) Pacific Blockade. An exception to the notion ofthe blockade as an act of war might be the so-called "pacific blockade." Distinguished from thebelligerent or wartime blockade, pacific blockade is not intended as a belligerent act and does notgive rise to a condition of belligerency unless the State against which the action is taken chooses toresist with force. A pacific blockade consists of naval action taken in peacetime to apply pressureagainst another nation by preventing the ships of the blockading and the blockaded nation fromentering or leaving specified areas of the latter's coast. The blockading State is only entitled to detainships, not to condemn or confiscate them or their cargo. All ships sequestered pursuant to a blockadeare to be restored to their owners when the pacific blockade is lifted. (147) Traditionally, the pacificblockade was effective only with respect to the vessels of the blockaded State; interference withvessels of a third State is generally considered impermissible, though practice has varied. (148) Some international legal scholars have regarded the pacific blockade as lawful only as a reprisal , i.e., an otherwise unlawful act of self-help by the blockading State in response to anunlawful act on the part of the target State for the purpose of achieving reparations or otherwisesettling an international dispute. (149) Thelegitimacy of reprisals is said to depend on three conditions:that the purpose was to obtain remedy for injury resulting from illegal action, that non-coercivemethods to obtain such remedy had failed and that the measures taken were not out of proportion tothe injury suffered. The "quarantine" of Cuba in 1962 in response to Cuba's procurement of "offensive missiles" from the Soviet Union did not conform to the traditional model of blockade, belligerent or pacific. The term "quarantine" was used to avoid the implication that the United States intended the moveas an act of war, while allowing the United States to assert that the vessels of third States weresubject to the prohibitions. The United States did not assert the right to self defense under article51 of the U.N. Charter as a justification for its actions. (150) The strategy was successful in averting warat the time, and appears to have been accepted as valid by the international community; however,the euphemistic "quarantine" does not appear to have been incorporated as a new concept ininternational law and it involves a distinctive situation, e.g., Cuba was viewed as a surrogate for itssupplier, the USSR. Some observers cite U.S. reaction to the Cuban Missile Crisis as an exampleof adapting international law to deal with new circumstances. (151) Self-help Paradigm in International Law. Some theorists argue that the U.N. Charter may be construed to allow the use of proportionate force toprevent adversaries from producing, purchasing, or otherwise obtaining weapons of massdestruction. (152) Most scholars have interpretedArticle 2(4) of the U.N. Charter as a broad prohibitionon any use of force against another State, except where authorized by the Security Council actingunder its Chapter VII authority, or when the use of force is justified as necessary for self-defenseunder Article 51. (153) The alternate viewinterprets the U.N. Charter prohibition on the use of forcenarrowly to prohibit only certain kinds of armed attacks, namely, those "against the territorialintegrity or political independence of any State, or in any other manner inconsistent with thePurposes of the United Nations." (154) A surgicalstrike against a nuclear facility in a proliferant State,so the argument goes, would threaten neither the territorial integrity nor the political independenceof a target State, inasmuch as there would be no effort to annex or occupy territory, nor overthrowthe current political leadership. (155) Thelegitimacy of a preventive attack against WMD or theircomponents would rest on an interpretation of whether their destruction comports with the "purposeof the United Nations." To the extent that the elimination of WMD in the hands of a perceived unstable State may be seen to enhance international peace and security by promoting disarmament, some argue that anotherwise unlawful attack might be justifiable. For example, Israel's 1981 aerial bombardment ofan Iraqi nuclear power facility, while condemned by the U.N. Security Council, (156) was viewed bysome as justifiable under international law and the U.N. Charter. (157) Others argue, however, that theU.N. Charter created the Security Council and entrusted collective security decisions primarily tothat body, leaving to member States the inherent right to defend themselves only in case of an armedattack. (158) According to that view, the role ofthe Security Council under the Charter and self-defenseprovision in article 51 seem to contradict a narrow interpretation of article 2(4) (159) that would alloweach State to decide for itself when a contemplated use of force is within the purpose of the UnitedNations. Some argue that, whatever the original intent of the U.N. Charter, States' practice since 1945 has shown the prohibition against the use of force to exist only on paper, and voluntary compliancewith non-proliferation regimes cannot be counted on to rein in proliferant States and do not in anyevent apply to non-State actors bent on obtaining WMD. Proponents of this view urge the worldcommunity to adopt a paradigm shift that would revert to pre-U.N. concepts of internationalrelations, in which nations with sufficient strength were understood to have the power to takeself-help measures, including the use of force, to right international wrongs and enforce compliancewith international law. (160) Under this view,States would be justified in using preventive orpreemptive force to deter plans to acquire WMD, eliminate acquisition programs or destroy WMDcomponents or sites at any stage in the acquisition effort. (161) The "counterproliferation self-help paradigm" is based on the assumption that non-proliferation has become so entrenched in international law that it has reached the status of customary norm, (162) binding on all States whether or not they have agreed, by joining the relevant treaties, to desist fromdeveloping or acquiring WMD. (163) Under thisview, any State that persists in the development oracquisition of WMD, or permits its citizens and residents to do so with impunity, is committing awrongful act under international law for which other States may demand redress. Thus, althoughStates Parties retained the right to withdraw from the treaties upon giving notice, participation in thevarious non-prolifereration regimes, under this view, has become jus cogens - a mandatory andenforceable requirement of international law. (164) There is some evidence that might support the argument that nonproliferation has become acustomary norm. (165) For example, the numberof States that have agreed to participate in thenonproliferation regimes provides an indication of the near universal support for them. Furthermore,in making the argument that international law supports the PSI, the Bush Administration cited astatement by the President of the U.N. Security Council in 1992 indicating that the Council considersproliferation of WMD to be a matter that poses a threat to international peace and security. (166) Withrespect to disarmament, arms control and weapons of mass destruction, the 1992 Statement said The members of the Council, while fully conscious of the responsibilities of other organs of the United Nations in the fields of disarmament, armscontrol and non-proliferation, reaffirm the crucial contribution which progress in these areas canmake to the maintenance of international peace and security. They express their commitment to takeconcrete steps to enhance the effectiveness of the United Nations in these areas. The members of the Council underline the need for all Member States to fulfil their obligations in relation to arms control and disarmament; toprevent the proliferation in all its aspects of all weapons of mass destruction; to avoid excessive anddestabilizing accumulations and transfers of arms; and to resolve peacefully in accordance with theCharter any problems concerning these matters threatening or disrupting the maintenance of regionaland global stability. They emphasize the importance of the early ratification and implementation bythe States concerned of all international and regional arms control arrangements, especially theSTART and CFE Treaties. The proliferation of all weapons of mass destruction constitutes a threat to international peace and security. The members of the Councilcommit themselves to working to prevent the spread of technology related to the research for orproduction of such weapons and to take appropriate action to that end. On nuclear proliferation, they note the importance of the decision of many countries to adhere to the Non-Proliferation Treaty and emphasize theintegral role in the implementation of that Treaty of fully effective IAEA safeguards, as well as theimportance of effective export controls. The members of the Council will take appropriate measuresin the case of any violations notified to them by the IAEA. On chemical weapons, they support the efforts of the Geneva Conference with a view to reaching agreement on the conclusion, by the end of 1992,of a universal convention, including a verification regime, to prohibit chemical weapons. On conventional armaments, they note the General Assembly's vote in favour of a United Nations register of arms transfers as a first step, and in thisconnection recognize the importance of all States providing all the information called for in theGeneral Assembly's resolution. (167) The Bush Administration also points to positions taken by other international coalitions thatmay lend some support to the broad notion that nonproliferation is approaching jus cogens status. In June, 2002, in response to the threat of terrorist groups obtaining and using WMD, the G8 Leadersannounced a new "G8 Global Partnership Against the Spread of Weapons and Materials of MassDestruction." (168) The European Unionpublished a set of principles June 10, 2003 for addressing theglobal threat of WMD, noting that To address the new threats, a broad approach is needed. Political and diplomatic preventative measures (multilateral treaties and export control regimes) and resort to the competent international organisations (IAEA, OPCW, etc.) form the first line of defence. When these measures (including political dialogue and diplomatic pressure) have failed, coercive measures under Chapter VII of the UN Charter and international law (sanctions,selective or global, interceptions of shipments and, as appropriate, the use of force) could beenvisioned. The UN Security Council should play a centralrole. (169) Finally, some suggest that the Proliferation Security Initiative may also serve as evidence of the progression of international law with regard to WMD, (170) although it remains to be seen what actionsit will entail and how other nations might react to its implementation. However, these international developments may not provide evidence sufficient to prove that nonproliferation has emerged as a non-derogable norm. Notably, the statement by the U.N. SecurityCouncil excerpted above may be read as a promise to take action, but does not say what action theSecurity Council might take, and does not authorize States to enforce treaty commitments on the partof other States. It calls upon States to adhere to their treaty commitments and cooperate towardfurther international negotiations related to arms control. Moreover, as a statement rather than aformally adopted resolution, it has less binding force on member States under the U.N. Charter.Finally, States' practice does not appear unambiguously to demonstrate that States considerthemselves bound to halt all activity with regard to WMD testing, production or transfer. The argument that nonproliferation has achieved the status of customary international law seems more plausible with respect to chemical and biological WMD than with respect to nuclearweapons, since the relevant treaties prohibit all possession, trade, and use of such weapons bymember States, and require member States to adopt laws criminalizing the possession of bannedmaterials. Nuclear weapons, however, are not universally banned. (171) The NPT allows five Statesto stockpile nuclear weapons, and leaves it to their discretion as to whether possession on the partof their sub-national groups is criminalized under the national laws of member States. (172) Thisinconsistency appears to make the argument that the State possession of nuclear weapons is a juscogens violation less tenable. (173) Others view the non-proliferation regimes to be more in the nature of a security pact, with weaker nations having agreed to forego WMD programs in exchange for a promise of security to beprovided through alliance with one of the great powers, rather than evidence that States participateout of a sense of legal obligation. Part of the bargain, with respect to nuclear weapons, was that thefive nuclear powers negotiate to bring about an eventual total disarmament. (174) Now that the mutualdeterrence of the Cold War can no longer be said to be in operation, non-nuclear States may believetheir security requirements have increased, or that the strategic value of possessing nuclear weaponsoutweighs the benefit of remaining party to the NPT. (175) Collective Action Under Security Council Mandate. Adherents of the "broad" interpretation of the U.N. Charter prohibitionagainst the use of force are more likely to view preemptive use of military force against WMDfacilities, including the interdiction of ships suspected of transporting elements of an unauthorizednuclear weapons program, to be legitimate only when the U.N. Security Council specificallyauthorizes it. (176) Under the U.N. Charter, theSecurity Council has "primary responsibility for themaintenance of international peace and security." (177) In this view, the Security Council is betterempowered to determine that WMD in the hands of only certain States and non-State actorsconstitutes a threat to the peace, tailoring an enforcement regime against those entities. The Security Council has multiple options for dealing with a threat it has identified, including economic sanctions, interdiction of weapons, and the use of military force through the forces ofmember States. (178) It also has some options withrespect to enforcement. (179) Under its ChapterVIIauthority it could authorize a coalition of member States to organize and lead a force to carry outa specific mandate, or it could authorize an organization such as NATO to enforce the action. Another option would entail the creation of a U.N. military force, similar to the U.N. Mission toSierra Leone. (180) In any case, nine "yes" votesfrom the U.N. Security Council are needed, with noneof the five permanent members exercising their veto. Conclusion International law recognizes that States have the right to interdict vessels and aircraft in certainlimited circumstances; however, that legal authority exists that would allow PSI nations completely"to halt shipments of dangerous technologies to and from states and non-state actors of proliferationconcern - at sea, in the air, and on land" (181) appears doubtful under the current state of internationallaw. The United States and its allies may consider whether to amend the treaties regarding the lawof the sea (and air) explicitly to include WMD and missile trade within the prohibitions that may beuniversally enforced. Other options include amending the proliferation treaties to enhancecompliance and, as the European Union stressed in its statement of non-proliferation principles, toreduce the perception among States that WMD are necessary for their own security. (182) Probably thefirmest legal basis for interdicting WMD materials would be provided by explicit authorization bythe U.N. Security Council. Appendix A - Interdiction Principles for the Proliferation Security Initiative PSI participants are committed to the following interdiction principles to establish a morecoordinated and effective basis through which to impede and stop shipments of WMD, deliverysystems, and related materials flowing to and from states and non-state actors of proliferationconcern, consistent with national legal authorities and relevant international law and frameworks,including the UN Security Council. They call on all states concerned with this threat to internationalpeace and security to join in similarly committing to: Undertake effective measures, either alone or in concert with other states, for interdicting thetransfer or transport of WMD, their delivery systems, and related materials to and from statesand non-state actors of proliferation concern. "States or non-state actors of proliferationconcern" generally refers to those countries or entities that the PSI participants involvedestablish should be subject to interdiction activities because they are engaged in proliferationthrough: (1) efforts to develop or acquire chemical, biological, or nuclear weapons andassociated delivery systems; or (2) transfers (either selling, receiving, or facilitating) of WMD,their delivery systems, or related materials. Adopt streamlined procedures for rapid exchange of relevant information concerning suspectedproliferation activity, protecting the confidential character of classified information providedby other states as part of this initiative, dedicate appropriate resources and efforts to interdictionoperations and capabilities, and maximize coordination among participants in interdictionefforts. Review and work to strengthen their relevant national legal authorities where necessary toaccomplish these objectives, and work to strengthen when necessary relevant international lawand frameworks in appropriate ways to support these commitments. Take specific actions in support of interdiction efforts regarding cargoes of WMD, theirdelivery systems, or related materials, to the extent their national legal authorities permit andconsistent with their obligations under international law and frameworks, to include: Not to transport or assist in the transport of any such cargoes to or from states or non-stateactors of proliferation concern, and not to allow any persons subject to their jurisdictionto do so. At their own initiative, or at the request and good cause shown by another state, to takeaction to board and search any vessel flying their flag in their internal waters or territorialseas, or areas beyond the territorial seas of any other state, that is reasonably suspected oftransporting such cargoes to or from states or non-state actors of proliferation concern, andto seize such cargoes that are identified. To seriously consider providing consent under the appropriate circumstances to theboarding and searching of its own flag vessels by other states, and to the seizure of suchWMD-related cargoes in such vessels that may be identified by such states. To take appropriate actions to (1) stop and/or search in their internal waters, territorialseas, or contiguous zones (when declared) vessels that are reasonably suspected ofcarrying such cargoes to or from states or non-state actors of proliferation concern and toseize such cargoes that are identified; and (2) to enforce conditions on vessels entering orleaving their ports, internal waters or territorial seas that are reasonably suspected ofcarrying such cargoes, such as requiring that such vessels be subject to boarding, search,and seizure of such cargoes prior to entry. At their own initiative or upon the request and good cause shown by another state, to (a)require aircraft that are reasonably suspected of carrying such cargoes to or from states ornon-state actors of proliferation concern and that are transiting their airspace to land forinspection and seize any such cargoes that are identified; and/or (b) deny aircraftreasonably suspected of carrying such cargoes transit rights through their airspace inadvance of such flights. If their ports, airfields, or other facilities are used as transshipment points for shipment ofsuch cargoes to or from states or non-state actors of proliferation concern, to inspectvessels, aircraft, or other modes of transport reasonably suspected of carrying suchcargoes, and to seize such cargoes that are identified. Source: White House Fact Sheet, Sep. 4, 2003, available at http://www.whitehouse.gov/news/releases/2003/09/20030904-11.html .

President Bush outlined a specific plan to counter WMD proliferation in his National Strategy to Combat Weapons of Mass Destruction of December, 2002. The Administration's plan combinesefforts aimed at counterproliferation, nonproliferation, and WMD consequence management. Theintent, it says, is to eliminate or "roll back" WMD in the possession of certain States and terroristgroups, including potentially the use of force and aggressive methods of interdiction ofWMD-related goods, technologies, and expertise. The use of interdiction as a counterproliferationmeasure appears to be part of a strategy that foresees the U.S. taking "anticipatory action to defendourselves" against terrorists and rogue States, "even if uncertainty remains as to the time and placeof the enemy's attack," and "to detect and destroy an adversary's WMD assets before these weaponsare used." A recent refinement of the WMD strategy is the Proliferation Security Initiative (PSI),which would involve cooperation among friendly nations to interdict transfers of restricted weaponsand related technologies "at sea, in the air, and on land." However, the Administration hasrecognized that cooperation may not always be forthcoming, and has intimated that it will actunilaterally, if necessary. Aspects of this national security strategy raise questions related to the international law of jurisdiction, the law of the sea (which also references airspace), and international civil aviationagreements. The right of States to conduct self-defense and law enforcement activities abroad hasthe potential to collide with the rights of other States to maintain their sovereign integrity andconduct free navigation and commerce. These rights are not absolute. This report provides anoverview of the international law of the sea and other agreements as they relate to the permissiblerange of methods for interdicting WMD-related contraband. After a short summary of the currentlegal regime for international arms control related to WMD, the report outlines the basic conceptsof jurisdiction in international law. Next, the report describes concepts central to the law of the sea,including the division of the world's waters and airspace into "international" and "national" territory,and a description of the rights, duties and limitations that apply depending on where the conducttakes place. The report then turns to the international legal framework limiting the conduct ofnations as it applies during times of war and peace, and during what has been called "quasi war."

Introduction Originally, Indian tribes exercised sovereign authority over their territory and the all people within it, including non-Indians. However, Indian tribes lost some of that authority by "ceding their lands to the United States and announcing their dependence on the Federal Government." "Indian tribes are prohibited from exercising both those powers of autonomous states that are expressly terminated by Congress and those powers inconsistent with their status ." Express termination of a tribe's sovereign authority may be found in treaties and statutes. As to sovereign authority lost by virtue of the tribes' status, the Supreme Court has explained, "[t]he areas in which such implicit divestiture of sovereignty has been held to have occurred are those involving the relations between an Indian tribe and nonmembers of the tribe." By virtue of their "dependent status," therefore, tribes have lost the sovereign authority to determine their relations with nonmembers. Accordingly, in Oliphant v. Suquamish , the Supreme Court held that Indian tribes do not have inherent sovereign authority to try non-Indian criminal defendants, and in Montana v. United States, the Supreme Court announced the general rule for civil jurisdiction that "the inherent sovereign powers of an Indian tribe do not extend to the activities of nonmembers of the tribe." Immediately after announcing this rule for civil jurisdiction in Montana , however, the Court identified two exceptions, known as the Montana exceptions: To be sure, Indian tribes retain inherent sovereign power to exercise some forms of civil jurisdiction over non-Indians on their reservations, even on non-Indian fee lands. A tribe may regulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements. A tribe may also retain inherent power to exercise civil authority over the conduct of non-Indians on fee land within its reservation when that conduct threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe. In order to fit within one of these exceptions, nonmember conduct must somehow impinge on a tribe's inherent authority to govern itself and its members. The Supreme Court has identified the tribes' right as landowners to exclude nonmembers from tribal land as one of the bases for upholding tribal taxes against nonmembers' activities on tribal land. It is unclear, however whether the power to exclude is independent of the Montana exceptions. Tribes may also exercise jurisdiction over nonmembers when Congress authorizes them to do so. Congress has provided for tribal authority over nonmembers related to the sale of alcohol on reservations, enforcement of tribal hunting and fishing ordinances on reservations, and enforcement of certain environmental statutes. Although tribal jurisdiction over nonmembers is fairly limited, if a nonmember defendant in tribal court believes the court lacks jurisdiction, he or she must first challenge the jurisdiction in tribal court. Only after exhausting the tribal court remedies may the nonmember get relief in federal court. Criminal Jurisdiction In most cases, tribal criminal jurisdiction over non-Indian offenders is clear—as a general rule, Indian tribes do not have it. However, there is an exception for non-Indians who commit domestic and dating violence against tribal members or Indians residing within the tribes' jurisdiction, provided the defendants have certain ties to the tribes and the tribes provide defendant with rights that are not required in other tribal court criminal proceedings. Tribal criminal jurisdiction over nonmember Indians is more difficult to discern. Such jurisdiction depends on whether the nonmember Indian is recognized as an Indian by the federal government or the tribal community. This determination turns on factors such as enrollment in a tribe; the degree to which the nonmember Indian has received federal services and benefits for Indians; benefited from tribal rights or services; and participated in tribal ceremonies and social life. Over Non-Indians In Oliphant v. Suquamish Indian Tribe , the Court held that tribes lack inherent sovereign authority over non-Indian offenders. The Court first analyzed the history of criminal jurisdiction over non-Indians within Indian country through treaty provisions, executive branch activities and opinions, and lower court opinions, and concluded that historically the legislative and executive branches and lower courts presumed that Indian tribes did not have authority over non-Indians who committed offenses within Indian country. Although the Court wrote that this history was not "conclusive," it determined that it "carries considerable weight." Accordingly, the Court read the Suquamish Tribe's (Tribe's) treaty with the United States in light of the historical presumption against tribal jurisdiction over non-Indian offenders. The Court acknowledged that on its own, the treaty probably would not divest the Tribe of criminal jurisdiction over non-Indian offenders if it otherwise retained that authority. However, the Court determined that Tribe did not retain the authority to try non-Indian offenders. The Court cited two reasons to support its determination that Indian tribes did not possess the inherent authority to try non-Indian offenders. First, the Court wrote, "Indian tribes are prohibited from exercising those powers of autonomous states that are expressly terminated by Congress and those powers inconsistent with their status ." The Court identified some of the restrictions imposed on the tribes' sovereignty by virtue of their incorporation into the United States as loss of "the tribes' power to transfer lands [and] exercise external political sovereignty." In addition, quoting Justice Johnson's opinion from the first Indian case to reach the Supreme Court, the Court wrote, "'[T]he restrictions upon the soil in the Indians, amount … to an exclusion of all competitors [to the United States] from their markets; and the limitation upon their sovereignty amounts to the right of governing every person within their limits except themselves .'" Noting that protection of its territory within its boundaries is "central" to the sovereign interests of the United States, the Court wrote that "the United States has manifested an equally great solicitude that its citizens be protected by the United States from unwarranted intrusions on their personal liberty." The power to try and punish individuals "is an important manifestation of the power to restrict personal liberty." The Court concluded, "By submitting to the overriding sovereignty of the United States, Indian tribes therefore necessarily give up their power to try non-Indian citizens of the United States except in a manner acceptable to Congress." The second reason the Court gave for determining that Indian tribes did not retain inherent authority to try non-Indian offenders was related to the Court's precedent. In Ex Parte Crow Dog , the Supreme Court held that federal courts lacked jurisdiction to try an Indian who had committed an offense against another Indian on reservation land. In that case, the Court looked to the "nature and circumstances of the case" and concluded that the United States was seeking to extend law, by argument and inference only, … over aliens and strangers; over the members of a community separated by race [and] tradition, … from the authority and power which seeks to impose upon them the restraints of an external and unknown code …; which judges them by a standard made by others and not for them…. It tries them, not by their peers, nor by the customs of their people, nor the law of their land, by … a different race, according to the law of a social state of which they have an imperfect conception…. The Court wrote that the same considerations applied to subjecting non-Indian offenders to the laws of Indian tribes and contradicted the notion that, although the tribes are "fully subordinated to the sovereignty of the United States, [they] retain the power to try non-Indians according to their own customs and procedures." Although the Court recognized that some Indian judicial systems had become "increasingly sophisticated" and in many respects resemble state court systems; that the Indian Civil Rights Act had extended certain basic procedural rights to anyone tried in tribal court so that many of the dangers for non-Indians that existed a few decades ago have disappeared; and that there is a prevalence of non-Indian crime on Indian reservations, the Court wrote that those factors should be addressed to Congress for it to "weigh in deciding whether Indian tribes should finally be authorized to try non-Indians." In 2013, Congress authorized Indian tribes to exercise criminal jurisdiction over non-Indians who commit domestic or dating violence crimes against Indians within the tribes' jurisdictions in certain circumstances. Congress amended the Indian Civil Rights Act (ICRA) by adding Section 1304, which declares that a tribe's "powers of self-government … include the inherent power of that tribe, which is hereby recognized and affirmed, to exercise special domestic violence criminal jurisdiction over all persons." Section 1304 simply defines special domestic violence criminal jurisdiction to mean "the criminal jurisdiction that a participating tribe may exercise under this section but could not otherwise exercise." Section 1304 gives all tribes the option of prosecuting non-Indians for domestic and dating violence crimes under special domestic violence criminal jurisdiction. A tribe may not exercise special domestic violence criminal jurisdiction over a defendant if both the victim and the perpetrator are non-Indians. Furthermore, it is the tribes' burden to establish as an element of the offense that the defendant has at least one of the following ties to the tribe: resides in the Indian country of the tribe; is employed in the Indian country of the tribe; or is a spouse or intimate or dating partner of a member of the tribe or an Indian who resides in the Indian country of the tribe. In addition, in order to exercise special domestic violence criminal jurisdiction a tribe must provide defendants: all the rights required by the Indian Civil Rights Act; an attorney for indigent defendants facing any term of imprisonment; the right to a jury drawn from a sources representing a fair cross section of the community and that does not "systemically exclude any distinctive group in the community, including non-Indians"; and "all other rights whose protection is necessary under the Constitution of the United States in order for Congress to recognize and affirm the inherent power of the participating tribe to exercise special domestic violence criminal jurisdiction over the defendant." Over Nonmember Indians In Duro v. Reina , the Supreme Court applied Oliphant to hold that a tribe does not possess authority to exercise criminal jurisdiction over Indian offenders who are not members of the tribe. In response, Congress amended ICRA so that the terms "powers of self-government" include "the inherent power of Indian tribes, hereby recognized and affirmed, to exercise criminal jurisdiction over all Indians," and "Indian" "means any person who would be subject to the jurisdiction of the United States as an Indian under section 1153 of Title 18 if that person were to commit an offense listed in that section in Indian country to which that section applies." Thus Congress re-vested the tribes with the inherent authority to try nonmember Indians. The authority to try nonmember Indians, however, does not extend to all persons who are racially Indians. "The term 'Indian' is not statutorily defined, but courts have judicially explicated its meaning. The generally accepted test for Indian status considers '(1) the degree of Indian blood; and (2) tribal or government recognition as an Indian.'" For the first requirement, there is no set degree of Indian blood that is required. However, the Indian blood must trace back to a federally recognized tribe. The second requirement "requires membership or affiliation with a federally recognized tribe." "When analyzing this prong, courts have considered, in declining order of importance, evidence of the following: (1) tribal enrollment; (2) government recognition formally and informally through receipt of assistance reserved only to Indians; (3) enjoyment of the benefits of tribal affiliation; and (4) social recognition through residence on a reservation and participation in Indian social life." Therefore, a person with Indian blood who is not a member of the tribe may be subject to prosecution by the tribe if he or she is enrolled in another Indian tribe; received federal benefits or services for Indians; partook of any of the privileges of tribal affiliation, such as participating in tribal hunting or fishing rights or being arrested by tribal police and tried in tribal courts; resided on the Indian reservation; or participated in tribal ceremonies and social events. It appears that courts look to the cumulative effect of these considerations, with no single factor being determinative. Civil Jurisdiction The general rule that tribes lack civil jurisdiction over nonmembers is deceptively simple. Tribal civil jurisdiction over nonmembers is complicated for several reasons. First, the two Montana exceptions to the general rule for consensual relationships and threats to the tribe do not provide bright line rules. Courts must decide cases involving tribal civil jurisdiction over nonmembers based on the unique facts of each case. Second, there are two types of civil jurisdiction: legislative and adjudicatory. The Court has held that tribal adjudicatory jurisdiction is no broader than tribal legislative jurisdiction. It has not determined whether tribal adjudicatory jurisdiction is as broad as tribal legislative jurisdiction. To answer the question whether a tribal court may adjudicate a case involving nonmember conduct, therefore, the Court inquires whether the tribe would be able to regulate that conduct. Again, there are no bright line rules. However, the Supreme Court may soon provide some clarity. The Court decided to hear a case in October 2015 that may clarify the extent of tribal adjudicatory jurisdiction. Third, the court has refused to draw a bright line based on the ownership of the land on which the nonmember conduct takes place. In Nevada v. Hicks , the Court held that the Montana rule applied to Indian and non-Indian land. The status of the land is one factor—perhaps in some cases even a determinative factor—to consider in determining whether a tribe has jurisdiction over non-Indian conduct. Finally, it is unclear whether tribes generally have civil jurisdiction over Indians who are not members of the tribe. Although Congress re-vested tribes with jurisdiction to try nonmember Indians for criminal conduct, it did not take any action regarding civil jurisdiction over nonmember Indians. The leading commentator on Indian law, however, believes that because Oliphant 's analysis focused on the understanding of Congress and the executive branch, in addition to that of the courts, Congress's decision to re-vest tribes with criminal jurisdiction over nonmember Indians alters the Court's analysis of Congress's understanding of tribal jurisdiction over nonmember Indians such that the Court might find that tribes have civil jurisdiction over nonmember Indians even though Congress has not provided for it. The Montana Exceptions Most of the litigation concerning the Montana exceptions has concerned the exception for nonmembers who enter consensual relationships with tribes or tribal members. The Supreme Court has significantly limited the exception for threats to the tribe. Consensual Relationships Tribes may exercise jurisdiction over non-Indians when the non-Indians enter consensual relationships, such as "commercial dealing[s], contracts, leases, or other arrangements," with the tribe or tribal members. The Court has interpreted this exception narrowly. Federal courts have rarely found tribal jurisdiction based on a nonmember's consensual relationship. In First Specialty Insurance v. Confederated Tribes of the Grand Ronde Community of Oregon , the district court upheld the tribal court's jurisdiction over a claim based on a contract between the Tribes and the insured nonmember investment company. In this case, the Tribes' causes of action were based directly on a formal agreement between the Tribes and the nonmember. The Supreme Court has stated, however, that the consensual relationship need not be formal. The Consensual Relationship Must Be Related to the Non-Indian Conduct at Issue In Atkinson Trading Co. v. Shirley , in considering a tribal tax, the Court wrote, " Montana' s consensual relationship exception requires that the tax or regulation imposed by the Indian tribe have a nexus to the consensual relationship itself." "A nonmember's consensual relationship in one area thus does not trigger tribal civil authority in another—it is not in for a penny, in for a pound." Similarly, a court's adjudicative jurisdiction must have some nexus to the consensual relationship. In Strate v. A-1 Contractors , the defendant in tribal court had a contract with the Three Affiliated Tribes of the Ft. Berthold Indian Reservation to perform landscaping. The contractor found itself a defendant in tribal court in conjunction with a traffic accident that occurred on a state highway within the reservation. The Court held that the tribal court did not have jurisdiction over a claim arising out of the accident. Thus, it is not enough that the nonmember have a consensual relationship with a tribe or a tribal member. The conduct over which the tribe is exercising jurisdiction must be related to that consensual relationship. As the Court put it, even though the contractor had a consensual relationship with the Tribes, they "were strangers to the accident." The Consensual Relationship May Consist of Invoking Tribal Court Jurisdiction A nonmember party who brings suit against a tribal member or the tribe in tribal court has entered into a consensual relationship with the tribe for the purposes of adjudicating claims in which the nonmember is a plaintiff or a defendant in a subsequent related action. In Smith v. Salish Kootenai College , the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) upheld the tribal court's jurisdiction to adjudicate a nonmember's claim against a tribal college. Smith, the nonmember, was driving a tribal college truck with two tribal members in it when the truck overturned, killing one member and seriously injuring Smith and the other tribal member. The estate of the member who died filed suit against Smith and the tribal college in tribal court. The tribal college filed a cross-claim against Smith. The injured tribal member then filed suit in tribal court against Smith and the tribal college. Smith filed a cross-claim against the tribal college. All the claims except Smith's claim against the tribal college settled. Rather than filing his claim against the tribal college in state court, Smith went to trial in tribal court and lost. He then asserted that the tribal court lacked jurisdiction over his claim. The Ninth Circuit held that even though Smith was originally a defendant, by filing a cross-claim against the tribal college he "knowingly enter[ed] tribal court for the purposes of filing suit against the tribal college [and], by the act of filing his claims, entered into a 'consensual relationship' with the tribe within the meaning of Montana ." In Ford Motor Credit Co. v. Poitra , the court extended the holding in Salish Kootenai College to uphold tribal court jurisdiction over a member's claim against a nonmember because the nonmember, in a related but separate claim, had invoked the tribal court's jurisdiction as a plaintiff. Ford Credit, as plaintiff, obtained a default judgment in tribal court against the tribal member for failing to make payments on a vehicle that Ford Credit financed. Three years later, in a separate lawsuit, the tribal member sued Ford Credit in tribal court seeking damages as a result of Ford Credit's failure to execute the default judgment. Ford Credit lost in tribal court and sought an injunction against enforcement of the tribal court judgment in federal district court, claiming that the tribal court lacked jurisdiction over it. The district court, citing Salish Kootenai College , upheld the tribal court's jurisdiction. Quoting the tribal court of appeals, the court wrote, "A non-Indian cannot utilize a tribal forum to gain relief against a tribal member and then attempt to avoid that jurisdiction when it acts negligently in that same action resulting in potential harm to the tribal member." Threat to the Tribe's Integrity The second Montana exception provides that tribes may exercise jurisdiction over nonmembers when the nonmember's conduct "threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe." Subsequent cases have limited this exception significantly. In Atkinson Trading Co. v. Shirley , the Court struck down a tribal tax on guests of a nonmember's hotel located on non-Indian fee land within the reservation. The Navajo Nation (Nation) argued that the trading post of which the hotel was a part had "direct effects" on its welfare: the Nation provided services to the trading post; the owner of the trading post was an "Indian trader"; the trading post employed almost 100 tribal members; the trading post derived business from the tourists visiting the reservation; and the trading post was surrounded entirely by tribal land. The Court rejected the Nation's argument. The [second] exception is only triggered by nonmember conduct that threatens the Indian tribe, it does not broadly permit the exercise of civil authority wherever it might be considered "necessary" to self-government. Thus, unless the drain of the nonmember's conduct upon tribal services and resources is so severe that it actually "imperils" the political integrity of the Indian tribe, there can be no assertion of civil authority beyond tribal lands. In Plains Commerce Bank v. Long Family Land and Cattle Co. , the Court reiterated the limited nature of this exception: "[t]he conduct must do more than injure the tribe, it must imperil the subsistence of the tribal community. One commentator has noted that 'the elevated threshold for application of the second Montana exception suggests that tribal power must be necessary to avert catastrophic consequences.'" There is one recent court of appeals case that upheld a tribal court's jurisdiction over a nonmember based on this second exception. In Attorney's Process and Investigation Services v. Sac & Fox Tribe of the Mississippi in Iowa , the U.S. Court of Appeals for the Eighth Circuit upheld the tribal court's jurisdiction over trespass and trade secrets claims against a nonmember for taking over the Tribe's facilities and seizing tribal financial documents. In this case, there had been an ongoing tribal leadership dispute: the elected leaders refused to honor the recall petitions submitted by tribal members, and the opposition leaders took control of the Tribe's government building and casino. The opposition leaders held an election in which a majority voted against the elected leaders. The elected leaders hired the nonmember to remove the opposition from the Tribe's facilities. The nonmember raided the facilities with 30 agents armed with batons. At least one agent had a firearm. Later, the Tribe sued the nonmember in tribal court. After the tribal court found for the tribe, the nonmember challenged the tribal court's jurisdiction in federal court. The court of appeals upheld the tribal court's jurisdiction, finding that the nonmember's raid "threatened the tribal community and its institutions" as well as the "political integrity and economic security of the Tribe." The dawn attack was directed at the Tribe's community center—the seat of tribal government—and the casino, which the tribal appellate court characterized as "the Tribe's economic engine." As it appears from the allegations, the raid sought to return the [elected leaders] to power despite the majority's rejection of the leadership in the May election. This was a direct attack on the heart of tribal sovereignty, the right of Indians to protect tribal self-government. The court reinforced its conclusion that the tribal court had jurisdiction over the Tribe's claims against the nonmember with the fact that the raid occurred on tribal land: as the landowner, the Tribe had the power to exclude the nonmember altogether. That power includes the authority to regulate conduct on the tribal land. Based on the language from Atkinson and Plains Commerce Bank , the second Montana exception appears to be very limited and will be applied only in cases in which the tribe's survival is threatened by nonmember conduct. The Power to Exclude In Merrion v. Jicarilla Apache Tribe , decided one year after Montana , the Supreme Court upheld the Tribe's authority to impose a severance tax on a nonmember company extracting oil and gas from tribal property, in addition to the negotiated royalty payments under the lease. The Court found the jurisdiction to tax nonmembers on tribally owned land derived from the Tribe's power, as a landowner, to exclude nonmembers and its "general authority, as sovereign, to control economic activity within its jurisdiction and to defray the cost of providing governmental services by requiring contributions from persons or enterprises engaged in economic activities within that jurisdiction." It is not clear, however, if the power to exclude is independent of the Montana exceptions. Although the Court has written that "[r]egulatory authority goes hand in hand with the power to exclude," it has also written that "the existence of tribal ownership is not alone enough to support regulatory jurisdiction over nonmembers." If the power to exclude were independent of the Montana exceptions, it seems that the existence of tribal ownership alone would suffice to support regulatory jurisdiction. Moreover, language in the Atkinson opinion, decided in 2001, raises further questions about whether the power to exclude is independent of the Montana exceptions. Rejecting the Tribe's argument that Merrion 's recognition of inherent authority to tax supported an occupancy tax on guests staying at a nonmember hotel on non-Indian land, the Court wrote, Merrion [] was careful to note that an Indian tribe's inherent power to tax only extended to "transactions occurring on trust lands and significantly involving a tribe or its members." There are undoubtedly parts of the Merrion opinion that suggest a broader scope for tribal taxing authority than the quoted language above. But Merrion involved a tax that only applied to activity occurring on the reservation, and its holding is therefore easily reconcilable with the Montana - Strate line of authority, which we deem to be controlling. An Indian tribe's sovereign power to tax—whatever its derivation—reaches no further than tribal land. Thus, because the Court wrote that the Montana - Strate line of precedent controlled, it is not clear whether the power to exclude provides authority over nonmembers on tribal land independent of the Montana exceptions. Despite this uncertainty, in Water Wheel Camp Recreational Area, Inc. v. LaRance , the U.S. Court of Appeals for the Ninth Circuit found that the tribal court had jurisdiction over a non-Indian who had leased land from the Colorado River Indian Tribes but stayed after the lease had expired based on the Tribes' power to exclude, independent of the Tribes' inherent authority under the Montana exceptions. Statutory Exceptions In addition to exercising authority over nonmembers pursuant to their inherent sovereign authority, Indian tribes may exercise jurisdiction over nonmembers within reservations when Congress authorizes them to do so. Congress may relax restrictions on tribes' inherent sovereign authority, as it did with tribal criminal jurisdiction over nonmember Indians and non-Indian dating and domestic violence defendants, or delegate federal authority to tribes. Congress may delegate federal authority to tribes through laws authorizing federal enforcement of tribal legal standards or laws authorizing tribal enforcement of federal statutes. There are two "prominent" examples of Congress providing for federal enforcement of tribal standards. First, Section 1161 provides that the federal criminal statutes prohibiting the introduction of alcohol in Indian country "shall not apply ... to any act or transaction within any area of Indian country provided such act or transaction is in conformity both with the laws of the State in which such act or transaction occurs and with an ordinance duly adopted by the [governing] tribe." In United States v. Mazurie , the Supreme Court upheld Section 1161 as a delegation to Indian tribes of Congress's authority to regulate the sale of alcohol by non-Indians within Indian reservations. In City of Timber Lake v. Cheyenne River Sioux Tribe , the Eighth Circuit upheld the authority of the Tribe to require nonmembers to obtain tribal liquor and business licenses and to enforce those requirements in tribal court. Second, Section 1165 establishes criminal penalties for anyone who, "without lawful authority or permission, willfully and knowingly goes upon" individual Indian or tribal trust land or any lands reserved for Indian use "for the purpose of hunting, trapping, or fishing thereon." Section 1165, therefore, imposes federal criminal penalties for knowing violations of tribal hunting and fishing licensing requirements. The Clean Air Act provides an example of Congress delegating federal authority to tribes to regulate nonmember conduct on non-Indian fee land by enforcing their own standards. Under Section 7601(d)(1)(A), Indian tribes may petition the Environmental Protection Agency (EPA) for authority to regulate reservation air quality in accordance with minimum federal standards. If EPA grants a petition, the tribe establishes standards, issues permits, and enforces the standards for all land, including non-Indian fee land, within the reservation. Nonmembers Must First Challenge Tribal Court Jurisdiction in Tribal Court Although tribal civil jurisdiction over nonmembers is quite limited, a nonmember defendant in tribal court who believes the court lacks jurisdiction must first challenge the tribal court's jurisdiction in tribal court. Federal courts will dismiss an action challenging the jurisdiction of a tribal court if the tribal court defendant has not challenged tribal court jurisdiction through the tribal court appellate process subject to four exceptions: (1) when an assertion of tribal court jurisdiction is "motivated by a desire to harass or is conducted in bad faith"; (2) when the tribal court action is "patently violative of express jurisdictional prohibitions"; (3) when "exhaustion would be futile because of the lack of an adequate opportunity to challenge the tribal court's jurisdiction"; and (4) when it is "plain" that tribal court jurisdiction is lacking, so that the exhaustion requirement "would serve no purpose other than delay." Once a defendant has appealed his or her challenge of tribal court jurisdiction to the highest tribal court, he or she may then challenge the tribal court's jurisdiction in federal court. Conclusion As a general rule, Indian tribes lack criminal and civil jurisdiction over nonmembers. However, there are exceptions. First, Congress re-vested Indian tribes with inherent authority to exercise criminal jurisdiction over nonmember Indians, as well as non-Indians who commit dating and domestic violence against Indians within the tribes' jurisdictions, provided the non-Indian has certain enumerated ties to the tribes. Second, under the first Montana exception, tribes may exercise civil jurisdiction over nonmembers when the nonmembers have entered private consensual relationships with the tribe or its members, provided the conduct at issue relates to the consensual relationship. Third, under the second Montana exception, Indian tribes may exercise civil jurisdiction over nonmembers when the nonmembers' conduct threatens the integrity of the tribe. Fourth, tribes may exercise jurisdiction over nonmembers when Congress authorizes them to do so. Although the Supreme Court has recognized the tribal right to exclude nonmembers from tribal land as a basis for regulatory authority, it is not clear whether the right to exclude is independent of the Montana exceptions. While the Supreme Court has drawn tribal jurisdiction over nonmembers narrowly, it has also held that defendants in tribal court who challenge the tribal court's jurisdiction must exhaust their tribal court remedies before seeking relief in federal court.

Indian tribes are quasi-sovereign entities that enjoy all the sovereign powers that are not divested by Congress or inconsistent with the tribes' dependence on the United States. As a general rule, this means that Indian tribes cannot exercise criminal or civil jurisdiction over nonmembers. There are two exceptions to this rule for criminal jurisdiction. First, tribes may exercise criminal jurisdiction over nonmember Indians. Second, tribes may try non-Indians who commit dating and domestic violence crimes against Indians within the tribes' jurisdictions provided the non-Indians have sufficient ties to the tribes. There are three exceptions to this rule for civil jurisdiction. First, tribes may exercise jurisdiction over nonmembers who enter consensual relationships with the tribe or its members. Second, tribes may exercise jurisdiction over nonmembers within a reservation when the nonmember's conduct threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe. These first two exceptions, enunciated in the case of Montana v. United States, are based on the tribes' inherent sovereignty, and exercises of jurisdiction under them must relate to a tribe's right to self-government. Third, Indian tribes may exercise jurisdiction over nonmembers when Congress authorizes them to do so. Congress may delegate federal authority to the tribes, or re-vest the tribes with inherent sovereign authority that they had lost previously. Indian tribes may also exercise jurisdiction over nonmembers under their power to exclude persons from tribal property. However, it is not clear whether the power to exclude is independent of the Montana exceptions. The question of a tribe's jurisdiction over nonmembers can be very complex. It is fair to say, however, that tribal jurisdiction over non-Indians is quite limited. Tribal jurisdiction over nonmember Indians is more extensive. Federal courts, however, consistently require nonmember defendants to challenge tribal court jurisdiction in tribal court before pursuing relief in federal court.

Introduction The Social Security Administration (SSA) oversees programs that touch the lives of millions of American families and are key components of the nation's economic safety net. The Old-Age, Survivors, and Disability Insurance (OASDI) program, commonly known as Social Security, is the most well-known of these programs. SSA is also responsible for carrying out two cash assistance programs for certain groups of low-income individuals: (1) Supplemental Security Income (SSI) for the Aged, Blind, and Disabled and (2) Special Benefits for Certain World War II Veterans. In addition to its core programs, the agency supports the administration of a number of non-SSA programs, such as Medicare, and provides and verifies data for a variety of federal and state program purposes. Benefit payments for SSA's core programs are considered mandatory spending , which means that such outlays are controlled by each program's authorizing statute—not by appropriations acts. However, the resources needed to carry out SSA's core programs, as well as to support the administration of other national priorities, are considered discretionary spending and thus are controlled by the annual appropriations process. This report provides background on SSA's core programs and related mandatory spending but its focus is on SSA's annual discretionary appropriations for administrative expenses. This report begins with a brief description of SSA's core programs and then examines its FY2017 projected spending on benefit payments and operating costs. Next, it discusses each component of the FY2017 President's budget request for SSA, including the agency's limitation on administrative expenses (LAE) account. Lastly, the report examines historical trends in the budget request and appropriation for SSA's LAE account. Most of the data presented in this report can be found in SSA's FY2017 budget justification to Congress, which is available at https://www.ssa.gov/budget/ . The Social Security Administration's Programs SSA's primary purpose is to administer several federal income support programs established under the Social Security Act, namely Social Security (OASDI; Title II of the act); Supplemental Security Income (SSI; Title XVI of the act); and Special Benefits for Certain World War II Veterans (Title VIII of the act). Social Security is a social insurance program that replaces a portion of an insured worker's income based on the individual's career-average earnings in covered employment. In contrast, SSI and Special Benefits for Certain World War II Veterans are public assistance programs that provide a guaranteed minimum income to certain groups of individuals who have little or no Social Security or other income. All three programs are entitlements , which means that the federal government is obligated to pay benefits to individuals who meet the eligibility requirements specified in each program's authorizing statute. To conform with data presented in SSA's FY2017 budget justification, this report describes the Old-Age and Survivors Insurance and Disability Insurance components of Social Security as separate programs. Old-Age and Survivors Insurance6 Old-Age and Survivors Insurance (OASI) provides monthly cash benefits to insured workers aged 62 or older and to their eligible spouses and children. It also pays benefits to certain survivors of deceased insured workers. Workers achieve insured status by working and paying Social Security taxes for a sufficient number of years in jobs that are covered under the Social Security system. OASI benefits and administrative costs are paid out of the Federal Old-Age and Survivors Insurance Trust Fund to which current workers, their employers, and self-employed individuals contribute. Under current law, the OASI trust fund's share of the combined 12.4% Social Security payroll tax rate is 10.03%. Social Security Disability Insurance10 Social Security Disability Insurance (SSDI) pays monthly cash benefits to nonelderly insured workers who are unable to perform substantial work because of severe, long-term disabilities and to their eligible spouses and children. Workers become insured in the event of disability by working for a certain number of years in jobs that are covered under Social Security and thus are subject to payroll taxes. SSDI benefits are payable until the disabled worker dies, returns to work, or reaches Social Security's full retirement age (currently 66), at which point the worker transitions to OASI. SSDI benefits and administrative costs are paid out of the Federal Disability Insurance (DI) Trust Fund to which current workers, their employers, and self-employed individuals contribute. Under current law, the DI trust fund's share of the combined 12.4% Social Security payroll tax rate is 2.37%. Supplemental Security Income14 SSI provides cash assistance to needy aged, blind, or disabled individuals, including blind or disabled children. The program's goal is to provide eligible individuals with a guaranteed minimum income to meet their basic needs for food, clothing, shelter, and other daily necessities. To qualify for SSI, a person must have limited income and assets and meet certain other requirements. Monthly SSI benefits are reduced by other countable income, meaning that SSI is often a program of "last resort" for low-income seniors and individuals with disabilities. States may complement the federal SSI benefit with state supplementary payments (SSP) that are made solely with state funds. Federal SSI benefits and administrative costs are paid out of general revenues. Special Benefits for Certain World War II Veterans18 The Special Benefits for Certain World War II Veterans program provides a minimum cash benefit to two groups of low-income individuals living outside of the United States: American veterans of World War II and veterans of the Filipino armed forces that fought alongside the American military during that conflict. To qualify, individuals must have been aged 65 or older on December 14, 1999; have been SSI eligible for that month; be an eligible World War II veteran; have limited income; and reside outside the United States. The program's benefits and related administrative costs are paid out of general revenues. Projected Spending in FY2017 on SSA's Core Programs As shown in Figure 1 , in FY2017, spending on the OASI, SSDI, SSI, and Special Benefits for Certain World War II programs combined is projected to be more than $1.0 trillion. This projection includes benefit payments as well as SSA and non-SSA administrative expenses and certain other costs. Benefit payments account for approximately 98.4% of total projected spending. SSA estimates that the average number of federal beneficiaries of its core programs (adjusted for double counting) will be 68.4 million in FY2017. As noted earlier, benefit outlays for SSA's core programs are considered mandatory spending and therefore are not controlled by annual appropriations acts. Spending on benefit payments for these programs is determined by the eligibility requirements and payment levels specified in each program's authorizing statute. Table 1 shows administrative outlays for each core program as a percentage of benefit payments and for Social Security, as a share of trust fund income. The right column of the table excludes non-SSA administrative expenses and certain other costs, except in the row labeled "Total," which includes costs associated with Medicare. Administrative outlays as a share of benefit payments are greater for SSA's disability programs compared with the OASI program because the disability programs are more complex to administer and therefore require more resources per applicant or beneficiary. As a means-tested program, SSI is particularly complex to administer because SSA must verify all sources of income and resources available to an SSI applicant or recipient as well as the individual's living situation. The high ratio of administrative outlays to benefit payments under the Special Benefits for Certain World War II Veterans program is due primarily to low benefit levels and the steadily decreasing number of individuals in receipt of benefits. In FY2017, SSA projects that the program will pay benefits to fewer than 500 individuals on average. FY2017 Budget Request and Appropriations for SSA Although benefit payments for SSA's programs are considered mandatory spending and thus are not controlled by the annual appropriations process, the agency requires annual discretionary appropriations to carry out its programs and to support the administration of non-SSA programs, such as Medicare. SSA's accounts are traditionally funded via the Departments of Labor, Health and Human Services, and Education, and Related Agencies (LHHS) appropriations bill. This section of the report provides an overview of SSA's appropriations by examining the components of the FY2017 President's budget request for the agency. The report will be updated to reflect SSA appropriations passed by the House and the Senate Committees on Appropriations as well as the enacted appropriation for the fiscal year. For more information on the annual appropriations process, see CRS Report R42388, The Congressional Appropriations Process: An Introduction . FY2017 President's Budget Request The President's budget request to Congress for SSA currently consists of four accounts: (1) Payments to Social Security Trust Funds, (2) Supplemental Security Income Program, (3) Limitation on Administrative Expenses, and (4) Office of Inspector General. The limitation on administrative expenses (LAE) account funds the costs for carrying out SSA's core programs and for supporting the administration of non-SSA programs. The FY2017 President's budget request is summarized in Table 2 . The following section discusses each account in more detail. Payments to Social Security Trust Funds This account is designed to reimburse the OASI and DI trust funds for the costs of certain activities payable by general revenues. It consists of payments permanently and indefinitely authorized—and thus not controlled by annual appropriations acts—and payments controlled through the annual appropriations process. Payments Not Controlled by Annual Appropriations Acts For FY2017, the President's budget projects $39.2 billion in payments that are not controlled by annual appropriations acts. Nearly this entire amount is from subjecting a portion of Social Security benefits to federal personal income tax. The remaining amounts are from reimbursement for union administrative expenses and payments related to changes in the reporting of self-employment income. Payments Controlled by Annual Appropriations Acts For FY2017, the President's budget request includes $11.4 million in payments to the Social Security trust funds that are subject to the annual appropriations process. Of this amount, $5.0 million is for interest earned on benefit checks that remain uncashed for at least six months and $6.4 million is for administrative costs related to the 1974 pension reform legislation. Supplemental Security Income Program The vast majority of funding provided to SSA each year is for the SSI program, which is an appropriated entitlement (mandatory appropriation). As with other entitlement programs, such as Social Security, the level of spending on SSI benefits is controlled through the program's authorizing statute, which sets the criteria used to determine program eligibility and payment amounts. However, because SSI's authorizing statute does not provide authority to make payments to fulfill legal obligations, funding for SSI benefits is provided through mandatory spending that is enacted through annual appropriations acts. SSI-related administrative expenses are also provided through the annual appropriations process. Funding for the SSI program is paid out of general revenues and appropriated to SSA in this account. The SSI account contains three components. First, there is a main or "regular" appropriation for SSI benefits and administrative costs for the current fiscal year, which is described in additional detail below. Second, there is an indefinite appropriation for any costs incurred for the current fiscal year after June 15. This component allows SSA to continue to pay SSI benefits in the event that benefit obligations are greater than expected during the last months of the fiscal year. Third, there is an advance appropriation for benefit payments for the first quarter of the succeeding fiscal year. This component is designed to ensure the timely payment of benefits in case of a delay in next fiscal year's appropriations bill. Funds appropriated for the SSI program remain available to SSA until expended. The FY2017 President's budget request includes $43.8 billion for current fiscal year program costs and $15.0 billion for SSI benefits in the first quarter of FY2018. Total SSI benefits payable in FY2017 are estimated to be $52.9 billion, with $14.5 billion coming from the FY2017 advance appropriation that was enacted as part of the FY2016 appropriations bill. Administrative and Other Expenses In addition to funding benefit payments, the SSI appropriation provides for administrative expenses associated with the program, beneficiary services, and costs related to research and demonstration projects. The FY2017 President's budget request for these administrative and other expenses is $5.4 billion. Administrative expenses for the SSI program are initially paid from the OASI and DI trust funds and are appropriated to the LAE account. The appropriation to the SSI program account for administrative expenses is used to reimburse the trust funds from general revenues for these costs. Administrative expenses for the SSI program include costs related to initial disability determinations, disability hearings and appeals, and program integrity activities. The FY2017 President's budget request for administrative expenses is $5.2 billion. The SSI appropriation also funds beneficiary services, research, and Medicare outreach. Beneficiary services include payments to state vocational rehabilitation (VR) agencies and Ticket to Work employment networks (ENs) for employment services provided to SSI recipients. The FY2017 President's budget request includes $89 million for beneficiary services, $58 million for Title XVI research and demonstration projects, and an additional $2 million for costs associated with the Department of State's two-year special immigrant visa extension for Afghans. Limitation on Administrative Expenses The appropriation for the LAE account funds SSA's administrative costs associated with the OASI, SSDI, SSI, and Special Benefits for Certain World War II Veterans programs as well as costs incurred by the agency to support Medicare and certain other non-SSA programs. This account also funds administrative functions, such as the operations of SSA's more than 1,200 field offices nationwide, employment verification, information technology activities, and the Social Security Advisory Board (SSAB). The LAE account is discretionary and thus controlled through the annual appropriations process. The funds that make up this account come from Social Security's OASI and DI trust funds, Medicare's Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) trust funds, general revenues, and certain fees collected by SSA. Figure 2 provides a breakdown of budget authority for the LAE account in the FY2017 President's budget request. The FY2017 President's budget request for SSA's LAE account is $13.1 billion. This overall appropriation consists of the base LAE appropriation, additional appropriations for program integrity activities, and appropriations for LAE activities from user fees paid to SSA. The base LAE appropriation is the general appropriation for SSA's administrative expenses. The FY2017 President's budget request for the base LAE appropriation is $11.1 billion ( Table 3 ). The following subsections explain the program integrity and user fee components of the total LAE appropriation in more detail. Program Integrity Activities The FY2017 President's budget request includes $1.8 billion for costs associated with SSA's program integrity activities, which include continuing disability reviews (CDRs) and SSI redeterminations. CDRs are periodic reviews of disabled Social Security and SSI recipients to determine if they continue to meet the statutory definition of disability. SSI redeterminations are periodic reviews of non-medical eligibility factors (i.e., income, assets, and living arrangements) to determine if SSI recipients are still eligible for the program and are receiving the correct payment amount. Section 101 of the Budget Control Act of 2011 (BCA; P.L. 112-25 ) amended Section 251 of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177 ) to reestablish discretionary spending limits (caps) as part of the annual appropriations process. The BBEDCA permits the caps to be adjusted for certain purposes, one of which is program integrity work related to SSA's disability programs. Specifically, the BBEDCA allows the annual caps to be increased by the amount by which funds appropriated to SSA for CDRs and SSI redeterminations for a fiscal year exceed $273 million, up to a specified maximum level for each fiscal year from FY2012 through FY2021. Section 815 of the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74 ) amended the cap adjustment levels in the BBEDCA to permit higher maximum adjustments for FY2017 through FY2019 and a lower maximum adjustment in FY2021 ( Table 4 ). The FY2017 President's budget request for $1.819 billion in program integrity funding includes the maximum base amount of $273 million and the full cap adjustment of $1.546 billion authorized under the BBA 2015. In addition to modifying the cap adjustment levels in the BBEDCA, the BBA 2015 expanded the types of program integrity activities for which cap adjustment funding can be used to include Cooperative Disability Investigations (CDI) Units and fraud prosecutions by Special Assistant United States Attorneys (SAUSAs). The CDI program is a multi-agency effort between SSA, the Office of the Inspector General (OIG), state Disability Determination Services (DDS) agencies, and state and local law enforcement to investigate suspicious or questionable disability claims under the Social Security and SSI programs. SAUSAs are attorneys from SSA's Office of the General Counsel who are dedicated to prosecuting fraud cases referred by the OIG that otherwise would not be prosecuted in federal court. Furthermore, the BBA 2015 clarified that the term continuing disability reviews includes work-related CDRs, which are reviews of disabled Social Security beneficiaries to determine if their earnings and related work activity are within applicable limits and if benefits should continue. User Fees The FY2017 President's budget includes a request for $127 million in LAE appropriations from two user fees collected by SSA, with $126 million from fees collected from states for the administration of their supplementary payments to the SSI program. An additional $1 million was requested from fees paid by non-attorney representatives for certification to represent claimants during the application and administrative appeals process. Office of Inspector General The OIG investigates fraud, waste, and abuse within SSA's core programs and audits such programs to determine their effectiveness and efficiency. The OIG also monitors improper receipt of federal benefits; investigates certain crimes committed by SSA employees, contractors, and program beneficiaries; and supports larger government-wide homeland security efforts. The FY2017 President's budget request for the OIG is $112 million, of which $31 million is from general revenues and $81 million is from the OASI and DI trust funds as authorized by Section 201(g)(1) of the Social Security Act for costs associated with the OASI and SSDI programs. FY2017 SSA Commissioner's Budget Request SSA became an independent federal agency on March 31, 1995, after enactment of the Social Security Independence and Program Improvements Act of 1994 ( P.L. 103-296 ). Section 104(a) of this legislation granted the SSA Commissioner—formally known as the Commissioner of Social Security—the authority to submit to Congress, without revision, a budget request. This budget request is independent of the President's budget request for the agency and generally includes a request for total administrative funding and a request for OIG funding. The Commissioner's budget is included in the section on SSA in the appendix to the President's budget. The FY2017 Commissioner's budget for SSA administrative funding is $13.9 billion, which represents $13.6 billion for administrative expenses, $128 million for research, and $121 million for the OIG. FY2016 Budget Request and Appropriation for SSA's LAE Account The regular LHHS appropriations bill was passed as part of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) on December 18, 2015. The total FY2016 appropriation for SSA's LAE account was nearly $12.2 billion—2.8% less than the $12.5 billion requested in the President's budget for that year ( Table 5 ). Trends in the Budget Request and Appropriation for SSA's LAE Account As shown in Figure 3 , for each year since SSA became an independent agency, the commissioner's budget has exceeded the President's request in nominal (unadjusted) dollars. In all but two of these fiscal years, FY1997 and FY2009, the final appropriation from Congress, taking into account any rescissions, has been less than the commissioner's budget. Only in FY1997, FY2008, FY2009, and FY2014 has the final appropriation exceeded the President's request. In FY2014, the President's request included a legislative proposal for a dedicated source of funding for program integrity activities, instead of a request for discretionary cap adjustment funding. If the funding associated with this legislative proposal is included, then the final appropriation for FY2014 is less than the President's request. Figure 4 shows historical trends in appropriations for SSA's LAE account using three measures: nominal dollars, price-indexed dollars, and wage-indexed dollars. The lower line labeled "Nominal Dollars" shows a steady increase in the appropriation for the LAE account over the last 20 years, although the rate of this increase seems to have slowed since FY2010. The middle line labeled "Price Indexed to 2016 Dollars" shows the trend in SSA's LAE appropriation adjusted for changes in prices, as measured by the Consumer Price Index for All Urban Consumers (CPI-U). Although the price-indexed line is flatter than the nominal line, there is a noticeable rise in the appropriation for SSA's LAE account during the FY2000s. Between FY2010 and FY2013, however, the value of appropriation declines in real terms, only to increase slightly through FY2016. Another method for examining historical trends in SSA's LAE account is to adjust the annual appropriation for wage growth. The majority of SSA's administrative budget is obligated for payroll expenses, which include pay raises due to step increases, promotions, and cost-of-living adjustments. Because wages tend to grow faster than prices, annual increases in payroll expenses, which are largely fixed costs, can increase an agency's administrative expenses faster than the rate of inflation. The top line labeled "Wage Indexed to 2016 Dollars" shows the trend in the appropriation for SSA's LAE account adjusted for changes in wages, as measured by SSA's Average Wage Index (AWI). Unlike the price-indexed line, the wage-indexed line shows a steady decline in the value of SSA's appropriation for the LAE account in real terms starting in FY2010 and continuing through FY2016.

The Social Security Administration (SSA) is responsible for administering a number of federal entitlement programs that provide income support (cash benefits) to qualified individuals. These programs are Old-Age, Survivors, and Disability Insurance (OASDI), commonly known as Social Security; Supplemental Security Income (SSI) for the Aged, Blind, and Disabled; and Special Benefits for Certain World War II Veterans. In FY2017, SSA's programs are projected to pay a combined $1.0 trillion in federal benefits to 68.4 million recipients. Spending on administrative costs for these programs is projected to be about 1.3% of benefit outlays. Although benefit payments for SSA's programs are considered mandatory spending and thus are not controlled by the annual appropriations process, the agency requires annual discretionary appropriations to carry out its programs and to support the administration of non-SSA programs, such as Medicare. SSA's funding is part of the Departments of Labor, Health and Human Services, and Education, and Related Agencies (LHHS) appropriations bill. The FY2017 President's budget request for SSA's limitation on administrative expenses (LAE) account, which funds virtually all of SSA's operations, is $13.1 billion. Of this amount, $1.8 billion is for program integrity activities, which include continuing disability reviews (CDRs) and SSI non-medical redeterminations. The total FY2016 appropriation for SSA's LAE account was $12.2 billion, with $1.4 billion dedicated to program integrity work. This report provides an overview of SSA's mandatory spending but focuses primarily on discretionary appropriations for the agency's administrative expenses.

Introduction Is the U.S. strategic architecture in Asia well-suited to adjust to the evolving correlates of power in Asia? The region is now facing an array of changes: deepening trade links, the formation of new regional institutions, and increased attention to the threat of Islamic terrorism. Some analysts have questioned whether U.S. security interests are best served by the existing framework of bilateral alliances, while others believe the basic architecture is sound and may only require some relatively minor changes and/or additions to meet emerging challenges. Calls for a revision of America's security architecture in Asia may be a reaction to the development of new regional groups that exclude the United States. The goals of America's strategic architecture in Asia have traditionally included preventing the dominance of Asia by any single power or coalition of powers; maintaining a system of alliances to facilitate the projection of American power when needed; and securing sea lanes of communication to facilitate American commercial access and the free flow of trade in the region. American power can also be used to promote American values such as democratic governments or provision of humanitarian and disaster assistance. China's Rise China's rise represents the key driver in the changing security landscape in Asia. China is now attracting regional states with its economic power and is offering a competing vision to the U.S.-centric "hub and spoke" system of alliances that was largely established in the post-World War II period. China's alternative is largely being constructed around trade relationships and diplomatic initiatives manifest in the East Asia Summit, the Association of Southeast Asian Nations (ASEAN) + 3 forum, various Chinese bilateral free trade initiatives, and China's "charm offensive." Some also interpret China's more active involvement in the Shanghai Cooperation Organization (SCO), which conducted substantial military exercises in 2007, as China's attempt to develop an alternative security group to America's security partnerships in the region. China's announced defense spending rose by 17.8% to approximately $45 billion 2007, following a 14.7% increase in 2006. Some analysts estimate real Chinese defense expenditure to be up to three times this amount. In many ways, the emerging regional security groupings evoke heartland-rimland geopolitical debates along the lines drawn by Sir Halford Mackinder and Alfred Thayer Mahan a century ago. While such geopolitical writers' theories have conceptional value, there is a danger that such paradigms can lead to needless confrontation. Though the rise of new great powers on the world stage historically has been destabilizing, if not a source of open conflict, many believe that China's rise (or resurgence) can be accommodated in a way that preserves U.S. interests and values in the region. In essence, China's increasing economic, diplomatic, and military strength is compelling countries to rethink existing security arrangements and take initial steps that may lead to the formation of regional groupings of nations with common interests and values. The impetus behind these initiatives stems from three sources. First, economic forces of trade and investment in Asia have largely been generated by private business interests in an increasingly globalized world. National governments have widened the paths already established by trade and investment flows by concluding free-trade and other regional economic agreements. Second, diplomatic initiatives to increase political cooperation among states are generated by national governments seeking to protect their national interests and achieve national goals. The resulting regional organizations have provided a venue for face-to-face meetings and dialogue, but harmonizing political interests among Asian nations has been considerably more complicated than reducing trade and investment barriers through free-trade agreements. Third, security and military cooperation stems primarily from national perceptions of security threats—both current and future. Much of this military cooperation can be conducted "under the radar" using the guise of military exercises to test interoperability and communications. There are signs that regional states anticipate a fading of American influence in the region relative to the rise of China. This is partially driven by negative opinions of U.S. foreign policy. Despite recent American initiatives, some analysts believe that Asia is turning away from the United States and that, while the U.S. retains great influence in the region, this will not last given current trends. A fundamental restructuring of American foreign policy priorities and mechanisms may, in the view of some, be necessary in order for America's poor public perception in the region to be changed. Other Geopolitical Challenges Beyond rising competition between the United States and China, other key geopolitical developments or potential conflict scenarios in Asia include rivalry between China and Japan, renewed tensions between India and China, the North Korea nuclear program, increasing competition for energy resources, resurgent Islamist challenges to Western interests and to moderate Muslim governments, renewed Russian focus on its security interests in Asia, instability and unrest in Burma and Thailand, and security challenges resulting from climate change. In addition, existing challenges remain, such as ongoing tension between India and Pakistan, and potential for military conflict on the Korean Peninsula or in the Taiwan Strait. An assessment of U.S. security interests in Asia must consider such challenges and shifts in the correlates of power in Asia. U.S. Response The United States has begun to respond to these shifts and challenges in several ways. The United States has sought to reinvigorate its bilateral alliances and security ties with regional states such as Australia, Japan, and Singapore; launched an ASEAN-U.S. Enhanced Partnership Agreement; reopened military-to-military ties with Indonesia; and raised the profile of the Trilateral Security Dialogue with Japan and Australia. It also has embarked on a major initiative to develop a strategic security relationship with India. Currently, the Pentagon seems to be out in front of the rest of the U.S. government in fostering actual multi-national security cooperation among the major democratic states of Asia. In early 2007, Vice President Dick Cheney proposed the idea that India join the trilateral group to make a quadrilateral group of like-minded democratic states. In May 2007, representatives from the United States, India, Japan, and Australia reportedly met on the margins of the ASEAN Regional Forum meeting in the first exploratory meeting to discuss quadrilateral ties. Beijing is thought to be suspicious of such developments and fears that they are aimed at the containment of China. China issued formal diplomatic protests to Australia, Japan, and India out of concern that they were forming a security alliance with the United States against China. The U.S. force structure is shifting to adapt to regional developments in the Asia Pacific. U.S. forces have been shifted to Guam as plans have moved forward to reposition and reduce the U.S. military posture in Japan and in South Korea. The U.S. military buildup on Guam can serve to maintain U.S. military deterrence and warfighting capabilities for a number of potential conflict scenarios in the Asia-Pacific region. Congressional Role Currently, the congressional role is primarily in oversight and monitoring of developments in Asia and in ensuring that U.S. interests are protected as the new Asian security architecture evolves. The policy questions revolve mainly around intensity (how much effort and budget to devote to Asia compared with that going to other regions of the world) and inclusiveness (which countries to include). The intensity question seems particularly pertinent now since much of Asia perceives that U.S. attention is overly focused on Iraq and terrorism while China is quietly using its economic muscle and diplomatic charm to draw Asian nations more into its sphere of influence. The inclusiveness issue also seems pertinent given the historical U.S. reliance on the "hub and spoke" system of military alliances, the fear by China of "encirclement," and the widely held precept that more democratic nations are less likely to pose a security threat to the United States. Other relevant congressional involvement includes the passage of a bill in 2006 that calls for the appointment of an overall U.S. ambassador to ASEAN, as well as the need for Senate ratification of the U.S.-Australia Treaty on Defense Trade Cooperation. Democratic Values The Bush Administration has consistently advocated that U.S. interests are best served by partnering with nations that share democratic values. In September 2007, President Bush proposed the creation of a new Asia Pacific Democracy Partnership to "provide a venue in which free nations will work together to support democratic values, strengthen democratic institutions, and assist those who are working to build and sustain free societies across the Asia Pacific region." Some critics of the policy argue that "values-based diplomacy" may be simply a code word for excluding China and that it may feed Beijing's fear of Washington's strategic encirclement. Few in the region would support a development that would threaten regional economic prosperity that is to a large extent dependent on rapidly expanding trade with China. Bilateral Defense Relationships China's rise has had a clear impact on existing and nascent defense relationships in the Asia-Pacific region. This section provides a brief assessment of the state of bilateral relationships among the United States, Australia, Japan, and India. Some defense ties are well-established and multi-layered, while others are embryonic. Each section examines the history of ties, current political climate, rationales for engagement, and challenges to cooperation. U.S.-Australia15 The United States-Australia strategic and defense relationship under the rubric of the Australia-New Zealand-United States (ANZUS) alliance remains extremely close. Australian access to intelligence and American arms is a key aspect of the bilateral relationship. A long-standing treaty ally, Australia has fought alongside the United States in most of America's wars and established a Free Trade Agreement with the United States in 2005. In September 2007, the nations signed the Australia-United States Treaty on Defense Trade Cooperation, which would ease restrictions associated with the International Trade in Arms Regulations (ITAR) by creating a comprehensive framework within which most defense trade can be carried out without prior government approval. Only the United Kingdom has signed a similar agreement with the United States. Despite these ties, the relationship faces diplomatic recalibration. Prime Minister John Howard, a staunch supporter of Bush Administration policies, was defeated in parliamentary elections in November 2007. His replacement, Kevin Rudd of the Labor Party, while recognizing the constructive role that the United States plays in underpinning security in the Asia Pacific as well as the centrality of the ANZUS alliance to Australian security interests, has distanced himself from aspects of U.S. policy. Australia looks to prudently position itself in evolving Asian power dynamics. Rudd, a former diplomat to China who is fluent in Mandarin, is likely to avoid policies that could be interpreted by the Chinese as being part of a containment strategy. Although there is a range of debate on the correct path that Australia should take on regional security developments in Asia, it appears that Australia will not pursue security linkages that could jeopardize its economic relationship with China. Some in Australia seek to define a position for Australia more equidistant between the United States and China to resist being drawn into a club of Asian states based on democratic values that hints of attempting to contain Beijing. Australia's key defense policy document, Defence Update 2007, discusses the importance of Australia's strategic relationship not only with the United States but also with Japan, Indonesia, and India. Australia's 47% increase in defense spending since Howard assumed office in 1996 also reflects growing uncertainty in Australia with the evolving strategic environment in Asia. This uncertainty was a driver in Australia's pursuit of a security agreement with Japan. While Canberra is eager to maintain lucrative trade ties with Beijing, it is concerned over China's military build-up. Former Prime Minister Howard stated "the pace and scope of its (China's) military modernization, particularly the development of new and disruptive capabilities such as the anti-satellite missile, could create misunderstandings and instability in the region." The 2007 Defence Update also states that the China-U.S. relationship "must be managed carefully." On the other hand, at times Canberra appears anxious not to antagonize Beijing: in 2004, former Australian Foreign Minister Alexander Downer commented that the ANZUS treaty did not necessarily bind Australia to enter a conflict over Taiwan. United States-Japan23 For the United States, its alliance with Japan provides a platform for U.S. military readiness in Asia. About 53,000 U.S. troops are stationed in Japan and have the exclusive use of 89 facilities throughout the archipelago. Okinawa, hosting 37 of the facilities, is the major U.S. forward logistics base in the Asia-Pacific region. Since roughly 2001, Japan has developed a more muscular foreign policy and forward defense posture, including bolstering its military alliance with the United States. High-level U.S.-Japan bilateral statements have declared an expanded commitment to security cooperation by establishing common strategic objectives, outlining major command changes, and calling for greater interoperability between the two militaries. Japan's contributions to operations in Afghanistan and Iraq reinforced the notion of the alliance as one of the central partnerships of U.S. foreign policy in Asia. Led by former Prime Ministers Junichiro Koizumi and Shinzo Abe, Japan has moved to re-tool its pacifist post-World War II stance. In December 2006, Japan's Defense Agency was formally upgraded to a ministry for the first time since World War II, and the ruling party has approved a referendum process to amend the constitution, including the war-renouncing Article 9. Although Article 9 states that "land, sea, and air forces, as well as other war potential, will never be maintained," the Japanese Self-Defense Forces (SDF) are in practice a well-funded and well-equipped military. U.S. officials have consistently voiced support for Japanese steps to "normalize" its defense posture. As part of its effort to improve its own capability, as well as work more closely with U.S. forces, Japan has created a new joint staff office that puts all the ground, maritime, and air self-defense forces under a single command. A bilateral coordination center at Yokota Air Base will focus on missile defense cooperation, while a new SDF "Central Readiness Force Command" will be established at Camp Zama to create a joint operations facility with the U.S. Army command. The co-located headquarters, due to be completed by 2012, are anticipated to facilitate both greater U.S.-Japan cooperation as well as overall SDF "jointness." SDF participation in U.S.-led military operations has led to substantial interaction and cooperation with U.S. forces, from logistics training in Kuwait before dispatching to Iraq to working together on disaster relief operations following the December 2004 tsunami in the Indian Ocean. Bilateral interoperability was also tested in June-July 2006 as North Korea was preparing to test-launch a missile; ballistic missile defense coordination was carried out under real threat circumstances. Recent events and political uncertainty in Japan may have slowed some of the increased cooperation in the U.S.-Japan alliance. Although ties remain strong fundamentally, the Bush Administration shift on North Korean nuclear negotiations, the July 2007 House resolution criticizing the Japanese government for past "comfort women" policies, and the apparent decision not to consider exporting the F-22 to Japan may have undermined to some degree Japanese confidence in the robustness of the alliance. Koizumi and Abe's platform of enhancing Japan's role in global affairs had been encouraged by U.S. officials who saw Japan's strategic interests aligning with their own. While Abe's successor Fukuda remains committed to the alliance relationship, he is considered to be more cautious in terms of adjusting Japan's security stance. Further, implementation of U.S. force realignment agreements depends on Tokyo providing the necessary resources and political capital. Because the realignment and transformation initiatives involve elements that are unpopular in the localities affected, successful implementation depends on leadership from the central government. If Fukuda's party continues to struggle to re-establish itself, details of the hard-fought agreements designed to sustain the alliance politically may falter. United States-India24 The Bush Administration has pursed a strategic partnership with India since 2004, leading to a fundamental reorientation of the bilateral relationship. Many have viewed India and the United States as natural partners given that they are the world's two most populous democracies. Efforts by Washington and New Delhi, and bipartisan congressional support for U.S.-India civilian nuclear legislation, has made U.S.-India relations arguably "closer than ever before." In July of 2005, President Bush and Prime Minister Manmohan Singh issued a joint statement to establish a "global partnership." Congress then endorsed the United States and India Nuclear Cooperation Promotion Act of 2006 ( P.L. 109-401 ). The United States and India also signed a new Defense Framework Agreement in 2005. U.S. policymakers appear now to perceive India as a key geopolitical actor in Asia rather than viewing the country through the lens of nuclear proliferation. During the Cold War, India was more closely aligned with the Soviet Union despite being a democracy. In the post-Cold War period, India and the United States remained distant as a result of continuing U.S. emphasis on proliferation and on Pakistan. At the same time, the prevailing Indian philosophy continued to view the world to a large extent through the prism of the Non-Aligned Movement, which India helped to create. The rise of China, energy issues, radical Islam, and a de-linking of the U.S.-Pakistan relationship from the U.S.-India relationship all have contributed to a perception of India as a desirable strategic partner in Asia. China plays a prominent, though nuanced, role in the recent U.S.-India strategic convergence. An older generation of Indian security officials still resent China for the 1962 Sino-Indian border war, while a new generation is more amenable to India-China cooperation. India has potential areas of concern with China, such as competition for energy resources and unresolved border disputes, yet India is resistant to playing a subordinate role in any U.S. strategy to contain China. Some in India reportedly are concerned over rising competition with China and what some see as a potential strategic encirclement of India through China's relationships with countries such as Pakistan and Burma. India's efforts to extend the strategic reach of its navy and attain broader blue water capabilities, including outside the Indian Ocean, may be motivated by China as well as protection of surrounding sea lanes. The development of India's longer range missile capabilities also reflects concerns with China. U.S. interest in India may have led to increased Chinese interest in developing ties with India. Over the past four years, India-China trade has quadrupled to more than $20 billion per year. While the U.S.-India civil nuclear agreement has, at least for the present, been derailed by Prime Minister Manmohan Singh's left wing allies in parliament, sufficient momentum in the bilateral relationship appears to have been created to keep the goal of developing closer ties between New Delhi and Washington on track. Others fears that the collapse of the civilian nuclear deal could severely hamper the expansion of bilateral relations. The challenge for the next Administration will, according to some, be to build on the achievements of both the Clinton and Bush Administrations. This can be done by adding "ballast" to the relationship through expanded trade and defense ties including an announced goal of doubling bilateral trade in three years, a move toward greater defense technology sharing, strengthened U.S.-India military cooperation and possible co-production of weapons systems, and expanded counterterrorism cooperation. India's standing in American strategic calculations also may rise should Pakistan devolve into further political unrest. Japan-Australia Fortified by a vibrant trade relationship, Tokyo and Canberra recently moved to upgrade defense ties. The impetus from both capitals to establish security cooperation may be a combination of fears of China's military modernization and a drive to further expand the capabilities of the Japanese military by working with another stalwart U.S. ally. In addition to annual bilateral trade of about $60 billion, Japan and Australia began negotiations for a free trade agreement (FTA) in April 2007. Cultural and educational exchanges are also extensive. In March 2007, the countries concluded a security agreement, the first formal defense relationship for Japan outside of the U.S.-Japan alliance. Prime Ministers Howard and Abe released a statement affirming a "strategic partnership" based on shared democratic values and common security interests in the Asia-Pacific and beyond. Specific areas of cooperation outlined included counterterrorism, peace operations, disaster response, international law enforcement, and counter-proliferation of weapons of mass destruction. The agreement stems from some successful cooperation in the past, most notably the protection of the Japanese Self-Defense Forces by Australian troops during their reconstruction mission in Samawah, Iraq. Analysts have labeled the arrangement as somewhere between a formalized alliance and a more project-based "coalition of the willing." Australia, like the United States, has an interest in encouraging Japan to "normalize" its defense posture and contribute more actively to regional stability. The defense establishment in Australia generally views Japanese willingness to shed its self-imposed restraints as a positive development. In the past, Japan had been more cautious in considering any security arrangements with Australia, despite encouragement from Canberra. Many defense planners in Australia consider Japan to be a crucial component of the U.S. commitment to security in East Asia; strengthening the third leg of the trilateral security arrangement is seen as likely to have benefits for the U.S.-Australia alliance as well. Relaxation of the Japanese ban on collective self-defense, which would allow Japan to participate in regional contingencies, would likely also be welcomed by Australian defense planners. On the other hand, some voices in Canberra stress the need for Australia to develop itself as an Asian power, independent from the U.S. position. From this vantage, Japan-Australia security cooperation could point to a new order no longer based entirely on a hub and spoke system with Washington at the center. Tokyo and Canberra share a wariness of Beijing's increasing military and political strength, a factor driving their cooperative initiatives. Despite a recent warming of relations, however, Sino-Japanese rivalry is far stronger and historically rooted than any tension in the Australia-China relationship. Australia has consistently emphasized the importance of the economic relationship with China and avoided offending Beijing, including not taking sides on any Asian historical issues. Drawing closer to Tokyo may risk Australia's ability to play the role of honest broker in Asian power relations. Japan-India Japan and India's bilateral relationship is relatively undeveloped, but both capitals have signaled an intention to significantly upgrade their economic and strategic ties. Japan and India have found common ground in their quests to gain permanent membership on the United Nations Security Council, joining with Brazil and Germany in a formal campaign in 2004. Although overall bilateral trade remains very modest (under $7 billion in 2006), India has been the largest recipient of Japanese foreign assistance for the past four years, displacing China. Japanese foreign direct investment (FDI) in India has soared as Japanese companies look to hedge their risks after investing heavily in China for the past several years. The most ambitious project is a $90 billion Delhi-Mumbai industrial corridor, for which Japan is expected to provide billions in loans and private investments. Reciprocal visits between Prime Ministers Singh and Abe in December 2006 and August 2007 advanced the fledgling partnership. In addition to a series of economic cooperation agreements, including a feasibility study for an FTA, the leaders looked to enhance the military-to-military relationship. All three SDF chiefs visited India in 2006-2007, and Indian vessels visited Yokosuka Naval Base outside of Tokyo. Other defense initiatives include sea-lane security cooperation, military exchanges, and regular meetings of both navies. Although support for bilateral ties remains, Abe has stepped down and Singh has struggled politically, leaving some question as to whether the leadership in both Tokyo and New Delhi intends to maintain the momentum of the signed agreements. Both Japan and India have a strategic interest in balancing China's power in the region. Japan was a strong advocate of admitting India as a member of the East Asia Summit (EAS) as a way to dilute China's dominance of the meeting. As India's economic strength has grown, it has stretched itself strategically as well, increasingly entering the arena of Pacific powers. For both India and Japan, partnering with other Pacific militaries, particularly navies, provides a maritime balance to China, although India is more reluctant to adopt a stance that could be perceived as confrontational by Beijing. For Japan, cooperating with India's navy provides a valuable chance to train in the Indian Ocean; training and exercises elsewhere in East Asia raise uncomfortable issues because of many countries' lingering memories of Japan's wartime aggression. Japan's and India's nascent strategic partnership represents a reversal from the harsh criticism and economic sanctions that Tokyo imposed on India following its 1998 nuclear tests. The issue of nuclear proliferation could be an area of potential contention between Japan and India. After the United States and India agreed to cooperate on civilian nuclear power, Japan voiced its reservations that this move would damage the Nuclear Non-Proliferation Treaty (NPT). Despite Japan's traditionally strict observance of international proliferation principles, Tokyo appears to have decided not to oppose the proposed U.S.-India civilian nuclear deal if it reaches the Nuclear Suppliers Group for approval. The leaders' joint statement in August 2007 noted that they "shared the view that nuclear energy can play an important role as a safe, sustainable and nonpolluting source of energy." Australia-India The Australia-India relationship has long been underdeveloped. This is somewhat surprising given that the two nations share a number of traits: democratic government, the English language, membership in the British Commonwealth, complimentary economies, a love for cricket, location in the Indian Ocean region, and a common cause against Islamist terrorism. Australia has periodically rediscovered India and sought to develop more substantial ties, with limited success. Once again, Australia and India appear to be seeking a closer relationship. Australia-India defense ties were reestablished in 2000, after a hiatus due to differences over India's nuclear test in 1998. These ties have been largely limited to senior level visits and staff college exchanges. In July 2007, Australia and India signed an Information Sharing Arrangement to facilitate the sharing of classified information between the defense departments, particularly in areas such as counterterrorism, peacekeeping, and maritime security. The arrangement facilitates practical cooperation and provides substance to a Memorandum of Understanding on Defence Cooperation signed during Prime Minister Howard's visit to India in 2006. Such an initiative can be viewed as part of India's desire to play a larger role in Asian affairs beyond South Asia and the northern reaches of the Indian Ocean and to begin to shape its geopolitical environment within a larger Asian context. It also appears to be part of an Indian strategy to balance the rise of China in Asia by drawing others in. While Australia has sought greater cooperation with New Delhi, it has placed limits on that apparently for fear of antagonizing the Chinese. Newly elected Prime Minister Rudd has identified India as a key emerging power in Asia, but his reservations about uranium sales to India may stall the bilateral relationship. Howard had been willing to consider the sales if the U.S.-India civilian nuclear deal went through, a deal which he supported. Some in New Delhi view a uranium deal for India as "something of a litmus test of the Australian government's wish for a genuine partnership." According to one leading Australian analyst on India, "underlying many of Canberra's decisions about its relationship with India will be an awareness that the Asian regional security order is entering a difficult phase. The regional great powers are all hoping to shape the emerging regional architecture" and India will have a key role in that. Developing Trilateral Fora As the Bush Administration has pursued stronger defense relations with Australia, Japan, and India, initiatives for trilateral efforts among the nations has emerged. Nascent three-way cooperation has built on existing bilateral alliances to further U.S. goals in the region by combining forces among partners and allies. U.S.-Japan-Australia Washington, Tokyo, and Canberra have pursued a formalized trilateral strategic grouping through leaders' meetings and naval exercises. On the sidelines of the Asia Pacific Economic Cooperation (APEC) forum in September 2007, President Bush, Prime Minister Howard, and Prime Minister Abe met to reaffirm the three-way strategic dialogue. Australian and Japanese officials strived to reassure Beijing about the meeting, saying that the focus of the talks were not "directed at any country." In October 2007, navies from the three countries conducted a drill in the Pacific west of Japan's southern Kyushu island that involved two destroyers and two P-3C anti-submarine patrol planes from the Japan MSDF and one P-3C patrol plane each from the U.S. Navy and the Australian air force. The joint exercise simulated search and rescue activities as well as an attack on a Japanese escort ship. An integrated missile defense system, currently under consideration, may be among the most advanced of potential trilateral arrangements. After North Korea tested ballistic missiles in July 2006 and then a nuclear device in October 2006, Japan and the United States accelerated the development of a joint missile defense system that employs both land and sea-based capabilities. Australia, a long-time U.S. intelligence partner, already has expressed a willingness to share information from its satellite tracking system. Equipment compatibility would allow Canberra to join a trilateral arrangement; the government is in the process of acquiring three destroyers equipped with the Aegis combat system, the same system used by the U.S. and Japanese militaries. Although development of a missile defense shield has been cast in terms of the threat from North Korea by officials from all three countries, many analysts see China as the longer-term threat and rationale for developing a sophisticated, multi-nation system. This goal remains challenging, however, particularly given that a strict interpretation of Japan's constitution may forbid Japan to shoot down missiles that are not headed for its territory. U.S.-Japan-India The United States and Japan have sought similar trilateral arrangements with India. Compared with their respective relationships with Australia, U.S. defense cooperation and Japanese economic ties are far more modest with India. The significant strategic benefits of partnering with India, given its size and geographical location, have driven the aggressive pursuit of a more formalized security relationship. Although the three nations have not held a formal meeting, key bilateral statements have indicated support for a trilateral fora from all three capitals. In the May 2007 "2+2" meeting joint statement, the U.S. and Japanese foreign and defense ministers affirmed the shared strategic objective of "continuing to build upon partnerships with India to advance areas of common interests and increase cooperation." When Prime Minister Singh visited Tokyo in December 2006, he publicly welcomed the idea of consultation with "like-minded nations." Navies of the three countries operationalized the initiative with joint naval drills in the Pacific off Japan's east coast in April 2007. The exercise featured two U.S. destroyers, four Japanese escort vessels, and three Indian warships and focused on cooperation in the event of a major natural disaster. Evolving Multilateral Dynamics As trilateral initiatives have taken shape, talk of a quadrilateral grouping—which would tie together the United States, Japan, Australia, and India—has emerged. Advocates for expanding quadrilateral cooperation have pointed to the "Regional Core Group" that formed in the aftermath of the 2004 Indian Ocean tsunami as a model. Former Japanese Prime Minister Abe was perhaps the most vocal supporter of the four-way forum. Incoming Prime Minister Rudd, however, may have doubts about a quadrilateral grouping. Because of the fall from power or declining political fortunes of the leaders who supported the quad, it is uncertain that enthusiasm will remain for building a stronger arrangement. Malabar Multilateral Exercises Although no formal quadrilateral groupings exist, the Malabar 07 military exercises provided an opportunity to test naval cooperation. The Malabar exercises have traditionally been U.S.-India bilateral exercises, begun in 1994. The April 2007 exercises featured the United States, India, and Japan, and were held off the coast of Okinawa. A second round of exercises held in September was expanded to include the navies of Australia and Singapore. The five-nation exercise in the Bay of Bengal, a strategically significant location because of the approach to the Singapore and Malacca Straits, featured over 20,000 personnel, 28 ships, 150 aircraft, and 3 aircraft carriers. The navies together practiced maritime interdiction, surface and anti-submarine warfare, and air combat exercises. Military officials leading the exercises emphasized the value of practicing interoperability, for use in both high-level warfighting and future humanitarian responses. China bristled at the exercises, questioning whether the grouping may form what some analysts have dubbed an "Asian NATO." U.S. military officials insisted the exercises were not directed at any particular country, but one officer claimed that the demonstration "provides a message to other militaries, and our own, that we are capable of operating together and that we work together with our regional partners to ensure stability in the region." The naval exercises took place less than a month after the Shanghai Cooperation Organization (SCO) staged its own joint military exercises, with member states Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan all contributing troops. Dubbed Peace Mission 2007 , the exercise featured over 4,000 ground troops and over 1,000 pieces of equipment, including 500 combat and special vehicles and 70 fixed-wing airplanes and helicopters. After multiple rehearsals, the anti-terrorist drill was staged in front of the SCO member states' leaders in conjunction with the annual meeting in Kyrgyzstan. Although both Malabar and Peace Mission officials emphasized that their exercises were not aimed at any particular other states, the proximity both geographically and temporally led many observers to point out a potentially destabilizing competition between two military blocs. Potential Challenges and Opportunities for the United States Political Changes Despite initial enthusiasm for forming trilateral and/or quadrilateral security arrangements, the conservative leaders who originally supported the idea have all been compromised by their own domestic political situations. Abe left office precipitously in September 2007 after his party suffered a major parliamentary defeat; Howard was soundly defeated in November 2007 in the Australian parliamentarian elections; Singh's ruling coalition has struggled to stay intact; and President Bush faces political challenges and low public approval ratings. Maintaining the momentum for the multilateral initiatives may be challenging, depending on the inclinations of incoming administrations. Currently, the quadrilateral grouping appears to be on hold, and it remains to be seen if geopolitical forces will push cooperation forward. Japan's Restraints Despite Abe's strong support for expanding security ties with India and Australia, Japan's involvement in any multilateral security fora will be restricted, both legally because of Article 9 and socially because of the public's pacifist sentiments which—while declining—still remain strong. Japan's approach to the principle of "collective self-defense" has in the past been considered an obstacle to close defense cooperation. The term comes from Article 51 of the U.N. Charter, which provides that member nations may exercise the rights of both individual and collective self-defense if an armed attack occurs. A 1960 decision by Japan's Cabinet Legislation Bureau interpreted the constitution to forbid collective actions because it would require considering the defense of other countries, not just the safety of Japan itself. Abe convened a special commission to study whether the constitutional interpretation should be changed, and the members were widely expected to recommend that collective self-defense be allowed. As a result of Abe's resignation in 2007, the campaign to adjust the constitutional interpretation will likely stall, as new Prime Minister Yasuo Fukuda is considered unsupportive of the move. U.S. officials have pressured the Japanese government to allow collective self-defense, particularly in terms of allowing Japan to intercept missiles aimed at U.S. targets. Military engagement with other regional powers is likely to meet with more public and bureaucratic resistance than furthering cooperation with the United States. Australia's Posture America's key policy challenge in its alliance relationship with Australia will, according to some analysts, be to keep this staunch ally from shifting to a position where Canberra sees its role as a mediator between the United States and China rather than focused on working unambiguously with the United States. This may involve countering Chinese attempts to drive a wedge between the United States and Australia. The unpopularity of the Bush Administration in Australia and its perceived unilateralist policies, including in Iraq, and the degree to which Australia's economy is benefitting from exports to China are key factors in this calculus. Australia may increasingly seek to develop its own independent ties with Asian powers, without appearing to be simply an American ally in the region. Australia's desire for a more independent foreign and strategic policy may be part of its efforts to reach out to other states such as Japan, Singapore, and India. Canberra is also reluctant to offend China, which may place limits on its relationship with the United States. In July 2007, Australian Minister for Defence Brendon Nelson stated that "we do not wish to have formal quadrilateral strategic dialogue in defence and security matters.... We do not want to do anything which ... may otherwise cause concern in some countries, particularly China." India's Ambivalence India's rising economic and political power makes it an increasingly appealing partner for the United States, in terms of both its democratic values and its geo-strategic location. Obstacles to a closer bilateral relationship—most recently, the apparent faltering of the civilian nuclear deal in the Indian parliament—remain prominent. Further, some see India as somewhat mired in its identity as a member of the Non-Aligned Movement (NAM), a Cold-War era organization of states resisting great power politics. Through various statements, officials in New Delhi have indicated their desire to balance powers and create a "multipolar" Asia, suggesting that it may not agree with the U.S. goal of remaining the pre-eminent power in East Asia. Though India is wary of China's increasing strength, and therefore more open to cooperation with other powers, it has been insistent that it does not intend to "choose sides," and is opposed to any formal regional defense alliance. In addition, India has participated as an observer in the Shanghai Cooperation Organization (SCO) meetings. China: Engagement vs. Isolation For U.S. policymakers, the key challenge is to develop a strategic posture in the region that can accommodate China's peaceful economic rise while sending the signal that the United States is not leaving a geopolitical vacuum for China to fill. Developing joint capabilities through enhanced defense partnerships with like-minded states may discourage China from asserting itself in ways that harm U.S. interests. On the other hand, it risks creating a dangerous cycle of mutual hedging, in which Beijing is tempted to exhibit more aggressive behavior. This atmosphere would not be conducive to engaging China more fully as a "responsible stakeholder" in the international system. Developing multilateral groupings poses its own challenges, as all states must harmonize their approach to Beijing: at times, it may be difficult to reconcile a more conciliatory New Delhi or Canberra with a potentially more threatened Tokyo. Washington must carefully calibrate its diplomatic and military approach as it adjusts its Asia-Pacific presence to accommodate a range of competing interests. U.S. Ties with Other Asian States Many observers concur that the United States needs to be forward thinking and open to active and engaged partnerships and cooperation with key regional states while not pushing such cooperation to the point that it is destabilizing or unattractive to regional states. Such cooperation could better position the United States and like-minded countries to look after their shared interests through a focus on capacity building while not being formalized in a way that such cooperation appears to be aimed at containing China. An agenda aimed at the containment of China is not likely to attract regional states and could create a hostile security environment in Asia that would likely undermine U.S. and others' interests. The United States must be particularly careful not to isolate other existing allies, such as South Korea, the Philippines, and Thailand, as it pursues new partnerships in Asia. Some observers think that the election of Lee Myung-bak as South Korean president, who is considered likely to improve relations with both the United States and Japan, could provide an opening for drawing Seoul in a multilateral regional framework.

Some analysts have questioned whether U.S. security interests in the Asia Pacific region are best served by its existing framework of bilateral alliances. The region is now facing an array of changes: deepening trade links, the formation of new regional institutions, and increased attention to the threat of Islamic terrorism. Against this backdrop, China's rise represents the key driver in the evolving security landscape in Asia. China is now attracting regional states with its economic power and is offering competing vision to the U.S.-centric "hub and spoke" system of alliances. In essence, China's increasing economic, diplomatic, and military strength is compelling countries to rethink existing security arrangements and take initial steps that may lead to the formation of regional groupings of nations with common interests and values. At the same time, the Bush Administration has pursued stronger defense relations with Australia, Japan, and India. Bilateral defense ties have also developed between Canberra, Tokyo, and New Delhi, with varying degrees of engagement. Fledgling initiatives for trilateral efforts among the nations have emerged; some defense planners see these efforts as building on existing security cooperation to further U.S. goals in the region by combining forces among partners and allies. As trilateral initiatives have taken shape, some officials have begun promoting a quadrilateral grouping, which would tie together the United States, Japan, Australia, and India. Although no formal quadrilateral groupings exist, the Malabar 07 military exercises among the four countries in September 2007 provided an opportunity to test naval cooperation. Some observers caution that moving forward too fast with such a grouping could trigger a negative response from China. Pursuit of multilateral security arrangements holds a number of potential challenges and opportunities for the United States. Of the four leaders who championed the trilateral and quadrilateral groupings, two left office in 2007 and two face significant political challenges. Japan's constitutional restraints on military involvement may limit the scope of its cooperation, and both Australia and India have some degree of reluctance to fully engage in any forum that might alienate Beijing. Increasing capabilities among like-minded nations could enhance stability and provide a platform for responding to natural disasters and humanitarian emergencies in the region, or to potential aggression by other countries, but it also risks threatening China, potentially spurring dangerous countermeasures. Finally, there is the risk that other Asian allies, such as South Korea, Thailand, and the Philippines, could feel excluded from multilateral initiatives among the United States, Japan, Australia, and/or India. This report may not be updated.

Introduction Pension plans are classified by whether they are sponsored by one employer (single-employer plans) or by more than one employer (multiemployer and multiple employer plans). Multiemployer pension plans are sponsored by employers in the same industry and maintained as part of a collective bargaining agreement. Multiple employer plans are sponsored by more than one employer but are not maintained as part of collective bargaining agreements. This report focuses on multiemployer plans. Pension plans may also be classified according to whether they are defined benefit (DB) or defined contribution (DC) plans. With DB plans, participants receive regular monthly benefit payments in retirement (which some refer to as a "traditional" pension). With DC plans, of which the 401(k) plan is the most common, participants have individual accounts that are the basis of income in retirement. DB plans are the subject of this report. Background on Multiemployer Plans In 2017, there were an estimated 10.6 million participants in 1,374 multiemployer plans. Multiemployer DB pensions are of current concern to Congress because approximately 10% to 15% of participants are in plans that are in critical and declining status and may become insolvent within 19 years. When a multiemployer pension plan becomes insolvent, the Pension Benefit Guaranty Corporation (PBGC), a federally-chartered corporation that insures private-sector DB pension benefits, provides financial assistance to the plan so the plan can continue to pay promised benefits, up to a statutory maximum. Currently, plans that receive PBGC financial assistance can provide up to $12,870 per year for an individual with 30 years of service in the plan. The guarantee is not indexed for changes in the cost of living and was last increased in 2000. At the end of FY2017, PBGC reported a deficit of $65.1 billion in the multiemployer insurance program. 7FThe Congressional Budget Office (CBO) provided several estimates (using different accounting methods) of PBGC's financial condition. 8FCBO's cash-based estimates account for spending and revenue in the years when they are expected to occur. CBO estimates that from 2017 to 2026, PBGC will be obligated to pay $9 billion in claims but will only have sufficient resources to pay $6 billion. From 2027 to 2036, CBO cash-based estimates indicate that claims to PBGC will be $35 billion but PBGC will only have sufficient resources to pay $5 billion. CBO also provided fair-value estimates, which are the present value of all expected future claims for financial assistance, net of premiums received. CBO's fair-value estimate of PBGC's future obligations was $101 billion. There is no obligation on the part of the federal government to provide financial assistance to PBGC. Because of the projected plan insolvencies, PBGC has projected that it will likely not have the resources to provide sufficient financial assistance to insolvent plans at the maximum guarantee level beginning in 2025. In such a scenario, most participants would receive less than $2,000 per year because PBGC would be able to provide annual financial assistance equal only to its annual premium revenue, which was $291 million in FY2017. In addition, employers in plans that are projected to become insolvent might exit such plans based on concerns that they may have to pay increasingly larger amounts of withdrawal liability if they remain. 12FSome experts refer to a multiemployer plan "death spiral" as an increasing number of employers leave financially-troubled multiemployer plans in order to avoid larger future obligations to the plans. This report is not intended to be an exhaustive presentation of the many policy options that stakeholders have offered. This report provides an overview of policy options that have been discussed in committee hearings and in the multiemployer pension plan community by policymakers and stakeholders, including options that would provide assistance for financially-troubled multiemployer plans with subsidized loans, direct financial assistance, or partitions (which would transfer some participant's benefits to a newly created plan); changes to the maximum benefit limit imposed on plans when they receive PBGC financial assistance; changes to PBGC's premium structure; and stricter funding rules and alternative pension plan designs. Table 1 provides a summary of these selected policy options. The Joint Select Committee on Solvency of Multiemployer Pension Plans In response to the increasing concerns of policymakers and stakeholders (such as participants, participating employers, and plans), the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) created a new joint select committee of the House and Senate: The Joint Select Committee on Solvency of Multiemployer Pension Plans. The committee has 16 Members of the House and Senate—four chosen by each of the chambers' party leaders—and is tasked with formulating recommendations and legislative language that will "significantly improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation." The committee is required to vote on a report containing findings, conclusions, recommendations, and legislative language to carry out the recommendations by November 30, 2018. Provided the report is agreed to by a majority of committee members from each party, P.L. 115-123 contains procedures for expedited consideration of the legislative text in the Senate, though there are no such provisions for consideration in the House. Possible Effects of Inaction Some Members of Congress have said that doing nothing is not an option. In the absence of enacted legislation, beginning in 2025 when PBGC is projected to run out of resources, the benefits that are owed to participants in insolvent plans will be far greater than the PBGC's resources. At the end of FY2017, PBGC's multiemployer program had $2.3 billion in assets and received $291 million in premium income in that fiscal year. Once its assets are exhausted, PBGC would be able to provide financial assistance to plans equal only to the amount of its premium revenue. PBGC indicated that most participants would receive less than $2,000 per year. Further, some policy analysts have raised concerns about possible contagion effects that may exacerbate an already large problem: The insolvency of a multiemployer plan could cause large withdrawal liability assessments for the employers in that plan. If these increased withdrawal liability assessments cause financial distress for some of these employers, it could affect their contributions to other multiemployer plans in which they participate. In addition, withdrawal liability amounts might need to be disclosed in employers' financial statements, which some have suggested could limit these employers' access to credit. Some policymakers have noted that a solution to the issues created by the projected insolvencies of multiemployer plans likely will present challenges to stakeholders. For example, Senator Orrin Hatch indicated that, "there are no magic bullets, and any solutions we come up with are bound to make at least some people unhappy." Others, for example Representative Marcy Kaptur, have called for a "shared sacrifice" approach. The considerable size and nature of the problem likely requires some concession from all stakeholders: employers, plans, participants, and U.S. taxpayers. Finding the balance needed to gain the buy-in from each group of stakeholders is likely to be a complex process, but critical to the success of the Joint Select Committee. Some stakeholders argue against providing loans or financial assistance to multiemployer plans. Their concerns include the following: a loan program for multiemployer plans could be viewed as a bailout, particularly if there are provisions that provide for forgiveness of part or all of a loan; loans and financial assistance to multiemployer plans would be too costly for U.S. taxpayers; and there is no precedent for the U.S. government providing financial assistance to private-sector pension plans, which could lead to proposals for financial assistance to underfunded state and local government pension plans. Costs to Certain Employers If Participants' Benefits Are Reduced Several employers have promised to offset benefit reductions for certain former employees in some multiemployer pension plans to which the employers had previously contributed. These employers could benefit financially if proposals to assist financially-troubled plans were enacted and did not include any benefit reductions (for example, some of the proposals do not require any benefit reductions for participants in plans that receive a loan or are partitioned). United Parcel Service (UPS) and Kroger are two employers that withdrew from the Central States multiemployer plan and, as part of their agreement to leave the plan, agreed to offset reductions in pension benefits to certain former employees in the plan. If proposals are enacted that do not reduce participants' benefits, participants in Central States would receive their full benefits so these employers would not need to offset any benefit reductions. In the absence of any financial assistance to PBGC or to Central States, the offsets these companies would have to provide could be very large. For example, UPS indicated in its 2016 Annual Report that its obligation could be about $4.0 billion. Kroger announced the agreement in December 2017 and has not indicated the amount of its potential financial responsibility. Policy Option: Assist Financially Troubled Plans Policy options to assist financially-troubled plans include (1) loans subsidized by the federal government and direct funding and (2) partitions, which would remove specified liabilities from financially-troubled plans. Loans and Financial Assistance to Financially Troubled Plans Two proposals introduced in the 115 th Congress would direct the U.S. Treasury to provide loans to financially-troubled plans. The loan programs differ in the loan amounts and the extent, if any, of reductions to participants' benefits. An important consideration to the effectiveness of this approach is whether plans that receive loans will be able to accumulate sufficient funds to repay the loan principal when it is due. One proposal would allow any plan in critical and declining status to receive loans and the other would provide loans only to the United Mine Workers of America (UMWA) 1974 Plan, a multiemployer pension plan covering members of the UMWA. The National Coordinating Committee for Multiemployer Plans and UPS have each offered loan program solutions; these have been discussed by policymakers, but are not currently in legislative form. S. 2147, the Butch-Lewis Act of 2017, and H.R. 4444, the Rehabilitation for Multiemployer Pensions Act S. 2147 , the Butch Lewis Act of 2017, introduced on November 16, 2017, by Senator Sherrod Brown and H.R. 4444 , the Rehabilitation for Multiemployer Pensions Act, introduced on November 16, 2017, by Representative Richard Neal are related bills containing nearly identical provisions that would establish the Pension Rehabilitation Authority (PRA) in the U.S. Treasury. The PRA would provide loans to multiemployer plans. The loan amount would be equal to the total lifetime amount of benefits for participants who are receiving plan benefits at the time of the loan (referred to as participants in pay status ). If the loan amount were insufficient to prevent the plan from becoming insolvent, the plan could also receive financial assistance from PBGC, although it is uncertain whether the PBGC financial assistance would be repaid. The bills would require the plan to (1) use the loan proceeds to either purchase annuities for participants in pay status or (2) keep the loan proceeds in a portfolio that would be unlikely to lose value. The plan would pay interest for 29 years and repay the loan principal in year 30. S. 2147 and H.R. 4444 would not reduce participants' benefits from the amount earned by the participants in the plan, including benefits in plans that receive PBGC financial assistance in addition to a PRA loan. Plans that received approval for benefit suspensions under the Multiemployer Pension Reform Act of 2014 (MPRA; passed as part of P.L. 113-235 ) would be required to apply for loans and those benefit reductions would be restored in such plans that received loans. Plans could accumulate funds to repay the loan principal from the investment proceeds of plan assets. Plans that receive loans would have larger amounts of plan assets from which to invest because in the first years of the loan term, benefit payments would be paid mostly from loan proceeds, which would free up plan assets to be invested. This would allow any investment earnings on invested plan assets to be used toward loan repayment. S. 2147 and H.R. 4444 would not require any changes to the funding rules for multiemployer plans. CBO prepared a preliminary analysis of S. 2147 and estimated that the bill "would probably increase [federal] deficits by more than $100 billion over the 2019-2028 period." However, the estimate noted that it is possible that few plans would qualify for loans, which would substantially lower the cost estimate. In addition, CBO noted several uncertainties around key elements of the bill (such as when financial assistance payments would be made) and that the formal cost estimate could differ substantially. S. 1911 and H.R. 3913, the American Miners Pension Act of 2017 S. 1911 and H.R. 3913 , the American Miners Pension Act of 2017, introduced on October 3, 2017, by Senator Joe Manchin and Representative David McKinley, would, among other provisions, provide financial assistance to the United Mine Workers of American (UMWA) 1974 Pension Plan from two U.S. Treasury sources: (1) direct financial assistance from the General Fund and (2) loans. The amount to be transferred from the Treasury to the UMWA 1974 Plan would be any amount remaining within an annual cap of $490 million after funds are first transferred from the General Fund to three UMWA multiemployer health plans and to certified states and tribes that have reclaimed their priority abandoned coal mining. In addition to the Treasury transfers, S. 1911 and H.R. 3913 would require, beginning in FY2018, the Secretary of the Treasury to make an annual loan to the 1974 Plan to prevent the plan's insolvency. The terms of the loans would be as follows: Each annual loan would be for the amount that the 1974 Plan trustees determine "to be necessary to prevent the insolvency of" the plan in that year. The maximum amount of each annual loan would be $600 million. The interest rate charged to the plan would be 1% per year. The term of each loan would be 30 years with interest-only payments for the first 10 years. National Coordinating Committee for Multiemployer Plans Loan Proposal The National Coordinating Committee for Multiemployer Plans (NCCMP), a nonpartisan advocacy group representing multiemployer plans, proposes a loan program that would provide plans loans at 1% interest. The repayment would be over 30 years, with interest only payments for the first 15 years. NCCMP stated that, "the entire premise of the loan program is to allow a Plan to borrow enough money at 1% and invest at a higher rate that will allow the Plan to earn their way through the funding problems that they face…" The proposal presents three alternatives, which vary to the extent, if any, benefit reductions are used to offset the credit subsidy cost. Curing Troubled Multiemployer Pension Plans Loan Proposal A UPS proposal would provide loans to multiemployer plans in critical and declining status and whose actuary certifies that the loan would correct the plan's funding issues and can be repaid. The loan would be for an amount equal to five times what the proposal calls the shortfall : (1) the total amount of contributions in the year prior to the loan plus (2) the amount of projected earnings on plan investments in the year immediately following the loan, minus (a) projected benefit payments and (b) reasonable administrative expenses. The interest rate on the loan would be 1% and would be repayable over 30 years, with interest only payments for the first five years. After five years, a plan could apply for a second loan if the plan remains in critical and declining status. Ten years after the initial loan, a plan could apply for a third, and final, loan if it were still in critical and declining status. Benefit payments would be reduced by 20% for all participants. The proposal includes a risk reserve pool, which is a sum of money set aside from contributions by employers, participants, and unions in the event a plan cannot repay its loan in full. If a plan were unable to make 100% of its yearly loan repayment, it could request funds from the pool to make the payment in full. The risk reserve pool would be drawn from all multiemployer plans, regardless of zone status, and would be funded by the following annual payments: a $7 increase in the per participant PBGC premiums paid by the pension plan, an employer payment of $2 per month ($24 per year) per active participant, a participant payment of $2 per month ($24 per year), and a union payment of $2 per month ($24 per year) per active participant. Plan Partitions Multiemployer plans can apply to PBGC to be partitioned. A plan partition involves creating a second plan (called a successor plan) and transferring some amount of the original plan's benefit obligations to the successor plan. Benefits are reduced to the maximum allowed under Multiemployer Pension Reform Act of 2014 (MPRA). The successor plan receives PBGC financial assistance to pay participants' benefits up to the PBGC maximum guarantee levels. The original plan pays (1) the benefits to participants remaining in the original plan and (2) the amount of participants' benefits above the PBGC maximum guarantee up to the amount of the reduced benefit. For PBGC to approve a plan partition, the following conditions must be met: the plan is in critical and declining status; PBGC determines that the plan sponsor has taken (or is taking) all reasonable measures to avoid insolvency; PBGC determines that a partition will reduce PBGC's expected long-term loss and is necessary for the plan to remain solvent; PBGC certifies to Congress that PBGC's ability to meet existing financial assistance obligations to other plans will not be impaired by the partition; and, the cost of the partition is paid exclusively from PBGC's multiemployer fund. Given the expected insolvency of PBGC's multiemployer insurance program, the condition that a partition will not impair PBGC's ability to meet existing financial assistance obligations likely limits the use of partitions. However, if PBGC were given sufficient resources, partitioning plans could allow PBGC to intervene in troubled plans prior to the point of plan insolvency. Under current law, PBGC provides financial assistance to multiemployer plans once they exhaust assets and become insolvent. For comparison, in PBGC's single-employer program, PBGC can initiate termination proceedings for an involuntary termination if for example, the long-run loss to the PBGC "may reasonably be expected to increase unreasonably if the plan is not terminated." Some policy analysts have suggested that PBGC's partitioning authority should be expanded to preserve the portion of a financially-troubled multiemployer plan that contains participants with employers active in the plan, which could result in a financially-sound original plan. One of the benefits of allowing PBGC to partition plans prior to insolvency could include possibly saving PBGC money, because plans could be required to reduce benefits prior to plan insolvency (as in the current practice). Under current law, benefits are transferred to the successor plan so that the original plan is projected to remain solvent. The original plan might still have participants whose employer no longer participates in the plan (called orphan participants). However, if the benefits of orphan participants were to be transferred to the successor plan, then all participants in the original plan would have an employer that was contributing that plan. If needed, a combination of benefit reductions or increased employer contributions could make the original plan well-funded. Once the original plan was well-funded, then changes to funding rules could be applied so that the original plan does not become financially-troubled in the future. S. 1076 , the Keep Our Pension Promises Act, introduced by Senator Bernie Sanders on May 9, 2017, and H.R. 2412 , also the Keep Our Pension Promises Act, introduced on May 11, 2017 by Representative Marcy Kaptur, are identical bills that would, among other provisions, allow for the partitioning of plans in critical and declining status and create a legacy fund within PBGC to cover the administrative and benefit costs of the partitions. The legacy fund would be financed by changes to the tax code. The bills do not specify which benefits would be transferred to the partitioned plan or which benefits would remain in the original plan. The bills would not require any benefit reductions: participants would receive their full benefits as promised by the plan. In addition, plans that were approved for benefit reductions under MPRA would be required to apply for partitioning and restore the benefits that had been reduced. Policy Option: Change PBGC Maximum Benefit A multiemployer plan that receives financial assistance from PBGC must reduce participants' benefits according to a formula based on the number of years of service in the plan. The formula is for each of service in the plan 100% of the first $11 of the participant's monthly benefit plus 75% of next $33 of the monthly benefit rate. For example, a participant with 30 years of plan participation could receive up to (30*(100% * $11 + 75% * $33)) per month or $12,870 per year. Participants with more (or fewer) years of service in the plan would receive a larger (or smaller) maximum benefit. For comparison, the multiemployer maximum benefit is lower than that for the single-employer program: the single-employer maximum benefit is about $65,000 per year for individuals who receive their benefits as single-life annuities beginning at the age of 65. The multiemployer guarantee is not indexed to inflation and was last increased in the Consolidated Appropriations Act, 2001 ( P.L. 106-554 ). As the dollar amount of participants' benefits have increased, an increasing number of participants are likely to see their benefits reduced as a result of the maximum guarantee. Using 2013 data, PBGC estimated that 79% of participants in multiemployer plans that were receiving financial assistance receive their full benefit as earned in the plan. Among participants in plans that were terminated and likely to need financial assistance in the future, 49% of participants have a benefit below the PBGC maximum guarantee, and 51% have a benefit larger than the PBGC maximum guarantee. Among ongoing plans (neither receiving PBGC financial assistance nor terminated and expected to receive financial assistance), the average benefit is almost twice as large as the average benefit in terminated plans. This suggests that a larger percentage of participants in plans that receive PBGC financial assistance in the future are likely to see benefit reductions as a result of the PBGC maximum guarantee level. Although there are currently no proposals to increase PBGC maximum benefit, some policymakers have indicated that it is too low. For example, Senator Sherrod Brown called the multiemployer guarantee "miniscule" and a Government Accountability Office (GAO) report cited experts who described the guarantee level as low and that the "significant increase in premiums since 2005 did not coincide with a comparable rise in the benefit guaranty." The effect on household incomes imposed by solvency-driven benefit reductions could be partly offset by increases in the PBGC maximum benefit guarantee. Policy Option: Change PBGC Premium Structure Because of PBGC's role as the insurer of multiemployer DB benefits, it has been a focus of discussions regarding the solvency of multiemployer plans. Multiemployer plans currently pay a flat-rate premium to PBGC of $28 per participant per year. The PBGC multiemployer premium was $2.60/participant from 1988 to 2005, $8.00/participant in 2006 and 2007, $9.00/participant from 2008 to 2012, $12.00/participant in 2013 and 2014, $26.00/participant in 2015, $27.00/participant in 2016, and $28.00/participant in 2017 and 2018. In FY2017, PBGC received $291 million in premium revenue. Proposals for changes to PBGC premiums include the following new premiums: (1) a variable-rate premium based on the amount of underfunding in a plan, (2) an exit premium when an employer leaves a multiemployer plan, and (3) a risk-based premium based on the riskiness of a pension plans' investment portfolio. Although increased PBGC's premium revenue could delay its projected insolvency, employers' concerns mean that it is likely not feasible for premiums to rise to a level sufficient to ensure the multiemployer program's long-term solvency. Variable-Rate Premium The FY2019 budget proposed a new variable-rate premium based on the amount of underfunding in a multiemployer plan. The budget does indicate the amount of the premium. The amount of the premium would be capped, though the budget does not specify the amount of the cap. Exit Premium The FY2019 federal budget also proposed an exit premium that would be paid by employers that leave a multiemployer plan. The purpose of the exit premium is to compensate PBGC for the additional risk imposed on it when employers exit a plan. The exit premium would be equal to 10 times the amount of the variable-rate premium cap. The budget does not specify the amounts of the exit premium, although it noted that the new variable-rate and exit premiums would ensure the solvency of the multiemployer program for 10 years. Risk-Based Premium Some policymakers have suggested a premium based on the riskiness of a multiemployer pension plan's investment portfolio. The rationale behind this premium is the lower the risk of a plan's investments, the lower the likelihood that the plan would become insolvent and require PBGC financial assistance. Premiums based on the amount of plan underfunding and the riskiness of a plan's investment portfolio could incentivize multiemployer plans to become well-funded and conservatively invested: a plan that is 100% funded and invested in low-risk assets is of little risk of becoming insolvent and needing PBGC financial assistance. Even if employers left the plan, the benefits of orphan participants would likely not become underfunded because of the low-risk investments. Variable-rate and risk-based premiums would likely be a relatively low dollar amount for plans with such finance structures. Policy Option: Prevent Future Insolvencies A major contributor to the current multiemployer problem was the December 2007 to June 2009 economic recession. A survey of 392 multiemployer plans indicated that in 2007 they had 56.7% of their assets invested in equities. The accompanying stock market downturn resulted in large losses to plan investments. In addition, the number of employers participating in multiemployer plans likely decreased as a result of business bankruptcies, leaving larger amounts of orphan liabilities. Strengthen Funding Rules In the absence of changes to plan design (such as variable benefit or composite plans, discussed below) two factors would need to be present to ensure that DB pension plans do not have large amounts of unfunded liabilities and are not at risk of becoming insolvent. Plans would need to be (1) 100% funded and (2) invested in relatively safe assets. A plan that is 100% funded would have sufficient funds from which to pay 100% of the promised benefits. A plan that is invested in relatively safe assets (e.g., investing in investment grade or better corporate debt and avoiding equities) would probably never face a situation where its investment portfolio incurred anything other than minor losses. The effects of stricter funding requirements would likely include some combination of (1) increased required employer contributions to plans to provide benefits similar to today's promised benefits or (2) decreased promised benefits to participants. Some stakeholders might find these tradeoffs worthwhile, as some participants currently face a less than 100% chance of receiving their full benefit as earned in a plan. Other stakeholders might find these requirements onerous, too costly to impose on employers and plans, and too large a loss for plan participants. Discount Rate to Value Plan Benefit Obligations A pension plan's benefits are a plan's liabilities spread out over many years in the future. These future benefits are calculated and reported as current dollar values (also called present value). The discount rate is a key assumption in determining the present value. The Internal Revenue Code (IRC) does not require multiemployer pension plans to use a specific discount rate to value their future benefit obligation. The assumptions a plan uses must be reasonable and offer the best estimate of the plan's expected experience and, in practice, multiemployer plans generally discount plan liabilities using the expected rate of return on the plan's assets. Pension policy experts have several viewpoints on the appropriate discount rate that pension plans should use to value plan liabilities. The higher the discount rate a plan uses the lower the present value of those benefit obligations. Using a lower discount rate would likely result in either increases in required employer contributions to plans or lower benefits that could be promised in the future. These discussions, generally speaking, have been between actuaries and economists. Broadly speaking, some actuaries recommend that pension plans discount future benefits using the expected rate of return on plan investments (which is the current practice for multiemployer DB pension plans). Some financial economists, by contrast, recommend that plans discount the liabilities using a discount rate that reflects the likelihood that the benefit obligation will be paid; in general, this would be a lower rate than currently used. Some Members of Congress have also suggested that the rate that multiemployer plans use to discount their benefits may be too high. Alternative Plan Designs: Variable Benefit and Composite Plans As an alternative to stricter funding requirements, plans would not become underfunded if participants' benefits fluctuated with the plan's investment performance. For example, one plan design has a conservative assumed investment return (called a hurdle rate). Benefits are adjusted upwards if the investment returns are above the hurdle rate and benefits are reduced if the plan's investment returns are below the hurdle rate. Employer contributions could be unchanged in either scenario. Although this plan structure is available under current law (and is referred to as a variable annuity benefit plan) they are not common among DB plans. In addition, legislation has been introduced to allow for composite pension plans, which, like variable annuity plans, combine features of defined benefit and defined contribution pension plans. H.R. 4997 , the Giving Retirement Options to Workers Act of 2018 (or GROW Act), would allow multiemployer DB plan sponsors to add a composite plan to their pension plan The composite plan would be a type of plan that provides plan sponsors with options, such as reductions in benefits or negotiated employer contributions, which would keep the plan funded at 120% if the plan's funding ratio fell below that level. The appeal of these alternative plan structures is that they provide plan sponsors with certainty regarding the amount of their annual contributions. In addition, the composite plan proposal would not be covered by PBGC (and the plan would not pay PBGC premiums) and employers would not be subject to any withdrawal liability. Participants in variable annuity benefit and composite plans would be protected against longevity risk: they would have the certainty that they would receive benefit payments for life, although the dollar amount of the benefit payments would not be certain. Because benefits in composite plans are not guaranteed, some might suggest that a composite plan's investment strategy (e.g., the amounts and types of plan investments) should be more conservative than in a traditional DB pension plan. One concern is that participants could be subject to potentially large benefit reductions, particularly if the stock market were to experience a steep decline. This concern could be alleviated by requiring plans to invest some or all of their portfolios in conservative investments to try to ensure a specified level of benefit.

Multiemployer defined benefit (DB) pension plans are pensions sponsored by more than one employer and maintained as part of a collective bargaining agreement. In DB pensions, participants receive a monthly benefit in retirement that is based on a formula. In multiemployer DB pensions, the formula typically multiplies a dollar amount by the number of years of service the employee has worked for employers that participate in the DB plan. The Pension Benefit Guaranty Corporation (PBGC) is a federally-chartered corporation that insures participant benefits in private-sector DB pension plans. Although PBGC is projected to have sufficient resources to provide financial assistance to multiemployer DB plans through 2025, the projected insolvency of many multiemployer DB pension plans will likely result in a substantial strain on PBGC's multiemployer insurance program. In a report released in June 2017, PBGC indicated that the multiemployer insurance program is highly likely to become insolvent in 2025. In the absence of increased financial resources for PBGC, participants in insolvent multiemployer DB pension plans would likely see sharp reductions in their pension benefits. As a result of a variety of factors—such as the recessions in 2001 and from 2007 to 2009—about 10% to 15% of multiemployer plan participants are in multiemployer DB plans that are likely to become insolvent over the next 19 years and run out of funds from which to pay benefits owed to participants. The Bipartisan Budget Act of 2018 (P.L. 115-123), enacted February 9, 2018, created the Joint Select Committee on Solvency of Multiemployer Pension Plans to address the impending insolvencies of several large multiemployer DB pension plans and PBGC. The committee must provide to Congress no later than November 30, 2018, a report and proposed legislative language to improve the solvency of multiemployer DB plans and the PBGC. The report and proposed legislative language must be approved by (1) a majority of committee members appointed by the Speaker of the House and Majority Leader of the Senate and (2) a majority of committee members appointed by the Minority Leader of the House and Minority Leader of the Senate. P.L. 115-123 provides for expedited procedures in the Senate if the committee approves of the proposed legislative language. There are no provisions that provide any special procedures governing House consideration of such legislation. Many policy options have been discussed in committee hearings and in the multiemployer pension plan community by policymakers and stakeholders. Not all options directly address the solvency of financially distressed multiemployer plans or PBGC, but they could be considered as part of a comprehensive package of policy options. The options include assistance for financially troubled multiemployer plans with subsidized loans or partitions; changes to the maximum benefit limit imposed on plans when they receive PBGC financial assistance; changes to PBGC's premium structure; stricter funding rules; and alternative pension plan designs.

Introduction The farm commodity provisions of the Food, Conservation, and Energy Act of 2008, as amended ( P.L. 110-246 , the 2008 farm bill) expire with the 2013 crop year. Consequently, the 113 th Congress has been considering an omnibus farm bill that would establish the direction of agricultural policy. On May 14, 2013, the Senate Agriculture Committee reported its version of the bill ( S. 954 , the Agriculture Reform, Food and Jobs Act of 2013), which was approved by the full Senate on June 10, 2013 (vote of 66-27). On May 15, 2013, the House Agriculture Committee completed markup of its version of the bill ( H.R. 1947 , the Federal Agriculture Reform and Risk Management Act of 2013), and floor action began in mid-June. However, on June 20, the full House voted to reject the bill (vote of 195-234). On July 11, the full House approved a revised bill, H.R. 2642 , which excluded a nutrition title, and on September 19 approved a nutrition title ( H.R. 3102 ). The House adopted a resolution ( H.Res. 361 ) on September 28 that combined the texts of H.R. 2642 and H.R. 3102 into one bill ( H.R. 2642 ) for purposes of resolving differences with the Senate. Conference on the two measures is pending. This report compares the so-called "farm safety net" provisions in the two bills. The broader farming community uses the term farm safety net to refer to the combination of (1) farm commodity price and income support programs in the 2008 farm bill, (2) federal crop insurance (permanently authorized) under the Federal Crop Insurance Act of 1980 as amended, and (3) five disaster assistance programs in the 2008 farm bill, which are currently unfunded. Title I of both versions of the 2013 farm bill contains commodity and disaster program provisions, and modifications to the current crop insurance program are in Title XI of the Senate bill and Title X of the House bill. Both bills would reshape the structure of farm commodity support, reauthorize several disaster programs, and expand crop insurance coverage. Overview Current farm support for traditional program crops includes direct payments, the counter-cyclical price (CCP) program, and the Average Crop Revenue Election (ACRE) program. Direct payments—made to producers and landowners based on historical production and fixed payment rates for corn, wheat, soybeans, cotton, rice, peanuts, and other "covered" crops—have accounted for most farm program spending in recent years. CCP payments are made when crop prices fall below a "target price" (minus the direct rate). Alternatively, producers may select ACRE, which makes payments when crop revenue drops below a guarantee based on historical revenue. Marketing assistance loans provide additional low-price protection at "loan rates" specified in current law. Under both the Senate-passed ( S. 954 ) and House-passed ( H.R. 2642 ) 2013 farm bills, direct payments are eliminated and programs are authorized to replace CCP and ACRE with conceptually similar programs with new names, payment triggers, and payment formulas. In both bills, approximately three-fourths of the 10-year, $46 billion-$47 billion in savings (as estimated by the Congressional Budget Office) associated with the proposed elimination of current farm programs would be used to offset the cost of updating farm programs (Title I), enhancing crop insurance (Title XI), and retroactively reauthorizing four disaster programs (beginning FY2012). The two titles account for a combined $12.4 billion savings over 10 years in the Senate bill (of $17.9 billion in total savings across all titles) and $9.8 billion in the House bill (of $39.0 billion). These titles address the issue of "shallow losses" (losses incurred by crop producers that are not covered currently by crop insurance) and provide disaster assistance for livestock producers. Figure 1 summarizes major provisions in the commodity and crop insurance titles of the two bills. Table 1 lists selected provisions and identifies issues for conference committee consideration. A comprehensive, section-by-section comparison of all titles in the two bills is in CRS Report R43076, The 2013 Farm Bill: A Comparison of the Senate-Passed (S. 954) and House-Passed (H.R. 2642, H.R. 3102) Bills with Current Law . Proposed Farm Commodity Program Revisions Both S. 954 and H.R. 2642 would eliminate direct payments. Direct payments account for most of current commodity spending and are made to producers and landowners based on historical production of farm program crops. Both bills also borrow conceptually from current farm commodity programs by updating price and/or revenue programs designed to enhance risk protection for producers of "covered" crops. Importantly, the Senate bill covers only crop years 2014-2018. It also suspends permanent price support authority under the Agricultural Adjustment Act of 1938 and Agricultural Adjustment Act of 1949, which would increase price supports well above current market levels and create substantial government outlays. This provision is designed to motivate Congress to reexamine agricultural and related policy (not just farm programs) when program authority in S. 954 expires in 2018. In contrast, the House bill covers crop year 2014 and each succeeding crop year (i.e., no program expiration date) and repeals permanent law. Proponents expect this approach to better protect beneficiaries of farm programs in the long run. Covered commodities are wheat, oats, barley, corn, grain sorghum, long grain rice, medium grain rice, pulse crops (dry peas, lentils, small chickpeas, and large chickpeas), soybeans, other oilseeds, and peanuts. In response to a World Trade Organization case brought against the United State by Brazil, cotton is not included as a program commodity; instead it is covered by a new insurance product (see " Stacked Income Protection Plan (STAX) "). For farm programs, producers do not pay any fees or premiums for participating, unlike the federal crop insurance program, which offers subsidized policies to producers of a wide variety of crops. Under both the Senate-passed ( S. 954 ) and House-passed ( H.R. 2642 ) 2013 farm bills, farm support for traditional program crops is restructured by eliminating direct payments, the counter-cyclical price (CCP) program, and the Average Crop Revenue Election (ACRE) program. Authority is continued for marketing assistance loans, which provide additional low-price protection at "loan rates" specified in current law (with an adjustment made to the cotton loan rate). A brief summary of the major commodity provisions is provided below. For details on all sections in Title I (except dairy and sugar provisions), see Appendix A . Both Bills Retain a Counter-Cyclical Price Program A counter-cyclical price program makes a farm payment when prices for covered crops decline below certain levels . The counter-cyclical price (CCP) program from the 2008 farm bill is replaced by Adverse Market Payments or AMP in S. 954 and Price Loss Coverage or PLC in H.R. 2642 . To better protect producers in a market downturn, the price guarantees (called "reference prices" in both bills) that determine payment levels are set in statute and increased relative to current "target prices." A broad exception applies in S. 954 to the reference price for crops other than rice and peanuts, where it is calculated as 55% of a rolling five-year average (excluding the high and low years). For an example of higher price parameters, see Figure 2 . The payment rate is the difference between the reference price and the national farm price or loan rate, if higher. S. 954 continues current policy by making payments on 85% of historical plantings (or "base acres"), a provision designed to minimize the program's effect on planting decisions. In contrast, the House bill pays on 85% of planted acreage to better align payments with producer risk. Also, to better protect producers in a price downturn, under the House bill, producers may update payment yields (average yield per planted acre during 2008-2012, excluding high and low, times 90%). Under the Senate bill, yield updating is available only for rice and peanuts, based on yields from 2009 to 2012. During the farm bill debate in recent years, including development of farm bill proposals in the 112 th Congress, commodity groups representing rice and peanut producers have led efforts to retain a reference price option as part of the overall farm program because they prefer price protection by establishing statutory minimum price support rather than revenue protection (based on historical prices) that can decline over time and erode the safety net. During committee mark-up of S. 954 , an amendment to eliminate AMP for crops other than rice and peanuts failed. Both Bills Retain a Revenue-Based Program A revenue-based program is designed to cover a portion of a farmer's out-of-pocket revenue loss (referred to as "shallow loss") relative to an annual crop revenue guarantee based on historical farm prices and yields. The revenue-based program in the 2008 farm bill, Average Crop Revenue Election (ACRE), is eliminated and replaced by Agriculture Risk Coverage (ARC) in S. 954 and Revenue Loss Coverage or (RLC) H.R. 2642 . Payments are made on planted acres when actual crop revenue drops below a specified percentage of historical or "benchmark" revenue (88% in S. 954 and 85% in H.R. 2642 ). The producer absorbs the first portion of the shortfall (12% in S. 954 and 15% in H.R. 2642 ). The government absorbs the next 10% of revenue shortfall because the per-acre payment rate is capped at 10% of benchmark revenue. Remaining losses are backstopped by crop insurance if purchased at sufficient coverage levels by the producer. In the Senate bill under ARC, farmers can select coverage at either the county or individual farm level (to cover more localized losses), and any payments are made in addition to AMP. In the House bill, coverage under RLC is available at only the county level, and the program is not available in combination with PLC. For both bills, payments would be in addition to any crop insurance indemnities. A major distinction between these revenue-based farm programs and producer-purchased crop insurance is that the price component farm program guarantee is based on deviations from five-year historical crop prices (subject to reference prices used in the PLC program, which serve as minimums), while crop insurance is based on expected market prices for the upcoming season. Consequently, revenue-based farm programs can provide a revenue guarantee that is higher than what might be available through crop insurance if historical prices are high relative to expected market prices. See Figure 3 and Figure 4 for a conceptual illustration and hypothetical example of the ARC program. Crop Insurance Enhancements The federal crop insurance program makes available subsidized crop insurance to producers who purchase a policy to protect against individual farm losses in yield, crop revenue, or whole farm revenue. More than 100 crops are insurable. The program is permanently authorized by the Federal Crop Insurance Act (7 U.S.C. 1501 et seq.) but is often modified in farm bills. In contrast to farm programs in Title I, where spending is reduced substantially, both versions of the farm bill increase funding for crop insurance (Title XI) relative to baseline levels. Crop insurance baseline funding (budget authority) for FY2014-FY2023 is estimated by CBO at $84.1 billion. H.R. 2642 would increase spending by $8.9 billion over the period and S. 954 would increase spending by $5.0 billion, according to CBO projections. Two new insurance products—Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX) for cotton—account for most of the additional cost. (The CBO score for each major provision appears in Table 3 , below.) Many provisions of the crop insurance title are very similar in both bills. A major exception is a provision in S. 954 , which was adopted as a floor amendment by a vote of 59-33, that reduces crop insurance premium subsidies by 15 percentage points for producers with average adjusted gross income greater than $750,000. Also in Senate floor action, an amendment to provide mandatory funding of $5 million to maintain crop insurance program integrity was adopted without dissent, 94-0, and an amendment to eliminate premium subsidies for tobacco crop insurance was defeated (44-72). For details on all sections of the crop insurance title, see Appendix B . Supplemental Coverage Option (SCO) Under both bills, a new crop insurance policy is authorized to address the issue of "shallow losses," or losses incurred by producers but not covered currently by crop insurance. The Supplemental Coverage Option (SCO) would be available for purchase by crop producers as an additional policy to cover part of the deductible under the producer's underlying policy. SCO is an area-wide (e.g., county) yield or revenue loss policy, whereby an indemnity is paid on area losses between 10% and the deductible level (e.g., 25%) selected by the producer within the underlying individual policy. SCO policies would be made available for all crops (not just program crops) if sufficient data are available. Premium is subsidized at 65%. Coverage would begin no later than the 2014 crop year. If the farmer participates in ARC under Title I of the Senate bill, a 10% deductible under SCO is increased to 22%. In the House bill, acres covered by RLC are not eligible for SCO (i.e., producers of crops other than cotton, which would be covered by STAX, cannot select RLC and purchase an SCO policy). Figure 5 illustrates how crop insurance and farm programs would interact under each bill. The bar on the left depicts the expected revenue (prior to planting) under a typical crop insurance revenue policy with a 30% deductible (the farmer absorbs the first 30% of the loss). Under the House committee bill and assuming the farmer selects the PLC option, an SCO policy can be purchased to cover part of the deductible (see PLC column). If a loss occurs on the farm, an initial indemnity is triggered under the farmer's individual crop insurance policy as depicted by the green box. A second indemnity from the SCO would be paid (depicted by the blue box) if there is also a loss at the county level. Overall, the farmer incurs a loss of approximately 10% (white box at top). A separate PLC payment would be made if the farm price is below the reference price. If a producer selects the Revenue Loss Coverage (RLC) rather than PLC (see RLC column), the acreage is not eligible for SCO and only an RLC payment (red box) would be made if triggered. Under the Senate bill (see S. 954 column), which allows a producer to participate in both the ARC revenue program and SCO, the SCO indemnity (blue) would be smaller but would fill (potentially) the gap between the ARC payment (red) and the individual policy indemnity (green). Stacked Income Protection Plan (STAX) Both bills would handle cotton separately from the other major program crops in an attempt to resolve Brazil's long-standing World Trade Organization (WTO) case against the U.S. cotton program. In lieu of the farm revenue programs proposed in Title I, both versions of the farm bill include a new cotton program comprised of a stand-alone, county-based revenue insurance policy called the Stacked Income Protection Plan (STAX). Similar to SCO, STAX sets a revenue guarantee based on expected county revenue (but not revenue or yield as under SCO). Producers could purchase this policy in addition to their individual crop insurance policy (as done for SCO) or as a stand-alone policy. As under SCO, the indemnity from STAX, if triggered by a revenue loss at the county level, covers part of the deductible under the individual policy. (See far right column of Figure 5 .) Specifically, STAX would indemnify losses in county revenue of greater than 10% of expected revenue but not more than the deductible level (e.g., 25%) in the underlying individual policy (or not more than 30% if used as stand-alone policy). A payment rate multiplier of 120% is available if producers want to increase the amount of protection per acre. The farmer subsidy as a share of the policy premium is set at 80% for STAX. As with all crop insurance policies, the price guarantee is based on current market prices. In a previous farm bill proposal in 2012, specifically the 2012 House committee bill ( H.R. 6083 ), a minimum price of $0.6861 per pound would have been used in the calculation of the insurance guarantee if it was higher than the expected market price. Under a STAX policy setting, which has been advanced by the U.S. cotton sector, producers would forgo benefits from a revised farm program in order to comply with the WTO cotton case. In particular, STAX participants would not be eligible for benefits available to other program crops, such as ARC, yield updating, RLC, and counter-cyclical price payments with reference prices in PLC or AMP. Brazil has yet to formally sign off on STAX as a solution to the WTO cotton case. U.S.-Brazil negotiations in this case are ongoing and will likely hinge on the eventual farm bill treatment of cotton. Crop Insurance Studies and Other Provisions Additional crop insurance changes in both bills are designed to expand or improve crop insurance for other commodities, including specialty crops. Provisions in both bills revise the value of crop insurance for organic crops to reflect prices of organic (not conventional) crops. Separately, the bills require USDA to conduct more research on whole farm revenue insurance with higher coverage levels than currently available. Also in both bills are studies on the feasibility of insuring (1) specialty crop producers for food safety and contamination-related losses, (2) swine producers for a catastrophic disease event, (3) producers of catfish against reduction in the margin between the market prices and production costs, (4) commercial poultry production against business disruptions caused by integrator bankruptcy, (5) poultry producers for a catastrophic event, and (6) producers of biomass sorghum or sweet sorghum grown as feedstock for renewable energy. (In the Senate bill, an adopted floor amendment requires a study for alfalfa insurance.) A peanut revenue insurance product also is mandated. Separately, a provision in S. 954 makes payments available to producers who purchase private-sector index weather insurance, which insures against specific weather events and not actual loss. A provision in H.R. 2642 requires USDA to notify the public of any planned modification to insurance policies (and provide for a comment period) during the preceding crop year. Conservation Provisions for Crop Insurance For conservation purposes, a provision in Title XI of S. 954 reduces crop insurance subsidies and noninsured crop disaster assistance for the first four years of planting on native sod acreage. The same provision in the House bill would apply only to the Prairie Pothole National Priority Area (i.e., portions of Iowa, Minnesota, Montana, North Dakota, and South Dakota). In Title II of the Senate-passed bill only (§2609), crop insurance premium subsidies are available only if producers are in compliance with wetland conservation requirements and conservation requirements for highly erodible land. For more information on conservation compliance, see CRS Report R42459, Conservation Compliance and U.S. Farm Policy . Noninsured Crop Disaster Assistance Program (NAP) Producers who grow a crop that is currently ineligible for crop insurance may be eligible for a payment under USDA's Noninsured Crop Disaster Assistance Program (NAP). NAP has permanent authority under Section 196 of the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7333). To be eligible for a NAP payment, a producer first must apply for coverage under the program. Like catastrophic crop insurance, NAP applicants must also pay an administrative fee ($250 per year). In order to receive a NAP payment, a producer must experience at least a 50% crop loss caused by a natural disaster, or be prevented from planting more than 35% of intended crop acreage. For any losses in excess of the minimum loss threshold, a producer can receive 55% of the average market price for the covered commodity. In order to improve coverage for crops covered under NAP, both bills (in Title XII of both bills) provide additional coverage at 50% to 65% of established yield and 100% of average market price. Premium for additional coverage is 5.25% times the product of the selected coverage level and value of production (acreage times yield times average market price). In both bills, the premium for additional coverage is reduced by 50% for limited resource, beginning, and socially disadvantaged farmers. In the Senate bill only, for producers with fruit crop losses in 2012, payments associated with additional coverage are made retroactively (minus premium fees) in counties declared a disaster due to freeze or frost. The Senate bill also increases the base NAP fee and eliminates NAP for crops and grasses used for grazing to reduce overlap with livestock disaster programs in Title I. Disaster Programs Reauthorized Five disaster programs were established in the 2008 farm bill for weather-induced losses in FY2008-FY2011. Both 2013 farm bills retroactively reauthorize four programs covering livestock and tree assistance, specifically FY2012-FY2018 for the Senate bill and beginning FY2012 and continuing without an expiration date for the House bill. The crop disaster program from the 2008 farm bill (i.e., Supplemental Revenue Assistance, or SURE) is not reauthorized in either bill, but an element of it has been folded into the new ARC program in the Senate bill by allowing producers to protect against farm-level revenue losses (the House bill has only a county-based revenue program). S. 954 also provides disaster benefits to tree fruit producers who suffered crop losses in 2012 (see above). The following four programs would be reauthorized: 1. Livestock Indemnity Program (LIP), which would compensate ranchers for a portion of market value for livestock mortality caused by a disaster (65% in Senate bill, 75% in the House bill); 2. Livestock Forage Disaster Program (LFP), which would compensate for grazing losses due to qualifying drought conditions or fire on rangeland managed by a federal agency (both bills increase the payment amount from the 2008 farm bill in some cases); 3. Emergency Assistance for Livestock, Honeybees, and Farm-Raised Catfish (ELAP), which would provide annual funding of $15 million (Senate bill) and $20 million (House bill) to compensate producers for disaster losses not covered under other disaster programs; and 4. Tree Assistance Program (TAP), which would provide payments to eligible orchardists and nursery growers to cover 65% of the cost of replanting trees or nursery stock (70% previously) and 50% of the cost of pruning/removal following a natural disaster (in excess of 15% mortality in both cases). Farm Program Payment Limit Changes Farm commodity programs have certain limits that cap payments (currently $105,000 per person) and set eligibility based on adjusted gross income (AGI, currently a maximum of $500,000 per person for nonfarm income and $750,000 for farm income). The two bills are somewhat similar and diverge from current law, with S. 954 reducing the farm program payment limit to $50,000 per person for combined AMP and ARC payments and adding a $75,000 limit on loan deficiency payments (LDPs). Under H.R. 2642 , the limit for all Title I payments would be $125,000, of which LDPs would be limited to $75,000 and other payments including PLC, RLC, and transitional direct payments to $50,000. The House bill combines peanuts into the limit with other commodities, while the Senate bill continues separate but equal limits for peanuts. Both the Senate and House bills change the threshold to be considered "actively engaged" and to qualify for payments, by effectively requiring personal labor in the farming operation. Both bills also tighten limits on AGI, with a combined AGI limit of $750,000 in S. 954 and $950,000 in H.R. 2642 . Proponents of the changes to AGI assert that the new provisions represent a tightening of the limit. However, some high-income individuals who have been disqualified under the 2008 farm bill might be restored to eligibility, primarily because the proposed combined limit in both bills is higher than the current nonfarm AGI limit. The House bill caps overall farm program spending at $16.96 billion for FY2014-FY2020 for combined payments under Price Loss Coverage and Revenue Loss Coverage (collectively called Farm Risk Management Election). For disaster programs, S. 954 retains the combined $100,000 per person payment limit for LIP, LFP, and ELAP and retains the separate limit of $100,000 for TAP. H.R. 2642 contains a combined payment limit of $125,000 per person for LIP, LFP, and ELAP and a separate limit of $125,000 for TAP. Dairy and Sugar For dairy policy, both bills contain similar, significant changes, including elimination of the dairy product price support program, the Milk Income Loss Contract (MILC) program, and export subsidies. These are replaced by a new dairy margin insurance program which makes payments to participating dairy producers when the national margin (average farm price of milk minus average feed costs) falls below $4.00 per hundredweight (cwt.), with coverage at higher margins available for purchase. A provision in S. 954 makes participating producers subject to a separate program called the Dairy Market Stabilization Program, which reduces incentives to produce milk when margins are low—this provision is not present in H.R. 2642 . In addition, H.R. 2642 requires USDA to adhere to standard rulemaking procedures and to determine the market impacts of the new program during the rulemaking process. Separately, federal milk marketing orders have permanent statutory authority and continue intact. However, S. 954 (but not H.R. 2642 ) includes two additional provisions: one that requires USDA to use a specified pre-hearing procedure to consider alternative formulas for Class III milk product pricing, and a second that requires USDA to analyze and report on the potential effects of replacing end-product pricing with alternative pricing procedures. For more information on dairy policy, see CRS Report R42736, Dairy Policy Proposals in the Next Farm Bill . The objective and structure of the sugar program are left unchanged in both bills, but the Senate bill reauthorizes the program through the 2018 crop year, while the House bill reauthorizes the program without an expiration date. For more information, see CRS Report R42551, Sugar Program Proposals for the Next Farm Bill . Cost Estimates Funding to write the next farm bill is based on the Congressional Budget Office's (CBO's) baseline projection of the cost of mandatory farm bill programs, and on varying budgetary assumptions about whether programs will continue. The CBO baseline projection is an estimate at a particular point in time of what federal spending on mandatory programs likely would be under current law. The May 2013 CBO baseline projection is the "scoring baseline" against which S. 954 and H.R. 2642 have been measured. According to the May 2013 baseline, expected outlays for all mandatory farm bill programs under current law are $973 billion during FY2014-FY2023 ( Table 2 ). Of this amount, budget authority for farm safety net programs is $143 billion over the 10-year period, including $59 billion for commodity programs and $84 billion for crop insurance. Disaster programs do not have baseline funding, since they expired ahead of other farm support programs. From a budget perspective, programs with a continuing baseline are assumed to go on under current law. These amounts can be used to reauthorize the same programs; reallocated among these and other programs; used as savings for deficit reduction; or used as offsets to help pay for other provisions. For more information on the overall farm bill score and budget situation, see CRS Report R42484, Budget Issues Shaping a Farm Bill in 2013 . Table 3 shows the CBO scores of both versions of the farm bill, with a detailed breakout for their respective farm safety net provisions. For just the farm safety net programs, the 10-year savings amount is $12.8 billion in S. 954 and $9.6 billion in H.R. 2642 . Approximately three-fourths of the 10-year, $46 billion-$47 billion in savings associated with the proposed elimination of current farm programs would be used to offset the cost of revising farm programs (Title I), enhancing crop insurance (Title XI), and retroactively reauthorizing four disaster programs (Title I). The 10-year savings from commodity programs in the House committee bill is $18.7 billion and savings in the Senate bill is $17.4 billion. In contrast to scoring savings under Title I, expenditures for crop insurance in both bills increase relative to baseline levels. The increase is about $4 billion lower in the Senate bill, in part because the new revenue program contains an option for a farm-level guarantee that is expected to reduce demand for crop insurance and offset some costs associated with the crop insurance changes. Potential Impacts of S. 954 and H.R. 2642 A number of researchers have analyzed the proposed changes made to the farm safety net by the Senate and House farm bills. The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri concludes in an October 2013 sector-wide study that the economic consequences of the two bills would be similar in many respects, with reduced federal spending and relatively small effects on commodity markets. Comparing the two bills, FAPRI's analysis indicates that the House bill, given its parameters and structure, would provide substantially more support than the Senate bill to producers of rice, barley, and peanuts, while corn and soybean producers would benefit relatively more under the Senate bill. Actual program benefits will be sensitive to market conditions and producer participation, with government costs depending in part on eventual enrollment in the Supplemental Coverage Option (65% subsidy rate) and other factors. Under each bill, average net farm income would decline slightly as the sector would receive somewhat less federal support than under a continuation of 2008 farm bill programs. According to the study, impacts on food prices for consumers would be very small. A separate analysis by the Agricultural and Food Policy Center (AFPC) at Texas A&M University concludes that 53 of 64 of the representative farms (80%) that it models nationwide would receive greater financial benefits (i.e., higher average net cash farm income) under the House bill relative to the Senate bill over the life of the farm bill. The study reports that under a baseline price scenario, the average difference in net cash farm income as a result of differences in policy parameters would be $19,900 per farm, in favor of the House bill in cases when the House bill results in higher cash income than the Senate bill. A major driver is the attractive combination of reference prices (increased from 2008 farm bill levels) in the House bill—which provide support through the Price Loss Coverage program when farm prices decline—combined with the Supplemental Coverage Option (SCO) to address shallow losses beyond a 10% deductible. (In the Senate bill, the SCO deductible is expanded from 10% to 22% if the farmer also participates in Agriculture Risk Coverage (ARC)). Under a declining price scenario, the proportion of farms receiving greater financial benefits under the House bill declines to 74% compared with 80% under the baseline price scenario, primarily reflecting higher potential income for California rice producers under revenue guarantees in ARC compared with potential benefits under SCO, which is not designed to protect farmers against multi-year price declines. Other researchers have concluded that the SCO approach combined with the new revenue programs (ARC in the Senate bill and RLC in the House bill) could create situations of overcompensation for shallow losses (out-of-pocket costs absorbed by producers), while SCO alone is likely to result in fewer such concerns because it is integrated more closely with existing crop insurance coverage. The potential impact of a multi-year price decline is another major policy concern. The researchers point out that in the Senate bill, the ARC program guarantees will decline over time if market prices drop, which lengthens the adjustment period for producers. This is in contrast to the House bill (and Senate bill for rice and peanuts) which sets fixed minimum prices in the price and revenue programs. The House bill increases these parameters differently for each crop relative to their respective (and recent) market values, which the authors say could create planting incentives that differ from market signals, thereby shifting acreage toward crops that have more attractive program benefits. Some have expressed concern that costs of farm programs could be sharply higher than CBO estimates. An analysis by university researchers and sponsored by the American Enterprise Institute estimates that the cost of the House farm bill would be relatively modest (about $1.1 billion) if farm prices remain historically high. However, it also concludes that the annual cost could exceed $18 billion if farm prices drop to a 15-year average level. Others have criticized the analysis, calling it "an improbable price scenario," contrasting it with a stochastic scoring method used by CBO, which accounts for the probability of various price scenarios that result in either very high or low costs. Appendix A. Title I: Commodity Programs Appendix B. Title XI: Crop Insurance Appendix C. Title XII: Miscellaneous (Noninsured Crop Assistance Program)

The farm commodity provisions of the Food, Conservation, and Energy Act of 2008, as amended (P.L. 110-246, the 2008 farm bill) expire with the 2013 crop year. Consequently, the 113th Congress has been considering an omnibus farm bill that would establish the direction of agricultural policy for the next five years. On June 10, 2013, the Senate approved its version of the farm bill, S. 954, the Agriculture Reform, Food and Jobs Act of 2013. The House approved a farm bill (H.R. 2642) without a nutrition title on July 11, 2013, and a nutrition title (H.R. 3102) on September 19, 2013. The House adopted a resolution (H.Res. 361) on September 28 that combined the texts of H.R. 2642 and H.R. 3102 into one bill (H.R. 2642) for purposes of resolving differences with the Senate. Conference on the two measures is pending. Among the many provisions, both bills would reshape the structure of farm commodity support, retroactively reauthorize several disaster programs, and expand coverage under the federal crop insurance program. These three areas of federal support for farmers are often collectively called the "farm safety net." Commodity programs under the original 2008 farm bill cover only crops harvested in 2008 through 2012, and were extended for an additional crop year in the American Taxpayer Relief Act of 2012 (P.L. 112-240, the fiscal cliff bill). Unlike farm commodity programs, the federal crop insurance program, which provides subsidized insurance policies for producers, is permanently authorized under the Federal Crop Insurance Act of 1980. Five disaster assistance programs under the 2008 farm bill expired on September 30, 2011, and under the farm bill extension, Congress provided authority to appropriate funds (but no actual funding) for three livestock programs and a tree assistance program. Under both S. 954 and H.R. 2642, farm support for traditional program crops is restructured by eliminating direct payments. Direct payments—made to producers and landowners based on historical production and fixed payment rates for corn, wheat, soybeans, cotton, rice, peanuts, and other "covered" crops—have accounted for most farm program spending in recent years. As under current law, both bills authorize farm programs (with new program names) that would make payments when crop prices (or revenue) fall below a reference price (or historical average revenue). Authority is continued for marketing assistance loans, which provide additional low-price protection at "loan rates" specified in current law (with an adjustment made to cotton). The Senate bill covers only crop years 2014-2018, and it suspends permanent price support authority under the Agricultural Adjustment Act of 1938 and Agricultural Adjustment Act of 1949 until program authority in S. 954 expires in 2018. In contrast, the House bill covers crop year 2014 and each succeeding crop year (i.e., no program expiration date) and repeals permanent law. In both bills, approximately three-fourths of the 10-year, $46 billion-$47 billion in savings (as estimated by the Congressional Budget Office) associated with the proposed elimination of current farm programs would be used to offset the cost of revising farm programs (Title I), enhancing crop insurance (Title XI), and retroactively reauthorizing four disaster programs (beginning FY2012). The two bills provide programs for covered crops, except cotton, which would have its own program (a crop insurance product called Stacked Income Protection Plan or STAX). Proponents of farm programs and federal crop insurance are attempting to address the issue of "shallow losses"—crop losses not covered currently by crop insurance—as well as provide disaster assistance for livestock producers. Critics contend that the proposals contain overly generous farm and crop insurance subsidies and shift additional commodity market risk to the federal government.

Background The Americans with Disabilities Act, ADA, 42 U.S.C. §§12101 et seq ., has often been described as the most sweeping nondiscrimination legislation since the Civil Rights Act of 1964. It provides broad nondiscrimination protection in employment, public services, public accommodations and services operated by private entities, transportation, and telecommunications for individuals with disabilities. As stated in the act, its purpose is "to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." Enacted on July 26, 1990, the majority of the ADA's provisions took effect in 1992. The ADA Amendments Act, P.L. 110-325 , was enacted on September 25, 2008, to respond to a series of Supreme Court decisions that had interpreted the definition of disability narrowly. The Supreme Court has decided 20 ADA cases. In the most recent Supreme Court decision, United States v. Georgia, the Court held that Title II of the ADA created a private cause of action for damages against the states for conduct that actually violated the Fourteenth Amendment. However, the Court did not reach the issue of whether the Eleventh Amendment permits a prisoner to secure money damages from a state for state actions that violate the ADA but not the Constitution. In addition, the Supreme Court decided Arbaugh v. Y. & H Corp. , a case under Title VII of the Civil Rights Act of 1964, which has implications for the ADA's prohibition of discrimination where employers employ 15 or more employees. On December 7, 2007, the Supreme Court granted certiorari in Huber v. Wal-Mart Stores, to determine whether an individual with a disability who cannot perform her current job must be reassigned to a vacant, equivalent position without competing with other workers. However, the Court dismissed the petition since the case was settled prior to oral argument. Currently, there is a split in the circuits on this accommodation issue, and in light of the Court's dismissal of the case, there will continue to be divergent views. Before examining the provisions of the ADA and these cases, it is important to briefly note the ADA's historical antecedents. A federal statutory provision which existed prior to the ADA, Section 504 of the Rehabilitation Act of 1973, prohibits discrimination against an otherwise qualified individual with a disability, solely on the basis of the disability, in any program or activity that receives federal financial assistance, the executive agencies or the U.S. Postal Service. Many of the concepts used in the ADA originated in Section 504 and its interpretations; however, there is one major difference. While Section 504's prohibition against discrimination is tied to the receipt of federal financial assistance, the ADA also covers entities not receiving such funds. In addition, the federal executive agencies and the U.S. Postal Service are covered under Section 504, not the ADA. The ADA contains a specific provision stating that except as otherwise provided in the act, nothing in the act shall be construed to apply a lesser standard than the standards applied under Title V of the Rehabilitation Act (which includes Section 504) or the regulations issued by federal agencies pursuant to such Title. The ADA is a civil rights statute; it does not provide grant funds to help entities comply with its requirements. It does include a section on technical assistance which authorizes grants and awards for the purpose of technical assistance such as the dissemination of information about rights under the ADA and techniques for effective compliance. However, there are tax code provisions which may assist certain businesses or individuals. Definition of Disability Statutory Language Definition Language The definitions in the ADA, particularly the definition of "disability," are the starting point for an analysis of rights provided by the law. The term "disability," with respect to an individual, is defined as "(A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual; (B) a record of such an impairment; or (C) being regarded as having such an impairment (as described in paragraph (3))." The definition of disability was the subject of numerous cases brought under the ADA including major Supreme Court decisions which generally interpreted the definition narrowly. Due to these interpretations, Congress enacted the ADA Amendments Act, which kept essentially the same statutory language but contains new rules of construction regarding the definition of disability. These rules of construction provide that the definition of disability shall be construed in favor of broad coverage to the maximum extent permitted by the terms of the act; the term "substantially limits" shall be interpreted consistently with the findings and purposes of the ADA Amendments Act; an impairment that substantially limits one major life activity need not limit other major life activities to be considered a disability; an impairment that is episodic or in remission is a disability if it would have substantially limited a major life activity when active; the determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of mitigating measures, except that the ameliorative effects of ordinary eyeglasses or contact lenses shall be considered. The final EEOC regulations track the statutory definition but also provide some clarifying interpretations. For example, the operation of major bodily functions is included in the definition of major life activities. In addition, although the EEOC emphasizes the ADAAA's requirement for an individualized assessment, the regulations list some impairments that will almost always be determined to be a disability. These include deafness, blindness, an intellectual disability, missing limbs or mobility impairments requiring the use of a wheelchair, autism, cancer, cerebral palsy, diabetes, epilepsy, HIV infection, multiple sclerosis, muscular dystrophy, major depressive disorder, bipolar disorder, post-traumatic stress disorder, obsessive compulsive disorder, and schizophrenia. Statement of Findings and Purposes Regarding the Definition The findings of the ADA Amendments Act include statements indicating that the Supreme Court decisions in Sutton v. United Air Lines, Inc ., and Toyota Motor Manufacturing v. Williams as well as lower court cases have narrowed and limited the ADA from what was intended by Congress. The codified findings in the original ADA are amended to delete the finding that "43,000,000 Americans have one or more physical or mental disabilities...." This finding was used in Sutton to support limiting the reach of the definition of disability. P.L. 110-325 specifically states that the current EEOC regulations defining the term "substantially limits" as "significantly restricted" are "inconsistent with congressional intent, by expressing too high a standard." The EEOC has promulgated regulations under the ADA Amendments Act which change the definition of "substantially limits." The ADA Amendments Act states that the purposes of the legislation are to carry out the ADA's objectives of the elimination of discrimination and the provision of "'clear, strong, consistent, enforceable standards addressing discrimination' by reinstating a broad scope of protection available under the ADA." P.L. 110-325 rejected the Supreme Court's holdings that mitigating measures are to be used in making a determination of whether an impairment substantially limits a major life activity as well as holdings defining the "substantially limits" requirements. The substantially limits requirements of Toyota as well as the former EEOC regulations defining substantially limits as "significantly restricted" are specifically rejected in the new law. Major Life Activities The ADA Amendments Act specifically lists examples of major life activities including caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working. The act also states that a major life activity includes the operation of a major bodily function. The House Judiciary Committee report indicates that "this clarification was needed to ensure that the impact of an impairment on the operation of major bodily functions is not overlooked or wrongly dismissed as falling outside the definition of 'major life activities' under the ADA." There had been judicial decisions which found that certain bodily functions had not been covered by the definition of disability. For example, in Furnish v. SVI Sys., Inc., the Seventh Circuit held that an individual with cirrhosis of the liver due to infection with Hepatitis B was not an individual with a disability because liver function was not "integral to one's daily existence." Regarded as Having a Disability The third prong of the definition of disability covers individuals who are "regarded as having such an impairment (as described in paragraph (3))." Paragraph 3 states that "[a]n individual meets the requirement of 'being regarded as having such an impairment' if the individual establishes that he or she has been subjected to an action prohibited under this Act because of an actual or perceived physical or mental impairment whether or not the impairment limits or is perceived to limit a major life activity." However, impairments that are transitory and minor are specifically excluded from the regarded prong. A transitory impairment is one with an actual or expected duration of six months or less. The ADA Amendments Act also provides in a rule of construction in Title V of the ADA that a covered entity under Title I, a public entity under Title II, or a person who operates a place of public accommodation under Title III, need not provide a reasonable accommodation or a reasonable modification to policies, practices, or procedures to an individual who meets the definition of disability solely under the "regarded as" prong of the definition. Regulatory Authority to Promulgate Regulations Regarding the Definition of Disability The Supreme Court in Sutton questioned the authority of regulatory agencies to promulgate regulations for the definition of disability in the ADA. The definition of disability is contained in Section 3 of the ADA, and the ADA does not specifically give any agency the authority to interpret the definitions in Section 3, including the definition of disability. The Supreme Court declined to address this issue since, as both parties to Sutton accepted the regulation as valid, "we have no occasion to consider what deference they are due, if any." The ADA Amendments Act specifically grants regulatory authority and states that "[t]he authority to issue regulations granted to the Equal Employment Opportunity Commission, the Attorney General, and the Secretary of Transportation under this Act, includes the authority to issue regulations implementing the definitions contained in sections 3 and 4." Title V Provisions on the Definition of Disability The definition of "disability" was further elaborated in Title V of the ADA. Section 510 provides that the term "individual with a disability" in the ADA does not include an individual who is currently engaging in the illegal use of drugs when the covered entity acts on the basis of such use. An individual who has been rehabilitated would be covered. However, the conference report language clarifies that the provision does not permit individuals to invoke coverage simply by showing they are participating in a drug rehabilitation program; they must refrain from using drugs. The conference report also indicates that the limitation in coverage is not intended to be narrowly construed to only persons who use drugs "on the day of, or within a matter of weeks before, the action in question." The definitional section of the Rehabilitation Act was also amended to create uniformity with this definition. Section 508 provides that an individual shall not be considered to have a disability solely because that individual is a transvestite. Section 511 similarly provides that homosexuality and bisexuality are not disabilities under the act and that the term disability does not include transvestism, transsexualism, pedophilia, exhibitionism, voyeurism, gender identity disorders not resulting from physical impairments, or other sexual behavior disorders, compulsive gambling, kleptomania, or pyromania, or psychoactive substance use disorders resulting from current illegal use of drugs. Supreme Court Cases The Supreme Court has decided several cases relating to the definition of disability. The first ADA case to address the definitional issue was Bragdon v. Abbott , a case involving a dentist who refused to treat an HIV infected individual outside of a hospital. In Bragdon, the Court found that the plaintiff's asymptomatic HIV infection was a physical impairment impacting on the major life activity of reproduction thus rending HIV infection a disability under the ADA. The other decisions— Sutton v. United Airlines, Murphy v. United Parcel Service, Inc., Albertsons Inc. v. Kirkingburg , and Toyota Motor Manufacturing v. Williams —all involved issues which Congress later addressed in the ADA Amendments Act. Thus, although these decisions are of historical interest, especially regarding the impetus for the enactment of the ADA Amendments Act, they can no longer be assumed to be valid precedent and therefore will only be briefly discussed here. Bragdon v. Abbott The Supreme Court in Bragdon v. Abbott addressed the ADA definition of individual with a disability and held that the respondent's asymptomatic HIV infection was a physical impairment impacting on the major life activity of reproduction thus rendering the HIV infection a disability under the ADA. In 1994, Dr. Bragdon performed a dental examination on Ms. Abbott and discovered a cavity. Ms. Abbott had indicated in her registration form that she was HIV positive but at that time she was asymptomatic. Dr. Bragdon told her that he would not fill her cavity in his office but would treat her only in a hospital setting. Ms. Abbott filed an ADA complaint and prevailed at the district court, courts of appeals and the Supreme Court on the issue of whether she was an individual with a disability but the case was remanded for further consideration regarding the issue of direct threat. In arriving at its holding, Justice Kennedy, writing for the majority, first looked to whether Ms. Abbott's HIV infection was a physical impairment. Noting the immediacy with which the HIV virus begins to damage an individual's white blood cells, the Court found that asymptomatic HIV infection was a physical impairment. Second, the Court examined whether this physical impairment affected a major life activity and concluded that the HIV infection placed a substantial limitation on her ability to reproduce and to bear children and that reproduction was a major life activity. Finally, the Court examined whether the physical impairment was a substantial limitation on the major life activity of reproduction. After evaluating the medical evidence, the Court concluded that Ms. Abbott's ability to reproduce was substantially limited in two ways: (1) an attempt to conceive would impose a significant risk on Ms. Abbott's partner, and (2) an HIV infected woman risks infecting her child during gestation and childbirth. Sutton v. United Airlines, Murphy v. United Parcel Service, and Albertsons, Inc. v Kirkingburg Three Supreme Court decisions in 1999 addressed the definition of disability and specifically discussed the concept of mitigating measures. Sutton v. United Air Lines involved sisters who were rejected from employment as pilots with United Air Lines because they wore eyeglasses. The Supreme Court in Sutton examined the definition of disability used in the original ADA and found that the determination of whether an individual has a disability should be made with reference to measures that mitigate the individual's impairment. The Sutton Court stated: '"a disability' exists only where an impairment 'substantially limits' a major life activity, not where it 'might,' 'could,' or 'would' be substantially limiting if mitigating measures were not taken." The Court also emphasized that the statement of findings in the ADA that some 43,000,000 Americans have one or more physical or mental disability "requires the conclusion that Congress did not intend to bring under the statute's protection all those whose uncorrected conditions amount to disabilities." Similarly, in Murphy v. United Parcel Service, Inc ., the Court held that the fact that an individual with high blood pressure was unable to meet the Department of Transportation (DOT) safety standards was not sufficient to create an issue of fact regarding whether an individual is regarded as unable to utilize a class of jobs. The Court in Murphy found that an employee is regarded as having a disability if the covered entity mistakenly believes that the employee's actual, nonlimiting impairment substantially limits one or more major life activities. And in the last of this trilogy of 1999 cases, the Court in Albertsons v. Kirkingburg held that a trucker with monocular vision who was able to compensate for this impairment was not a person with a disability. Toyota Motor Manufacturing of Kentucky v. Williams In the 2002 case of Toyota Motor Manufacturing v. Williams, the meaning of "substantially limits" was examined, and Justice O'Connor, writing for the unanimous Court, determined that the word substantial "clearly precluded impairments that interfere in only a minor way with the performance of manual tasks." The Court also found that the term "major life activity" "refers to those activities that are of central importance to daily life." Finding that these terms are to be "interpreted strictly," the Court held that "to be substantially limited in performing manual tasks, an individual must have an impairment that prevents or severely restricts the individual from doing activities that are of central importance to most people's daily lives." Application of the Eleventh Amendment to the ADA The Eleventh Amendment states: "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." The Supreme Court has found that the Eleventh Amendment cannot be abrogated by the use of Article I powers but that Section 5 of the Fourteenth Amendment can be used for abrogation in certain circumstances. Section 5 of the Fourteenth Amendment states: "The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article." The circumstances where Section 5 of the Fourteenth Amendment can be used to abrogate the Eleventh Amendment were discussed in the Supreme Court decisions in College Savings Bank v. Florida Prepaid Postsecondary Educ. Expense Board, Florida Prepaid Postsecondary Educ. Expense Board v. College Savings Bank , and Kimel v. Florida Board of Regents . They reiterated the principle that the Congress may abrogate state immunity from suit under the Fourteenth Amendment and found that there were three conditions necessary for successful abrogation. Congressional power is limited to the enactment of "appropriate" legislation to enforce the substantive provisions of the Fourteenth Amendment. The legislation must be remedial in nature. There must be a "congruence and proportionality" between the injury to be prevented and the means adopted to that end. The ADA uses both the Fourteenth Amendment and the Commerce Clause of the Constitution as its constitutional basis. It also specifically abrogates state immunity under the Eleventh Amendment. The ADA, then, is clear regarding its attempt to abrogate state immunity; the issue is whether the other elements of a successful abrogation are present. The Supreme Court in Garrett v. University of Alabama found that they were not with regard to Title I while in Tennessee v. Lane the Court upheld Title II as it applies to the access to courts. Most recently, the Supreme Court in United States v. Georgia, held that Title II of the ADA created a private cause of action for damages against the states for conduct that actually violates the Fourteenth Amendment. However, the Court did not reach the issue of whether the Eleventh Amendment permits a prisoner to secure money damages from a state for state actions that violate the ADA but not the Constitution. Employment General Requirements Statutory and Regulatory Requirements Title I of the ADA, as amended by the ADA Amendments Act of 2008, provides that no covered entity shall discriminate against a qualified individual on the basis of disability in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment. The term employer is defined as a person engaged in an industry affecting commerce who has 15 or more employees. Therefore, the employment section of the ADA, unlike the section on public accommodations, which will be discussed subsequently, is limited in scope to employers with 15 or more employees. This parallels the coverage provided in the Civil Rights Act of 1964. As noted previously, the Supreme Court, in Arbaugh v. Y. & H. Corp. , held that the 15-employee limitation in Title VII of the Civil Rights Act was not jurisdictional, but rather was related to the substantive adequacy of a claim. Thus, if the defense that the employer employs fewer than 15 employees is not raised in a timely manner, a court is not obligated to dismiss the case. Because the ADA's 15-employee limitation language parallels that of Title VII, it is likely that a court would interpret the ADA's requirement in the same manner. The term employee with respect to employment in a foreign country includes an individual who is a citizen of the United States; however, it is not unlawful for a covered entity to take action that constitutes discrimination with respect to an employee in a workplace in a foreign country if compliance would cause the covered entity to violate the law of the foreign country. If the issue raised under the ADA is employment related, and the threshold issues of meeting the definition of an individual with a disability and involving an employer employing more than 15 individuals are met, the next step is to determine whether the individual is a qualified individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the job. Title I defines a "qualified individual with a disability." Such an individual is "an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position that such person holds or desires." The ADA incorporates many of the concepts set forth in the regulations promulgated pursuant to Section 504, including the requirement to provide reasonable accommodation unless the accommodation would pose an undue hardship on the operation of the business. "Reasonable accommodation" is defined in the ADA as including making existing facilities readily accessible to and usable by individuals with disabilities, and job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of equipment or devices, adjustment of examinations or training materials or policies, provision of qualified readers or interpreters or other similar accommodations. "Undue hardship" is defined as "an action requiring significant difficulty or expense." Factors to be considered in determining whether an action would create an undue hardship include the nature and cost of the accommodation, the overall financial resources of the facility, the overall financial resources of the covered entity, and the type of operation or operations of the covered entity. Reasonable accommodation and the related concept of undue hardship are significant concepts under the ADA and are one of the major ways in which the ADA is distinguishable from Title VII jurisprudence. The statutory language paraphrased above provides some guidance for employers but the details of the requirements have been the subject of numerous judicial decisions. In addition, the EEOC issued detailed enforcement guidance on these concepts on March 1, 1999, which was amended on October 17, 2002, to reflect the Supreme Court's decision in U.S. Airways v. Barnett. Although much of the guidance reiterates long-standing EEOC interpretations in a question and answer format, the EEOC also took issue with some judicial interpretations. Notably the EEOC stated that an employee who is granted leave as a reasonable accommodation is entitled to return to his or her same position, unless this imposes an undue hardship; and an employer is limited in the ability to question the employee's documentation of a disability ("An employer cannot ask for documentation when: (1) both the disability and the need for reasonable accommodation are obvious, or (2) the individual has already provided the employer with sufficient information to substantiate that s/he has an ADA disability and needs the reasonable accommodation requested."). Issues regarding the amount of money that must be spent on reasonable accommodations have also arisen. The EEOC regulations and guidance provide that an employer does not have to provide a reasonable accommodation that would cause an "undue hardship" to the employer. However, the Seventh Circuit in Vande Zande v. State of Wisconsin Department of Administration found that the cost of the accommodation cannot be disproportionate to the benefit. "Even if an employer is so large or wealthy—or, like the principal defendant in this case, is a state, which can raise taxes in order to finance any accommodations that it must make to disabled employees—that it may not be able to plead 'undue hardship', it would not be required to expend enormous sums in order to bring about a trivial improvement in the life of a disabled employee." Clackamas Gastroenterology Associates P.C. v. Wells The Supreme Court examined the definition of the term "employee" under the ADA in Clackamas Gastroenterology Associates P.C. v. Wells. In Clackamas, the Court held in a 7-2 decision written by Justice Stevens, that the EEOC's guidelines concerning whether a shareholder-director is an employee were the correct standard to use. Since the evidence was not clear, the case was remanded for further proceedings. Clackamas Gastroenterology Associates is a medical clinic in Oregon that employed Ms. Wells as a bookkeeper from 1986-1997. After her termination from employment, Ms. Wells brought an action alleging unlawful discrimination on the basis of discrimination under Title I of the ADA. The clinic denied that it was covered by the ADA since it argued that it did not have 15 or more employees for the 20 weeks per year required by the statute. The determination of coverage was dependent on whether the four physician-shareholders who owned the professional corporation were counted as employees. The Court first looked to the definition of employee in the ADA which states that an employee is "an individual employed by an employer." This definition was described as one which is "completely circular and explains nothing." The majority then looked to common law, specifically the common law element of control. This is the position advocated by the EEOC. The EEOC has issued guidelines which list six factors to be considered in determining whether the individual acts independently and participates in managing the organization or whether the individual is subject to the organization's control and therefore an employee. These six factors are: Whether the organization can hire or fire the individual or set the rules and regulations of the individual's work; Whether and, if so, to what extent the organization supervises the individual's work; Whether the individual reports to someone higher in the organization; Whether and, if so, to what extent the individual is able to influence the organization; Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and Whether the individual shares in the profits, losses, and liabilities of the organization. Justice Stevens, writing for the majority, found that some of the district court's findings of fact, when considered in light of the EEOC's standard, appeared to favor the conclusion that the four physicians were not employees of the clinic. However, since there was some evidence that might support the opposite conclusion, the Court remanded the case for further proceedings. Justice Ginsburg, joined by Justice Breyer, dissented from the majority's opinion. The dissenters argued that the Court's opinion used only one of the common-law aspects of a master-servant relationship. In addition, Justice Ginsburg noted that the physician-shareholders argued they were employees for the purposes of other statutes, notably the Employee Retirement Income Security Act of 1974 (ERISA) and stated "I see no reason to allow the doctors to escape from their choice of corporate form when the question becomes whether they are employees for the purposes of federal antidiscrimination statutes." Other Supreme Court Employment Cases Many of the Supreme Court decisions have involved employment situations although a number of these cases did not reach past the threshold issue of whether the individual alleging employment discrimination was an individual with a disability. There are still several significant employment issues, such as reasonable accommodations, which have not been dealt with by the Court. In addition, the landmark decision of University of Alabama v. Garrett on the application of the Eleventh Amendment arose in the employment context. Receipt of SSI Benefits The relationship between the receipt of SSDI benefits and the ability of an individual to pursue an ADA employment claim was the issue in Cleveland v. Policy Management Systems Corp, supra . The Supreme Court unanimously held that pursuit and receipt of SSDI benefits does not automatically stop a recipient from pursuing an ADA claim or even create a strong presumption against success under the ADA. Observing that the Social Security Act and the ADA both help individuals with disabilities but in different ways, the Court found that "despite the appearance of conflict that arises from the language of the two statutes, the two claims do not inherently conflict to the point where courts should apply a special negative presumption like the one applied by the Court of Appeals here." The fact that the ADA defines a qualified individual as one who can perform the essential functions of the job with or without reasonable accommodation was seen as a key distinction between the ADA and the Social Security Act. In addition, the Court observed that SSDI benefits are sometimes granted to individuals who are working. The Seventh Circuit, in Johnson v. ExxonmobilCorp. , applied the Supreme Court's analysis in Cleveland and distinguished the factual situations. In Cleveland the plaintiff had argued that she had made consistent statements in her ADA claim and in the SSDI application; however, in Johnson the Seventh Circuit found that the plaintiff had merely argued that "he was mistaken in his SSDI application." The court of appeals concluded that " Cleveland does not stand for the proposition that defendants should be allowed to explain why they gave false statements on their SSDI applications, which is essentially what Johnson seeks to do here." "Qualified" Individual with a Disability In Albertsons, Inc. v. Kirkingburg, the Supreme Court held that an employer need not adopt an experimental vision waiver program. Title I of the ADA prohibits discrimination in employment against a "qualified" individual with a disability. In finding that the plaintiff's inability to comply with the general regulatory vision requirements rendered him unqualified, the Court framed the question in the following manner. "Is it reasonable ... to read the ADA as requiring an employer like Albertsons to shoulder the general statutory burden to justify a job qualification that would tend to exclude the disabled, whenever the employer chooses to abide by the otherwise clearly applicable, unamended substantive regulatory standard despite the Government's willingness to waive it experimentally and without any finding of its being inappropriate?" Answering this question in the negative, the Court observed that employers should not be required to "reinvent the Government's own wheel" and stated that "it is simply not credible that Congress enacted the ADA (before there was any waiver program) with the understanding that employers choosing to respect the Government's sole substantive visual acuity regulation in the face of an experimental waiver might be burdened with an obligation to defend the regulation's application according to its own terms." In Chevron U.S.A. Inc., v. Echazabal , the Supreme Court held unanimously that the ADA does not require an employer to hire an individual with a disability if the job in question would endanger the individual's health. The ADA's statutory language provides for a defense to an allegation of discrimination that a qualification standard is "job related and consistent with business necessity." The act also allows an employer to impose as a qualification standard that the individual shall not pose a direct threat to the health or safety of other individuals in the workplace but does not discuss a threat to the individual's health or safety. The Ninth Circuit in Echazabal had determined that an employer violated the ADA by refusing to hire an applicant with a serious liver condition whose illness would be aggravated through exposure to the chemicals in the workplace. The Supreme Court rejected the Ninth Circuit decision and upheld a regulation by the EEOC that allows an employer to assert a direct threat defense to an allegation of employment discrimination where the threat is posed only to the health or safety of the individual making the allegation. Justice Souter found that the EEOC regulations were not the kind of workplace paternalism that the ADA seeks to outlaw. "The EEOC was certainly acting within the reasonable zone when it saw a difference between rejecting workplace paternalism and ignoring specific and documented risks to the employee himself, even if the employee would take his chances for the sake of getting a job." The Court emphasized that a direct threat defense must be based on medical judgment that uses the most current medical knowledge. The Supreme Court had examined an analogous issue in UAW v. Johnson Controls, Inc. , which held that under the Civil Rights Act of 1964 employers could not enforce "fetal protection" policies that kept women, whether pregnant or with the potential to become pregnant, from jobs that might endanger a developing fetus. Although this case was raised by the plaintiff, the Supreme Court distinguished the decision there from that in Echazabal . The Johnson Controls decision was described as "concerned with paternalistic judgments based on the broad category of gender, while the EEOC has required that judgments based on the direct threat provision be made on the basis of individualized risk assessments." Collective Bargaining Agreements The interplay between rights under the ADA and collective bargaining agreements was the subject of the Supreme Court's decision in Wright v. Universal Maritime Service Corp., supra. The Court held there that the general arbitration clause in a collective bargaining agreement does not require a plaintiff to use the arbitration procedure for an alleged violation of the ADA. However, the Court's decision was limited since the Court did not find it necessary to reach the issue of the validity of a union-negotiated waiver. In other words, the Court found that a general arbitration agreement in a collective bargaining agreement is not sufficient to waive rights under civil rights statutes but situations where there is a specific waiver of ADA rights were not addressed. Reasonable Accommodations and Seniority Systems The Supreme Court in U.S. Airways v. Barnett held that an employer's showing that a requested accommodation by an employee with a disability conflicts with the rules of a seniority system is ordinarily sufficient to establish that the requested accommodation is not "reasonable" within the meaning of the ADA. The Court, in a majority opinion by Justice Breyer, observed that a seniority system, "provides important employee benefits by creating, and fulfilling, employee expectations of fair, uniform treatment" and that to require a "typical employer to show more than the existence of a seniority system might undermine the employees' expectations of consistent, uniform treatment." Thus, in most ADA cases, the existence of a seniority system would entitle an employer to summary judgment in its favor. The Court found no language in the ADA which would change this presumption if the seniority system was imposed by management and not by collective bargaining. However, Justice Breyer found that there were some exceptions to this rule for "special circumstances" and gave as examples situations where (1) the employer "fairly frequently" changes the seniority system unilaterally, and thereby diminishes employee expectations to the point where one more departure would "not likely make a difference" or (2) the seniority system contains so many exceptions that one more exception is unlikely to matter. Although the majority in Barnett garnered five votes, the Court's views were splintered. There were strong dissents and two concurring opinions. In her concurrence, Justice O'Connor stated that she would prefer to say that the effect of a seniority system on the ADA depends on whether the seniority system is legally enforceable but that since the result would be the same in most cases as under the majority's reasoning, she joined with the majority to prevent a stalemate. The dissents took vigorous exception to the majority's decision with Justice Scalia, joined by Justice Thomas, arguing that the ADA does not permit any seniority system to be overridden. The dissent by Justice Souter, joined by Justice Ginsberg, argued that nothing in the ADA insulated seniority rules from a reasonable accommodation requirement and that the legislative history of the ADA clearly indicated congressional intent that seniority systems be a factor in reasonable accommodations determinations but not the major factor. Rehiring of Individual Who Has Been Terminated for Illegal Drug Use In Raytheon Co. v. Hernandez , the Supreme Court was presented with the issue of whether the ADA confers preferential rehiring rights on employees who have been lawfully terminated for misconduct, in this case illegal drug use. However, the Court, in an opinion by Justice Thomas, did not reach this issue, finding that the Ninth Circuit had improperly applied a disparate impact analysis in a disparate treatment case and remanding the case. The Court observed that it "has consistently recognized a distinction between claims of discrimination based on disparate treatment and claims of discrimination based on disparate impact." Disparate treatment was described as when an employer intentionally treats some people less favorably than others because of a protected characteristic such as race and liability depends on whether the protected trait actually motivated the employer's decision. Disparate impact, in contrast, involves practices that are facially neutral but in fact impact a protected group more harshly and cannot be justified by business necessity. Disparate impact cases do not require evidence of an employer's subjective intent. Employment Inquiries Relating to a Disability Before an offer of employment is made, an employer may not ask a disability related question or require a medical examination. The EEOC in its guidance on this issue stated that the rationale for this exclusion was to isolate an employer's consideration of an applicant's non-medical qualifications from any consideration of the applicant's medical condition. Once an offer is made, disability related questions and medical examinations are permitted as long as all individuals who have been offered a job in that category are asked the same questions and given the same examinations. It is not always clear exactly what is a medical test. In Karraker v. Rent-a-Center, Inc., the Seventh Circuit examined the issue of whether an employer's use of the Minnesota Multiphasic Personality Inventory (MMPI) in order to obtain a promotion violated the ADA. The MMPI contains questions such as "I commonly hear voices without knowing where they are coming from" and "I see things or animals or people around me that others do not see." The court found that, even though the test was not interpreted by a psychologist, the MMPI was a medical test since it was designed in part to reveal mental illness. The events of September 11, 2001, raised questions concerning whether an employer may ask employees whether they will require assistance in the event of an evacuation because of a disability or medical condition. The EEOC issued a fact sheet stating that employers are allowed to ask employees to self-identify if they will require assistance because of a disability or medical conditions and providing details on how the employer may identify individuals who may require assistance. Similarly, the 2009 H1N1 influenza pandemic also raised issues concerning inquiries relating to a disability, and the EEOC has issued guidance for employers. Defenses to a Charge of Discrimination The ADA specifically lists defenses that may be applied to a charge of discrimination. If an employer can demonstrate that qualification standards, tests, or other selection criteria that may disqualify an individual with a disability are "job-related, … consistent with business necessity, and such performance cannot be accomplished by reasonable accommodation," the employer may not be liable under the ADA. The ADA further states that such standards, tests, and criteria may not be used to disqualify an individual based on his or her uncorrected vision unless the requirement is job-related and consistent with business necessity. Employers may discriminate against an individual with a disability if he or she poses a direct threat to the health or safety of other individuals in the workplace. The EEOC has indicated that the following factors should be considered when determining whether an individual poses a direct threat: the duration of the risk; the nature and severity of the potential harm; the likelihood that the potential harm will occur; and the imminence of the potential harm. The ADA includes two exceptions for religious organizations. First, religious entities may "[give] preference in employment to individuals of a particular religion to perform work connected with the carrying on by such [entity] of its activities." Second, religious entities may require applicants and employees to conform to their religious tenets. In addition to these statutory protections, the Supreme Court has affirmed additional constitutional protections available to religious employers. In Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, a teacher at a religious school challenged her termination under the ADA after the school fired her following her disability leave. The Court recognized the constitutional ministerial exception to employment discrimination laws, explaining that religious institutions must be permitted to select employees who are responsible for carrying out the institution's mission. Thus, the ministerial exception may be claimed by religious employers with respect to ministers and ministerial employees only. The ministerial exception prevents governmental interference in decisions regarding these employees in conformance with the constitutional requirements of the First Amendment. Finally, employers may avoid liability under the ADA for decisions that discriminate against individuals with an infectious or communicable disease if the disease may be transmitted through food handling and the job involves such duties. To claim this defense, the disease must be listed by the Secretary of Health And Human Services as an infectious disease transmitted through food handling and must not be able to be eliminated by reasonable accommodation. Drugs, Alcohol, and Employer Conduct Rules A controversial issue that arose during the enactment of the ADA regarding employment concerned the application of the act to drug addicts and alcoholics. The ADA provides that, with regard to employment, current illegal drug users are not considered to be qualified individuals with disabilities. However, former drug users and alcoholics would be covered by the act if they are able to perform the essential functions of the job. Exactly what is "current" use of illegal drugs has been the subject of some discussion. The EEOC has defined current to mean that the illegal drug use occurred "recently enough" to justify an employer's reasonable belief that drug use is an ongoing problem. The courts that have examined this issue have generally found that to be covered by the ADA, the individual must be free of drugs for a considerable period of time, certainly longer than weeks. In the appendix to its regulations, EEOC further notes that "an employer, such as a law enforcement agency, may also be able to impose a qualification standard that excludes individuals with a history of illegal use of drugs if it can show that the standard is job-related and consistent with business necessity." Title I of the ADA also provides that a covered entity may prohibit the illegal use of drugs and the use of alcohol in the workplace. Similarly, employers may hold all employees, regardless of whether or not they have a disability, to the same performance and conduct standards. However, if the misconduct results from a disability, the employer must be able to demonstrate that the rule is job-related and consistent with business necessity. Remedies The remedies and procedures set forth in Sections 705, 706, 707, 709, and 710 of the Civil Rights Act of 1964, are incorporated by reference. This provides for certain administrative enforcement as well as allowing for individual suits. The Civil Rights Act of 1991, P.L. 102-166 , expanded the remedies of injunctive relief and back pay. A plaintiff who was the subject of unlawful intentional discrimination (as opposed to an employment practice that is discriminatory because of its disparate impact) may recover compensatory and punitive damages. In order to receive punitive damages, the plaintiff must show that there was a discriminatory practice engaged in with malice or with reckless indifference to the rights of the aggrieved individuals. The amount that can be awarded in punitive and compensatory damages is capped, with the amounts varying from $50,000 to $300,000 depending upon the size of the business. Similarly, there is also a "good faith" exception to the award of damages with regard to reasonable accommodation. The Lilly Ledbetter Fair Pay Act of 2009, P.L. 111-2 , amends Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, and the Americans with Disabilities Act. Enacted in response to the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber Co., the law states that an unlawful employment practice occurs, with respect to discrimination in compensation, when a discriminatory compensation decision or other practice is adopted, when an individual becomes subject to a discriminatory compensation decision or practice, or when an individual is affected by application of a discriminatory compensation decision or practice. Liability for these discriminatory practices may accrue and an individual may obtain back pay for up to two years preceding the filing of the charges. P.L. 111-2 applies to Title I of the ADA which covers employment, and Section 503, 42 U.S.C. §12203, of the ADA, which prohibits retaliation and coercion. It should also be noted that the Supreme Court addressed the issue of punitive damages in a Title VII sex discrimination case, Kolstad v. American Dental Association. The Court held in Kolstad that plaintiffs are not required to prove egregious conduct to be awarded punitive damages; however, the effect of this holding is limited by the Court's determination that certain steps taken by an employer may immunize them from punitive damages. Since the ADA incorporates the Title VII provisions, the holding in Kolstad may be applicable to ADA employment cases as well. In Equal Employment Opportunity Commission v. Wal-mart Stores, Inc., the Tenth Circuit applied Kolstad and affirmed an award of punitive damages under the ADA. This case involved a hearing impaired employee of Wal-mart who sometimes required the assistance of an interpreter. After being employed for about two years in the receiving department, the employee was required to attend a training session but left when the video tape shown was not close captioned and no interpreter was provided. After refusing to attend in the absence of an interpreter, the employee was transferred to the maintenance department to perform janitorial duties. When he questioned the transfer and asked for an interpreter, he was again denied. After threatening to file a complaint with the EEOC, the employee was suspended and later terminated from employment. He then sued and won compensatory damages and $75,000 in punitive damages. On appeal, the Tenth Circuit examined the reasoning in Kolstad and concluded that the record in Wal-mart "is sufficient to resolve the questions of intent and agency laid out in Kolstad. " With regard to intent, the court reiterated the facts and further noted that the store manager, who ultimately approved the employee's suspension, had testified that he was familiar with the ADA and its provisions regarding accommodation, discrimination and retaliation. This was seen as sufficient for a reasonable jury to conclude that Wal-mart intentionally discriminated. Wal-mart had also made an agency argument, stating that liability for punitive damages was improper because the employees who discriminated against the employee did not occupy positions of managerial control. Looking again to the reasoning in Kolstad , the Tenth Circuit noted that the Wal-mart employees had authority regarding hiring and firing decisions and observed that such authority is an indicium of supervisory or managerial capacity. Public Services General Requirements Title II of the ADA provides that no qualified individual with a disability shall be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity or be subjected to discrimination by any such entity. "Public entity" is defined as state and local governments, any department or other instrumentality of a state or local government and certain transportation authorities. The ADA does not apply to the executive branch of the federal government; the executive branch and the U.S. Postal Service are covered by Section 504 of the Rehabilitation Act of 1973. The Department of Justice (DOJ) promulgated regulations for Title II which were amended as published in the Federal Register on September 15, 2010. The regulations contain a specific section on program accessibility. Each service, program, or activity conducted by a public entity, when viewed in its entirety, must be readily accessible to and usable by individuals with disabilities. However, a public entity is not required to make each of its existing facilities accessible. Program accessibility is limited in certain situations involving historic preservation. In addition, in meeting the program accessibility requirement, a public entity is not required to take any action that would result in a fundamental alteration in the nature of its service, program, or activity or in undue financial and administrative burdens. The amended Title II regulations adopt accessibility standards consistent with the new minimum guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board (Access Board). In order to provide "an important measure of clarity and certainty for public entities," DOJ's amended title II regulations add an "element by element safe harbor" provision where elements in covered facilities that were built or altered in accordance with the previous 1991 accessibility standards would not be required to be brought into compliance with the new standards until the elements were subject to a planned alteration. In addition, the amended regulations include more detailed standards for service animals, power-driven mobility devices, ticketing, and effective communication. The amended regulations took effect March 15, 2011, but compliance with the 2010 standards for accessible design is not required until March 15, 2012. Title II of the ADA would also apply to state and local government emergency preparedness and response programs. The Department of Justice has issued an ADA guide for local governments, noting that "one of the most important roles of local government is to protect their citizenry from harm, including helping people prepare for and respond to emergencies. Making local government emergency preparedness and response programs accessible to people with disabilities is critical part of this responsibility. Making these programs accessible is also required by the ADA." Supreme Court Cases Although Title II has not been the subject of as much litigation as Title I, several of the ADA cases to reach the Supreme Court have involved Title II. The most significant of these to date is Tennessee v. Lane . In Lane , the Supreme Court held that Title II of the ADA, as it applies to the fundamental right of access to the courts, constitutes a valid exercise of congressional authority under Section 5 of the Fourteenth Amendment. In addition, the Supreme Court in United States v. Georgia., held that Title II of the ADA created a private cause of action for damages against the states for conduct that actually violates the Fourteenth Amendment. In the first ADA case to reach the Supreme Court, Pennsylvania Department of Corrections v. Yeskey, supra, the Court found in a unanimous decision that state prisons "fall squarely within the statutory definition of 'public entity'" for Title II. Yeskey involved a prisoner who was sentenced to 18 to 36 months in a Pennsylvania correctional facility but was recommended for placement in a motivational boot camp for first time offenders. If the boot camp was successfully completed, the prisoner would have been eligible for parole in six months. The prisoner was denied admission to the program due to his medical history of hypertension and sued under the ADA. The state argued that state prisoners were not covered under the ADA since such coverage would "alter the usual constitutional balance between the States and the Federal Government." The Supreme Court rejected this argument, observing that "the ADA plainly covers state institutions without any exception that could cast the coverage of prisons into doubt." The Court noted that prisoners receive many services, including medical services, educational and vocational programs and recreational activities so that the ADA language applying the "benefits of the services, programs, or activities of a public entity" is applicable to state prisons. However, the Court in Yeskey did not address the constitutional issues. In Olmstead v. Georgia, supra, the Supreme Court examined issues raised by state mental health institutions and held that Title II of the ADA requires states to place individuals with mental disabilities in community settings rather than institutions when the State's treatment professionals have determined that community placement is appropriate, community placement is not opposed by the individual with a disability, and the placement can be reasonably accommodated. "Unjustified isolation ... is properly regarded as discrimination based on disability." The Olmstead case had been closely watched by both disability groups and state governments. Although disability groups have applauded the holding that undue institutionalization qualifies as discrimination by reason of disability, the Supreme Court did place certain limitations on this right. In addition to the agreement of the individual affected, the Court also dealt with the issue of what is a reasonable modification of an existing program and stated: "Sensibly construed, the fundamental-alteration component of the reasonable-modifications regulation would allow the State to show that, in the allocation of available resources, immediate relief for the plaintiffs would be inequitable, given the responsibility the State has undertaken for the care and treatment of a large and diverse population of persons with mental disabilities." This examination of what constitutes a reasonable modification may have implications for the interpretation of similar concepts in the employment and public accommodations Titles of the ADA. Other Title II Cases Courts have examined various other issues regarding compliance with Title II. For example, in Crowder v. Kitagawa , a Hawaii regulation requiring the quarantine of all dogs, including guide dogs for visually impaired individuals, was found to violate Title II. Other Title II cases have involved whether curb ramps are required, the application of Title II to a city ordinance allowing open burning, and the application of the ADA to a city's zoning ordinances. Transportation Provisions Title II also provides specific requirements for public transportation by intercity and commuter rail and for public transportation other than by aircraft or certain rail operations. All new vehicles purchased or leased by a public entity that operates a fixed route system must be accessible, and good faith efforts must be demonstrated with regard to the purchase or lease of accessible use vehicles. Retrofitting of existing buses is not required. Paratransit services must be provided by a public entity that operates a fixed route service, other than one providing solely commuter bus service. Rail systems must have at least one car per train that is accessible to individuals with disabilities. Draft guidelines have been published by the Architectural and Transportation Barriers Compliance Board (Access Board) regarding the accessibility of public rights-of-way. The purpose of the draft guidelines is to gather additional information for the regulatory assessment and the preparation of technical assistance materials to accompany a future rule. The Board will issue a notice of proposed rulemaking at a future date and will solicit comments at that time, prior to issuing a final rule. Remedies The enforcement remedies of Section 505 of the Rehabilitation Act of 1973, 29 U.S.C. §794a, are incorporated by reference. These remedies are similar to those of Title VI of the Civil Rights Act of 1964, and include damages and injunctive relief. The Attorney General has promulgated regulations relating to subpart A of the Title, and the Secretary of Transportation has issued regulations regarding transportation. Barnes v. Gorman The Supreme Court in Barnes v. Gorman held in a unanimous decision that punitive damages may not be awarded under Section 202 of the ADA and Section 504 of the Rehabilitation Act of 1973. Jeffrey Gorman uses a wheelchair and lacks voluntary control over his lower torso which necessitates the use of a catheter attached to a urine bag. He was arrested in 1992 after fighting with a bouncer at a nightclub and during his transport to the police station suffered significant injuries due to the manner in which he was transported. He sued the Kansas City police and was awarded over $1 million in compensatory damages and $1.2 million in punitive damages. The Eighth Circuit court of appeals upheld the award of punitive damages but the Supreme Court reversed. Although the Court was unanimous in the result, there were two concurring opinions and the concurring opinion by Justice Stevens, joined by Justices Ginsburg and Breyer, disagreed with the reasoning used in Justice Scalia's opinion for the Court. Justice Scalia observed that the remedies for violations of both Section 202 of the ADA and Section 504 of the Rehabilitation Act are "coextensive with the remedies available in a private cause of action brought under Title VI of the Civil Rights Act of 1964." Neither Section 504 nor Title II of the ADA specifically mention punitive damages, rather they reference the remedies of Title VI of the Civil Rights Act. Title VI is based on the congressional power under the Spending Clause to place conditions on grants. Justice Scalia noted that Spending Clause legislation is "much in the nature of a contract" and, in order to be a legitimate use of this power, the recipient must voluntarily and knowingly accept the terms of the "contract." "If Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously." This contract law analogy was also found to be applicable to determining the scope of the damages remedies and, since punitive damages are generally not found to be available for a breach of contract, Justice Scalia found that they were not available under Title VI, Section 504 or the ADA. Public Accommodations General Requirements Title III provides that no individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation. Entities that are covered by the term "public accommodation" are listed, and include, among others, hotels, restaurants, theaters, auditoriums, laundromats, museums, parks, zoos, private schools, day care centers, professional offices of health care providers, and gymnasiums. Religious institutions or entities controlled by religious institutions are not included on the list. There are some limitations on the nondiscrimination requirements, and a failure to remove architectural barriers is not a violation unless such a removal is "readily achievable." "Readily achievable" is defined as meaning "easily accomplishable and able to be carried out without much difficulty or expense." Reasonable modifications in practices, policies or procedures are required unless they would fundamentally alter the nature of the goods, services, facilities, or privileges or they would result in an undue burden. An undue burden is defined as an action involving "significant difficulty or expense." Title III contains a specific exemption for religious entities. This applies when an entity is controlled by a religious entity. For example, a preschool that is run by a religious entity would not be covered under the ADA; however a preschool that is not run by a religious entity but that rents space from the religious entity, would be covered by Title III. Similarly, Title III does not apply to private clubs or establishments exempted from coverage under Title II of the Civil Rights Act of 1964. In interpreting this provision, the Department of Justice has noted that courts have been most inclined to find private club status in cases where (1) members exercise a high degree of control over club operations, (2) the membership selection process is highly selective, (3) substantial membership fees are charged, (4) the entity is operated on a nonprofit basis, and (5) the club was not founded specifically to avoid compliance with federal civil rights law. Facilities of a private club lose their exemption, however, to the extent that they are made available for use by nonmembers as places of public accommodation. Title III also contains provisions relating to the prohibition of discrimination in public transportation services provided by private entities. Purchases of over-the-road buses are to be made in accordance with regulations issued by the Secretary of Transportation. The Department of Justice promulgated amendments to the Title III regulations that were amended as published in the Federal Register on September 15, 2010. The amended Title III regulations adopt accessibility standards consistent with the new minimum guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board (Access Board). In addition, the regulations include more detailed standards for service animals and power-driven mobility devices, ticketing, and effective communication, and provide for an element by element "safe harbor" in certain circumstances. The amended regulations took effect March 15, 2011, but compliance with the 2010 standards for accessible design is not required until March 15, 2012. Bragdon v. Abbott and Direct Threats to Health and Safety The nondiscrimination mandate of Title III does not require that an entity permit an individual to participate in or benefit from the services of a public accommodation where such an individual poses a direct threat to the health or safety of others. This issue was discussed by the Supreme Court in Bragdon v. Abbott, supra, where the Court stated that "the existence, or nonexistence, of a significant risk must be determined from the standpoint of the person who refuses the treatment or accommodation, and the risk assessment must be based on medical or other objective evidence." Dr. Bragdon had the duty to assess the risk of infection "based on the objective, scientific information available to him and others in his profession. His belief that a significant risk existed, even if maintained in good faith, would not relieve him from liability." The Supreme Court remanded the case for further consideration of the direct threat issue. On remand, the First Circuit Court of Appeals held that summary judgment was warranted finding that Dr. Bragdon's evidence was too speculative or too tangential to create a genuine issue of fact. The Supreme Court declined to review a Fourth Circuit Court of Appeals decision regarding the direct threat exception to Title III. In Montalvo v. Radcliffe, the Fourth Circuit held that excluding a child who has HIV from karate classes did not violate the ADA because the child posed a significant risk to the health and safety of others which could not be eliminated by reasonable modification. Martin v. PGA Tour and "Fundamental Alteration" In Martin v. PGA Tour, the Supreme Court in a 7-2 decision by Justice Stevens held that the ADA's requirements for equal access gave a golfer with a mobility impairment the right to use a golf cart in professional competitions. The Ninth Circuit had ruled that the use of the cart was permissible since it did not "fundamentally alter" the nature of the competition. Title III of the ADA defines the term "public accommodation," specifically listing golf courses. The majority opinion looked at this definition and the general intent of the ADA to find that golf tours and their qualifying rounds "fit comfortably within the coverage of Title III." The Court then discussed whether there was a violation of the substantive nondiscrimination provision of Title III. The ADA states that discrimination includes "a failure to make reasonable modifications in policies, practices, or procedures, when such modifications are necessary to afford such goods, services, facilities, privileges, advantages, or accommodations to individuals with disabilities, unless the entity can demonstrate that making such modifications would fundamentally alter the nature of such goods, services, facilities, privileges, advantages, or accommodations." In theory, the Court opined, there might be a fundamental alteration of a golf tournament in two ways: (1) an alteration in an essential aspect of the game, such as changing the diameter of the hole, might be unacceptable even if it affected all players equally, or (2) a less significant change that has only a peripheral impact on the game might give a golfer with a disability an advantage over others and therefore fundamentally alter the rules of competition. Looking at both these types of situations, Justice Stevens found that a waiver of the walking rule for Casey Martin did not amount to a fundamental alteration. He noted that the essence of the game was shot-making and that the walking rule was not an indispensable feature of tournament golf as golf carts are allowed on the Senior PGA Tour as well as certain qualifying events. In addition, Justice Stevens found that the fatigue from walking the approximately five miles over five hours was not significant. Regarding the question of whether allowing Casey Martin to use a cart would give him an advantage, the majority observed that an individualized inquiry must be made concerning whether a specific modification for a particular person's disability would be reasonable under the circumstances and yet not be a fundamental alteration. In examining the situation presented, the majority found that Casey Martin endured greater fatigue even with a cart than other contenders do by walking. Justice Scalia, joined by Justice Thomas, wrote a scathing dissent describing the majority's opinion as distorting the text of Title III, the structure of the ADA, and common sense. The dissenters contended that Title III of the ADA applies only to particular places and persons and does not extend to golf tournaments. The dissent also contended that "the rules are the rules," that they are by nature arbitrary, and there is no basis for determining any of them "non-essential." Spector v. Norwegian Cruise Line, Ltd. and the Application of the ADA to Foreign Cruise Ships The Supreme Court in Spector v. Norwegian Cruise Line, Ltd. held in a decision written by Justice Kennedy that the ADA applies to companies that operate foreign cruise ships in U.S. waters. Prior to this decision there had been a split in the circuits with the Eleventh Circuit holding in Stevens v. Premier Cruises Inc. that Title III of the ADA does apply to foreign cruise ships and the Fifth Circuit in Spector v. Norwegian Cruise Lines holding that the ADA would not be applicable since applicability would impose U.S. law on foreign nations. The Supreme Court's decision specifically held that the statute is applicable to foreign ships in the United States waters to the same extent that it is applicable to American ships in those waters. The majority concurred that cruise ships need not comply with the ADA if modifications would conflict with international legal obligations since the ADA only requires "readily achievable" accommodations. The 5-4 decision, however, was fragmented with various Justices joining for various aspects of the opinion. It is difficult, therefore, to determine exactly what type of accommodations would be required by the application of the ADA. Since the case below had been dismissed without a trial, it was remanded to determine the statutory requirements in this particular situation. The question of whether Title III requires any permanent and significant structural modifications that interfere with the international affairs of any cruise ship, foreign flag or domestic, was specifically left undecided. Justice Scalia, in his dissenting opinion, argued that the ADA should not be interpreted to apply in the absence of a clear statement from Congress. ADA and the Internet The ADA was enacted in 1990, prior to widespread use of the Internet, and does not specifically cover the Internet. Similarly, the ADA regulations do not specifically mention the Internet. However, the Department of Justice has indicated that it believes the ADA does require Internet accessibility, and has issued an advanced notice of rulemaking (ANPR) stating that it is considering revising the regulations implementing Titles II and III of the ADA to establish specific requirements for state and local governments and public accommodations to make their websites accessible to individuals with disabilities. In a hearing in the 111 th Congress, DOJ testified that although the ADA does not specifically mention the Internet, access to the Internet is a civil rights issue. DOJ further stated, the websites of entities covered by both Title II and Title III of the statute are required by law to ensure that their sites are fully accessible to individuals with disabilities. The Department is considering issuing guidance on the range of issues that arise with regard to the internet sites of private businesses that are public accommodations covered by Title III of the ADA. In so doing, the Department will solicit public comment from the broad range of parties interested in this issue. Although the ADA was amended in 2008 to respond to a series of Supreme Court decisions that had interpreted the definition of disability narrowly it did not address the issue of Internet coverage. There has been no Supreme Court decision on point, and there have been few lower court judicial decisions. The lower courts that have examined the issue have split, creating some uncertainty. In addition, the use of a "nexus" approach in National Federation of the Blind v. Target Corporation , requiring a connection between the Internet services and the physical place in order to present an actionable ADA claim, would limit the application of the ADA to on-line retailers. Despite this uncertainty, it would appear likely that the Department of Justice's position would prevail, especially in light of the ADA's broad nondiscrimination mandate. The question of ADA coverage of internet sites will undoubtedly continue to be a closely watched issue. It should be noted that this issue does not effect the requirement that federal government websites be accessible since the federal requirement is contained in a separate statute, Section 508 of the Rehabilitation Act. Vexatious Litigation An issue which has prompted the introduction of bills in the last several Congresses involves the filing of multiple law suits by an individual with a disability based on de minimis violations and seeking money for a settlement. Although these cases are seldom tried in court, Molski v. Mandarin Touch Restaurant did result in an opinion finding that the plaintiff was a vexatious litigant who filed hundreds of law suits designed to harass and intimidate business owners into agreeing to cash settlements. The district court ordered the plaintiff to obtain the leave of the court prior to filing any other claims under the ADA. In a related suit, the California district court also found against the counsel in the Molski case holding that the counsel was required to seek leave of the court before filing any additional ADA claims. These two cases were upheld on appeal to the Ninth Circuit in Molski v. Evergreen Dynasty Corp . After a detailed examination of the cases in light of standards for vexatious litigation, the Ninth Circuit noted the following: For the ADA to yield its promise of equal access for the disabled, it may indeed be necessary and desirable for committed individuals to bring serial litigation advancing the time when public accommodations will be compliant with the ADA. But as important as this goal is to disabled individuals and to the public, serial litigation can become vexatious when, as here, a large number of nearly-identical complaints contain factual allegations that are contrived, exaggerated, and defy common sense. Similarly, the court of appeals held that the district court was within its discretion to impose a prefiling order. The Ninth Circuit observed "[t]hat the Frankovich Group filed numerous complaints containing false factual allegations, thereby enabled Molski's vexatious litigation, provided the district court with sufficient grounds on which to base its discretionary imposition of sanctions." Other Judicial Decisions In Ford v. Schering-Plough Corporation, the Third Circuit found a disparity in benefits for physical and mental illnesses did not violate the ADA and found that the disability benefits at issue did not fall within Title III. The court stated "This is in keeping with the host of examples of public accommodations provided by the ADA, all of which refer to places." This conclusion was found to be in keeping with judicial decisions under Title II of the Civil Rights Act of 1964, 42 U.S.C. §2000(a). Another issue under Title III is whether franchisers are subject to the Title. In Nef v. American Dairy Queen Corp., the Fifth Circuit Court of Appeals found that a franchiser with limited control over the store a franchisee runs is not covered under Title III of the ADA. Remedies The remedies and procedures of Title II of the Civil Rights Act of 1964 are incorporated in Title III of the ADA. Title II of the Civil Rights Act has generally been interpreted to include injunctive relief, not damages. In addition, state and local governments can apply to the Attorney General to certify that state or local building codes meet or exceed the minimum accessibility requirements of the ADA. The Attorney General may bring pattern or practice suits with a maximum civil penalty of $50,000 for the first violation and $100,000 for a violation in a subsequent case. The monetary damages sought by the Attorney General do not include punitive damages. Courts may also consider an entity's "good faith" efforts in considering the amount of the civil penalty. Factors to be considered in determining good faith include whether an entity could have reasonably anticipated the need for an appropriate type of auxiliary aid to accommodate the unique needs of a particular individual with a disability. Regulations relating to public accommodations have been promulgated by the Department of Justice and regulations relating to the transportation provisions of Title III have been promulgated by the Department of Transportation. Telecommunications Title IV of the ADA amends Title II of the Communications Act of 1934 by adding a section providing that the Federal Communications Commission shall ensure that interstate and intrastate telecommunications relay services are available, to the extent possible and in the most efficient manner, to hearing impaired and speech impaired individuals. Any television public service announcement that is produced or funded in whole or part by any agency or instrumentality of the federal government shall include closed captioning of the verbal content of the announcement. The FCC is given enforcement authority with certain exceptions. Title V Statutory Provisions Title V contains an amalgam of provisions, several of which generated considerable controversy during ADA debate. In addition, the ADA Amendments Act of 2008 contained some additions to Title V. Section 501 concerns the relationship of the ADA to other statutes and bodies of law. Subpart (a) states that "except as otherwise provided in this act, nothing in the act shall be construed to apply a lesser standard than the standards applied under Title V of the Rehabilitation Act ... or the regulations issued by Federal agencies pursuant to such Title." Subpart (b) provides that nothing in the act shall be construed to invalidate or limit the remedies, rights, and procedures of any federal, state, or local law that provides greater or equal protection. Nothing in the act is to be construed to preclude the prohibition of or restrictions on smoking. Subpart (d) provides that the act does not require an individual with a disability to accept an accommodation which that individual chooses not to accept. Subpart (c) of Section 501 limits the application of the act with respect to the coverage of insurance; however, the subsection may not be used as a subterfuge to evade the purposes of Titles I and III. The exact parameters of insurance coverage under the ADA are somewhat uncertain. As the EEOC has stated: "the interplay between the nondiscrimination principles of the ADA and employer provided health insurance, which is predicated on the ability to make health-related distinctions, is both unique and complex." The Eighth Circuit Court of Appeals in Henderson v. Bodine Aluminum, Inc. issued a preliminary injunction compelling the plaintiff's employer to pay for chemotherapy that required an autologous bone marrow transplant. The plaintiff was diagnosed with an aggressive form of breast cancer and her oncologist recommended entry into a clinical trial that randomly assigns half of its participants to high dose chemotherapy that necessitates an autologous bone marrow transplant. Because of the possibility that the plaintiff might have the more expensive bone marrow treatment, the employer's health plan refused to precertify the placement noting that the policy covered high dose chemotherapy only for certain types of cancer, not breast cancer. The court concluded that, "if the evidence shows that a given treatment is non-experimental—that is, if it is widespread, safe, and a significant improvement on traditional therapies—and the plan provides the treatment for other conditions directly comparable to the one at issue, the denial of treatment violates the ADA." The ADA Amendments Act made several additions to Section 501. The act states that the ADA does not alter eligibility standards for benefits under state workers' compensation laws or under state or federal disability benefit programs. P.L. 110-325 also states that nothing in the act alters the provision of Section 302(b)(2)(A)(ii), specifying that reasonable modifications in policies, practices, or procedures shall be required, unless an entity can demonstrate that making such modifications in policies, practices, or procedures, including academic requirements in postsecondary education, would fundamentally alter the nature of the goods, services, facilities, privileges, advantages, or accommodations involved. The Senate Statement of Managers notes that this provision was added at the request of the higher education community and "is included solely to provide assurances that the bill does not alter current law with regard to the obligations of academic institutions under the ADA, which we believe is already demonstrated in case law on this topic." The Managers' Statement also noted that this provision "is unrelated to the purpose of this legislation and should be given no meaning in interpreting the definition of disability." The ADA Amendments Act specifically prohibits reverse discrimination claims and states that nothing in the act shall provide the basis for a claim by a person without a disability that he or she was subject to discrimination because of a lack of a disability. The rules of construction provide that a covered entity under Title I, a public entity under Title II, or a person who operates a place of public accommodation under Title III, need not provide a reasonable accommodation or a reasonable modification to policies, practices, or procedures to an individual who meets the definition of disability solely under the "regarded as" prong of the definition. Section 502 abrogates the Eleventh Amendment state immunity from suit and was discussed previously. Section 503 prohibits retaliation and coercion against an individual who has opposed an act or practice made unlawful by the ADA and was amended by the Lilly Ledbetter Fair Pay Act, P.L. 111-2 , to allow for increased compensation in cases of discrimination. Section 504 requires the Architectural and Transportation Barriers Compliance Board (ATBCB) to issue guidelines regarding accessibility. Section 505 provides for attorneys' fees in "any action or administrative proceeding" under the act. Section 506, added by the ADA Amendments Act, states that "[t]he authority to issue regulations granted to the Equal Employment Opportunity Commission, the Attorney General, and the Secretary of Transportation under this Act, includes the authority to issue regulations implementing the definitions contained in sections 3 and 4." Section 507 provides for technical assistance to help entities covered by the act in understanding their responsibilities. Section 508 provides for a study by the National Council on Disability regarding wilderness designations and wilderness land management practices and "reaffirms" that nothing in the Wilderness Act is to be construed as prohibiting the use of a wheelchair in a wilderness area by an individual whose disability requires the use of a wheelchair. Section 514 provides that "where appropriate and to the extent authorized by law, the use of alternative means of dispute resolution ... is encouraged...." Section 515 provides for severability of any provision of the act that is found to be unconstitutional. The coverage of Congress was a major controversy during the House-Senate conference on the ADA. Although the original language of the ADA did provide for some coverage of the legislative branch, Congress expanded upon this in the Congressional Accountability Act, P.L. 104-1 . The major area of expansion was the incorporation of remedies that were analogous to those in the ADA applicable to the private sector. Buckhannon Board and Care Home, Inc. v. West Virginia and Attorneys' Fees Section 505 of the ADA provides for attorneys' fees in "any action or administrative proceeding" under the act. This section was the subject of a Supreme Court decision in Buckhannon Board and Care Home, Inc., v. West Virginia Department of Human Resources. In Buckhannon, the Supreme Court addressed the "catalyst theory" of attorneys' fees which posits that a plaintiff is a prevailing party if the lawsuit brings about a voluntary change in the defendant's conduct. The Court rejected this theory finding that attorneys' fees are only available where there is a judicially sanctioned change in the legal relationship of the parties. Statutes providing for the award of attorneys' fees allow courts to make the awards to the "prevailing party." The question presented in Buckhannon was whether the term "prevailing party" includes a party who did not secure a judgment on the merits or a court-ordered consent decree, but has nonetheless achieved the desired result because the lawsuit has brought about a voluntary change in the defendant's conduct. The Court, in an opinion by then Chief Justice Rehnquist, examined the ADA and the Fair Housing Amendments Act (FHAA) and held that the term "prevailing party" cannot be interpreted in this manner, thus rejecting the concept of a "catalyst theory." Four other members of the Court, Justices O'Connor, Scalia, Kennedy, and Thomas joined with the Chief Justice while Justices Ginsburg, Stevens, Souter and Breyer dissented. The Court first noted that in the United States parties are ordinarily required to bear their own attorneys' fees but that Congress has authorized the award of attorneys' fees in numerous statutes in addition to the ones at issue in Buckhannon. These fee-shifting provisions have been interpreted in the same manner and the Court noted, citing to Hensley v. Eckerhart, that it approached the attorneys' fees provisions of the ADA and the FHAA in this manner. Examining prior Supreme Court cases, Chief Justice Rehnquist found that a party receiving a judgment on the merits would clearly have a basis on which attorneys' fees might be awarded. Similarly, the court found that settlement agreements enforced through a consent decree may serve as the basis for an award of attorneys' fees. The catalyst theory was seen as dissimilar from these examples since "it allows an award where there is no judicially sanctioned change in the legal relationship of the parties." A voluntary change, even if it accomplished what the plaintiff sought, the Court found, "lacks the necessary judicial imprimatur on the change." Legislation Relating to the ADA in the 112th Congress Changes in the ADA's statutory language to address the issue of vexatious law suits have been proposed since the 106 th Congress. Proponents of such legislation have argued that notification requirements would help prevent the filing of suits designed to generate money for plaintiffs and law firms. Those opposed to the legislation have argued that it would undermine enforcement of the ADA and that vexatious suits are best dealt with by state bar disciplinary procedures or by the courts. On March 2, 2011, Representative Hunter introduced H.R. 881 , the ADA Notification Act of 2011. H.R. 881 would add provisions to the remedies and procedures of Title III of the ADA requiring a plaintiff to provide notice of an alleged violation to the defendant by registered mail. If such notice is not provided, the bill would eliminate state or federal court jurisdiction for the action.

The Americans with Disabilities Act (ADA) provides broad nondiscrimination protection in employment, public services, public accommodations and services operated by private entities, transportation, and telecommunications for individuals with disabilities. This report summarizes the major provisions of the ADA and analyzes selected recent issues, including the Supreme Court cases and the ADA Amendments Act of 2008.

Introduction The William D. Ford Federal Direct Loan (Direct Loan) program is the primary federal student loan program administered by the U.S. Department of Education (ED). It is authorized by Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329). Four types of federal student loans are currently made available through the Direct Loan program: Federal Direct Stafford Loans (Direct Subsidized Loans), Federal Direct Unsubsidized Stafford Loans (Direct Unsubsidized Loans), Federal Direct PLUS Loans, and Federal Direct Consolidation Loans. The interest rates that borrowers pay on federal student loans and other loan terms and conditions are specified in statutory language of the HEA and in regulations promulgated by ED. Throughout the history of the federal student loan programs, numerous changes have been made to the statutory provisions that specify the criteria for setting the interest rates paid by borrowers. At present, different fixed interest rates apply to each of the types of loans currently being made. Under current law, during award year (AY) AY2013-2014, Direct Subsidized Loans are being made with a fixed rate of 6.8%. Under the College Cost Reduction and Access Act of 2007 (CCRAA; P.L. 110-84), the fixed interest rates applicable to newly made Direct Subsidized Loans had been incrementally lowered over a period of several years from 6.8% to 3.4%; however, the 3.4% interest rate was not made permanent. Under the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141), the authority to make Direct Stafford Loans with a 3.4% interest rate was extended through AY2012-2013. This authority expired June 30, 2013, after which Direct Subsidized Loans made for AY2013-2014 and future years will have a fixed interest rate of 6.8%. Under current law, Direct Unsubsidized Loans are being made with a fixed rate of 6.8%, and Direct PLUS Loans are being made with a fixed rate of 7.9%. Direct Consolidation Loans are made with a fixed rate that is the weighted average of the interest rates of the loans being consolidated, rounded up to the next higher one-eighth of 1%. The 113 th Congress is considering a range of proposals applicable to student loan interest rates. These include proposals to temporarily extend the current 3.4% interest rate on Direct Subsidized Loans as well as long-term proposals to establish a new interest rate structure for all loans made through the Direct Loan program during AY2013-2014 and future years. This report examines the interest rates borrowers are charged on federal student loans made through the Direct Loan program. It provides a brief summary of the current, statutorily specified, fixed interest rate structure applicable to loans currently being made. This is followed by brief descriptions of proposals that have been made during the 113 th Congress to either temporarily extend the authority to make Direct Subsidized Loans with a fixed 3.4% interest rate or to establish a new interest rate structure for Direct Loans made during AY2013-2014 and future years. Several proposals are reviewed: the President's FY2014 budget proposal, H.R. 1911 , S. 953 , S. 1003 , S. 897 , and the Senate amendment to H.R. 1911 . For each proposal, information is presented showing a summary of the proposed interest rate structure, projections of future interest rates, and estimates of the interest expenses typical borrowers might be expected to pay if currently projected interest rates applied for future years. The report concludes with a discussion of factors that might be considered when weighing alternative student loan interest rate policy options. Student Loan Interest Rates under Current Law Legislation enacted in 2002 ( P.L. 107-139 ), contained provisions that led to a transition over a period of several years to the current fixed interest rate structure for student loans. With fixed rate loans, the interest rate that is in effect at the time the loan is made remains in effect until the loan is paid in full. The amendments to the HEA enacted under P.L. 107-139 affected the interest rate structure for student loans that would be made during AY2006-2007 and later years. Direct Subsidized Loans and Direct Unsubsidized Loans would have a fixed interest rate of 6.8%; and all Direct PLUS Loans would have a fixed rate of 7.9%. In 2007, under the CCRAA, incrementally lower fixed interest rates were established for Direct Subsidized Loans to be made to undergraduate students during the four-year period spanning AY2008-2009 through AY2011-2012. The CCRAA did not make any changes to the interest rate specified for Direct Subsidized Loans made to undergraduate students beyond that period, which would be made at 6.8%. In 2012, under MAP-21, the authority to make Subsidized Stafford Loans with a 3.4% interest rate was extended to apply to loans made during AY2012-2013. Under current law, a fixed interest rate of 6.8% will apply to Direct Subsidized Loans made during AY2013-2014 and future years. A summary of the fixed interest rates applicable to Direct Loans made during AY2006-2007 through AY2013-2014 is presented below in Table 1 . Legislation in the 113th Congress In the 113 th Congress, numerous proposals have been made to amend or extend current policy for establishing the interest rates that borrowers pay on federal student loans made through the Direct Loan program. Brief descriptions of several of these proposals are provided below. This is followed by a side-by-side comparison of the proposals, presented in Table 2 . President's FY2014 Budget Proposal President Obama's FY2014 budget would establish a market-indexed, fixed interest rate structure for all Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans made during AY2013-2014 and future years. Under the President's proposal, the interest rate in effect for the award year during which the loan is made would remain the same from the time the loan is disbursed until it is paid in full. On an annual basis, a new fixed interest rate would be established for loans to be made during the upcoming award year. The interest rate would be indexed to the rate on the 10-year Treasury note at the beginning of the award year; and would be increased by a margin, or interest rate add-on, that would differ by loan type. There would be no cap to limit the maximum interest rate a borrower could be charged. Under this proposal, the interest rate on Direct Subsidized Loans would be the 10-year Treasury note rate, plus 0.93 percentage points; the interest rate on Direct Unsubsidized Loans would be the 10-year Treasury note rate, plus 2.93 percentage points; and the interest rate on Direct PLUS Loans would be the 10-year Treasury note rate, plus 3.93 percentage points. Under the President's proposal, individuals who borrow multiple types of loans (e.g., Direct Subsidized and Direct Unsubsidized), or who borrow loans over a period of successive years would likely have different fixed interest rates on each of their loans. The President's proposal would also remove the interest rate cap on Direct Consolidation Loans. Thus, the interest rate on Direct Consolidation loans would be determined by taking the weighted average of the interest rates on the loans being consolidated and rounding the rate up to the nearest higher one-eighth of 1%. In conjunction with this student loan interest rate proposal, the President also proposed several other student loan-related changes, including the expansion of eligibility for borrowers to repay according to the Pay As You Earn (PAYE) repayment plan, and the exclusion from taxation of student loan balances forgiven after completing the maximum required repayment period under the income-based repayment (IBR) and income-contingent repayment (ICR) plans. Under the PAYE repayment plan (which is one version of the ICR plan), borrowers' monthly student loan payments are limited to no more than 10% of their discretionary income, and any student loan balance that remains 20 years after entering repayment is forgiven. The President proposes to extend the PAYE repayment plan to all borrowers of Direct Loans, regardless of when they first obtained their loans. In addition, while at present, any student loan balance that is forgiven following the culmination of repayment according to the IBR or ICR plans is considered part of an individual's gross income and thus subject to the individual income tax, the President proposes that any such amounts forgiven after December 31, 2013 would be excluded from gross income, and thus exempt from taxation. CBO estimates that enactment of the President's FY2014 Budget student loan interest rate proposal would increase direct (mandatory) spending by $29.8 billion over the period of FY2013-FY2018; and would reduce direct spending by $6.7 billion over the period of FY2013-FY2023. According to CBO, the President's proposed expansion of the PAYE repayment plan, if enacted, would increase direct spending by $3.6 billion, all in FY2013. The Joint Committee on Taxation estimates that the President's proposal to provide an exclusion from income of amounts forgiven following repayment according to the IBR or ICR plans would have no effect on revenues over the period of FY2013-FY2018; and would lead to a reduction in revenues of $5 billion over the period of FY2013-FY2023. H.R. 1911, the Smarter Solutions for Students Act H.R. 1911 would establish a market-indexed variable interest rate structure for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans made during AY2013-2014 and future years. The interest rates on these loans would be indexed to the rate on the 10-year Treasury note as of the last auction held prior to June 1; and rates would adjust once per year on July 1. The interest rate on Direct Subsidized Loans and Direct Unsubsidized Loans would be the 10-year Treasury note rate, plus 2.5 percentage points, with a cap, or maximum rate, of 8.5%; and the rate on Direct PLUS Loans would be the 10-year Treasury note rate, plus 4.5 percentage points, with a cap of 10.5%. H.R. 1911 would provide borrowers with the option of obtaining a fixed interest rate on their federal student loans by consolidating one or more loans into a Direct Consolidation Loan. On a Direct Consolidation Loan, the fixed interest rate would be the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest higher one-eighth of 1%, but with no cap. Direct Consolidation Loans would continue to be available to borrowers after entering repayment on their loans. CBO estimates that the enactment of H.R. 1911 would reduce direct spending by approximately $1.0 billion over the period of FY2013-FY2018; and would reduce direct spending by $3.7 billion over the period of FY2013-FY2023. On May 23, 2013, the House passed H.R. 1911 by a vote of 221 to 198. The Obama Administration has indicated that if the President were to be presented with H.R. 1911 in its current form, it would recommend his veto. S. 953, the Student Loan Affordability Act S. 953 would extend the authority to make Direct Subsidized Loans with a fixed 3.4% interest rate for award years AY2013-2014 and AY2014-2015. S. 953 would not affect the interest rate on other loans, nor loans made in future years. Thus, under S. 953 , Direct Subsidized Loans would be made with a fixed 6.8% interest rate during AY2015-2016 and future years. In addition, Direct Unsubsidized Loans made during AY2013-2014 and future years would have a fixed rate of 6.8%, and Direct PLUS Loans made during AY2013-2014 and future years would have a fixed rate of 7.9%. S. 953 would also retain the current formula for determining the interest rate on Direct Consolidation Loans. S. 953 would make changes to other laws to offset the cost of the two-year extension of the 3.4% interest rate on Direct Subsidized Loans. It would amend the Internal Revenue Code of 1986 (IRC) to modify required distribution rules for pension plans; establish special rules for expatriated entities; and modify provisions of the Oil Spill Liability Trust Fund tax. CBO estimates that the enactment of S. 953 would lead to a net increase in deficits of $5.9 billion over the period of FY2013-FY2018 as a result of changes in revenues and direct spending; and that it would lead to a net decrease in deficits of $330 million over the period of FY2013-FY2023. The two-year extension of the authority to make Direct Subsidized Loans with a fixed rate of 3.4% would increase direct spending by $8.3 billion over both the FY2013-FY2018 and FY2013-FY2023 periods. This increase would occur primarily during the period of FY2013-FY2015. The changes to the IRC would result in increased revenues over both the FY2013-FY2018 and the FY2013-FY2023 periods and would offset the increase in direct spending. S. 1003, the Comprehensive Student Loan Protection Act S. 1003 would establish a market-indexed, fixed interest rate structure for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans made during AY2013-2014 and future years. Under S. 1003 , the interest rate in effect for the award year during which the loan is made would remain the same from the time the loan is disbursed until it is paid in full. On an annual basis, a new fixed interest rate would be established for loans to be made during the upcoming award year. The interest rate on Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans would be the 10-year Treasury Note rate, as of the last auction held prior to June 1, plus 3.0 percentage points. There would be no differentiation by loan type. Also, under S. 1003 , there would be no cap on the maximum interest rate a borrower could be charged. Under this policy option, borrowers who obtain multiple loans over a period of successive years would typically have different fixed interest rates on loans made during different award years. S. 1003 would not amend the current formula for determining the interest rate on Consolidation Loans. Under current law, the interest rate on Direct Consolidation loans is determined by taking the weighted average of the interest rates on the loans being consolidated and rounding the rate up to the nearest higher one-eighth of 1%. Currently, there is a cap of 8.25% on the interest rate for Direct Consolidation Loans. It appears that S. 1003 would not prohibit borrowers who have federal student loans with interest rates higher than 8.25% from lowering their rate to 8.25% by consolidating their loans into a Direct Consolidation Loan. CBO has published a cost estimate for S. 682 , but not S. 1003 . CBO estimates that the enactment of S. 682 would increase direct spending by $25.8 billion over the period of FY2013-FY2018; but that over the period of FY2013-FY2023, it would reduce direct spending by $15.6 billion. S. 897, the Bank on Students Loan Fairness Act S. 897 would authorize a new source of funding for purposes of making Direct Subsidized Loans; and would establish a new fixed interest rate structure for Direct Subsidized Loans made during AY2013-2014 only. The Board of Governors of the Federal Reserve System would be required to transfer funds from the combined earnings of the Federal Reserve System to the Secretary of Education for purposes of making Direct Subsidized Loans during AY2013-2014. The applicable interest rate on Direct Subsidized Loans made during AY2013-2014 would be the Federal Reserve discount window primary credit rate charged by Federal Reserve Banks on July 1, 2013. This interest rate would remain in effect on Direct Subsidized Loans made during AY2013-2014 until the loans are paid in full. S. 897 would not affect the source of funding for, nor the interest rates applicable to other DL program loans. Thus, under S. 897 , the rate on Direct Subsidized Loans made during AY2014-2015 and future years would remain 6.8%, the rate on Direct Unsubsidized Loans made during AY2013-2014 and future years would remain 6.8%, and the rate on Direct PLUS Loans made during AY2013-2014 and future years would remain 7.9%. S. 897 would not amend the current formula for determining the interest rate on Direct Consolidation Loans. CBO has not released a cost estimate for S. 897 . Senate Amendment to H.R. 1911, the Bipartisan Student Loan Certainty Act of 2013 The Senate amendment to H.R. 1911 would establish a market-indexed, fixed interest rate structure for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans made during AY2013-2014 and future years. Under the Senate amendment to H.R. 1911 , the interest rate in effect for the award year during which the loan is made would remain the same from the time the loan is disbursed until it is paid in full. On an annual basis, a new fixed interest rate would be established for loans to be made during the upcoming award year. The interest rate would be indexed to the rate on the 10-year Treasury note as of the last auction held prior to June 1 and would be increased by a margin, or interest rate add-on, that would differ by loan type and borrower academic level. Under the Senate amendment to H.R. 1911 , the interest rate on Direct Subsidized Loans and Direct Unsubsidized Loans to undergraduate students would be the 10-year Treasury note rate, plus 2.05 percentage points, with a cap of 8.25%; the interest rate on Direct Unsubsidized Loans to graduate and professional students would be the 10-year Treasury note rate, plus 3.60 percentage points, with a cap of 9.50%; and the interest rate on Direct PLUS Loans to graduate and professional students, and to parent borrowers, would be the 10-year Treasury note rate, plus 4.60 percentage points, with a cap of 10.50%. Under the proposal, individuals who borrow loans over a period of successive years would likely have different fixed interest rates on each of their loans. The Senate amendment to H.R. 1911 would remove the interest rate cap on Direct Consolidation Loans. Thus, the interest rate on Direct Consolidation loans would be determined by taking the weighted average of the interest rates on the loans being consolidated and rounding the rate up to the nearest higher one-eighth of 1%. The Senate amendment to H.R. 1911 would also require the Government Accountability Office (GAO) to conduct a study on the actual cost of administering the federal student loan programs. CBO estimates that the enactment of the Senate amendment to H.R. 1911 would increase direct spending by $25.0 billion over the period of FY2013-FY2018; but that over the period of FY2013-FY2023, it would reduce direct spending by $0.7 billion. On July 24, 2013, the Senate amended and passed H.R. 1911 by a vote of 81 to 18. Side-by-Side Comparison of Student Loan Interest Rate Policy Options A side-by-side comparison of the student loan interest rate policy options described above is presented below in Table 2 . Potential Market Indices for Student Loan Interest Rate Policy Options Several of the proposals introduced in the 113 th Congress would index borrower interest rates to market rates. The President's FY2014 budget proposal, H.R. 1911 , S. 1003 , and the Senate amendment to H.R. 1911 each would use the rate on 10-year Treasury notes as an index for Direct Loans made during AY2013-2014 and future years. In contrast, S. 897 would set the borrower rate for Direct Subsidized Loans made during AY2013-2014 only at the rate of the Federal Reserve discount window primary credit rate. Prior cohorts of FFEL and Direct Loans that were made from 1992 through 2006 have variable interest rates that are indexed to 91-day (3-month) Treasury bills. This index is provided for comparison purposes. Historical and projected rates for these three indices are presented below in Figure 1 . Figure 1 shows historical quarterly averages of the constant maturity rates for 10-year Treasury notes since 1962 and 3-month Treasury bills since 1982. It also shows quarterly averages of the Federal Reserve discount window primary credit rate since its introduction in 2003. In addition, the figure shows CBO's quarterly projections of rates for 10-year Treasury notes and 3-Month Treasury bills through 2023. As noted above, several of the policy options under consideration would use the rate on 10-year Treasury notes as an index. Figure 1 shows that there has been considerable fluctuation in the 10-year Treasury note rate over the years. For nearly the entire period from 1963 through 2007, the quarterly average constant maturity rate on 10-year Treasury notes was above 4.0%; and for most of the period from 1969 through 1997, the rate was above 6.0%. Figure 1 also shows that there has been considerably less fluctuation or variability in rates on 10-year Treasury notes than there has been on 3-month Treasury bills. The figure also shows the extent to which Federal Reserve policy makers have raised and lowered the primary credit rate in response to monetary policy objectives. Actual future rates on Treasury securities will likely differ from the projected rates shown here. Interest rate projections provide a sense of the direction in which rates may be expected to move and the magnitude of such movement. Interest rate projections, however, contain some degree of imprecision. Based on CBO's analysis of its own forecast record, it finds that as measured by the mean absolute error, the average difference between its two-year forecasts of rates on 10-year Treasury Notes and actual outcomes over the period from 1984 to 2010 was 0.6 percentage points. It is reasonable to assume that projections that extend beyond two years out may be less precise. Some of the interest rate proposals described above would use the rate at the last auction held prior to June 1 as the basis for setting borrower interest rates for the following award year. Since rates vary with the market on tradable securities, the rate at which a particular security is auctioned may differ from the rate at which the security is traded at a later date. Also, 10-year notes are typically auctioned about once per quarter, but between ends of quarters. However, the Treasury determines which type of security to auction and at what date to hold an auction in response to the financing needs of the federal government. Thus, the last auction held prior to June 1 may be several months prior to that date and the auction rate may be substantially different than the rate at which Treasury securities are trading on June 1. Table 3 presents a history of 10-year Treasury note high yield rates at the last auction held prior to June 1 for each year for which such data are available from the U.S. Treasury. Analysis of Interest Rate Policy Options This part of the report presents analysis of several of the student loan interest rate policy options that have been proposed in the 113 th Congress; and how they compare with current law. It begins with a review of the interest rate structure applicable to Direct Loans made under current law and is followed with similar information for the policy options presented in the President's FY2014 budget, H.R. 1911 , S. 953 , S. 1003 , S. 897 , and the Senate amendment to H.R. 1911 . For current law and for each policy option, a similar format is followed. First, a summary table presents information showing the interest rate formula applicable to each loan type. This describes whether the interest rate is fixed or variable; and if market-indexed, the index that is used, the applicable add-on, and whether a cap on maximum interest rate applies. Next, a group of three figures show projected interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans made during the next six award years (AY2013-2014 through AY2018-2019). Projected rates are shown for each one-year period beginning July 1 for 2013 through 2027. The figures are designed to show the general pattern of interest rates that might be expected under the various policy options. For instance, would interest rates on all of a borrower's loans remain constant from the time the loans are made until they are paid in full? Would there be the possibility that a borrower who has several loans might have a different interest rate for each of the loans? Or, might a borrower face the possibility that the interest rates on all his or her loans could increase or decrease from year to year? A six-year period was chosen to provide an illustration of the variability associated with rate projections for potential indices. That is, CBO projections for financial instruments are based upon a mix of current and historical economic data in the initial years, but for later years (i.e., year 6 and beyond) are largely based on historical data and the 6-10 year projection is held constant (i.e., it is the same number for each year). In the analysis presented here, market-indexed rates based upon CBO's projection of 10-year Treasury notes for years 6-10 is only shown once—for loans made during AY2018-2019. If we were to show projected market-indexed rates for subsequent years, the projected rates would be the same as for AY2018-2019. After the figures displaying projected interest rate, a table is then presented which shows the results of a series of case simulations which are designed to provide an indication of the interest expenses three different types of borrowers might expect to pay on Direct Loans borrowed to finance a four year period of undergraduate education. Simulation results are presented for undergraduate dependent student borrowers, undergraduate independent student borrowers, and borrowers who are parents of undergraduate dependent students. Since the results of the case simulations for policy options that are indexed to market rates are highly sensitive to projected future interest rates, two distinct four-year periods of borrowing are examined. The first is for a four-year period of undergraduate education beginning next fall: AY2013-2014 through AY2016-2017. The second is for the subsequent four-year period, assuming period of undergraduate education beginning four years from now: AY2017-2018 through AY2020-2021. The second scenario (AY2017-2018 through AY2020-2021) is considered because two of the prominent proposals call for market-indexed fixed rates, which would not be simulated effectively through the first scenario alone. By adding a second scenario, we present more complete information on the range of outcomes that might be associated with this type of rate-setting structure. As noted earlier, these case simulations are based on projected future interest rates, with rates for the final year of the projection held constant for future years. As it is likely that future rates will differ from those projected, the simulation results presented here for market-indexed loans may be best viewed as indicating a general sense of the direction in which a rate will move and the magnitude of such movement. Simulations based on market-indexed rates are less precise than those based on known fixed rates. Nonetheless, it is intended that this attempt to examine the known and projected rates over common future periods, mapped against actual information about loan balances and amortization periods, as well as loan terms and conditions, provides a relative sense of the potential effects of various interest rate structures on borrowers. Additional information on how the three borrower cases were constructed and on the assumptions made in analyzing the various interest rate policy options is presented in Appendix A . Current Law Undergraduate Dependent Borrower Under current law, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $7,804 in interest expenses. The estimated monthly payment would be $202. Since under current law, future loans would be made at the same current interest rates, if a similar student borrowed the same amount during a subsequent four-year period, it is estimated that the borrower would pay the same amount in interest and that the monthly payment would be the same. Parent PLUS Borrower Under current law, a parent borrower who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $43,646 in combined Direct PLUS Loans would pay an estimated total of $32,434 in interest expenses. The estimated monthly payment would be $634. Since under current law, future loans would be made at the same current interest rates, if a parent borrowed the same amount during a subsequent four-year period, it is estimated that the parent borrower would pay the same amount in interest and that the monthly payment would be the same. President's FY2014 Budget Proposal Undergraduate Dependent Borrower Under the President's FY2014 budget proposal, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $5,446 in interest expenses. The estimated monthly payment would be $183, or approximately $19 less than under current law. Since under the President's proposal, borrower interest rates would be indexed to market rates at the time a loan is made, future loans would likely be made with different interest rates. Based on projected future rates, if a similar student borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, it is estimated that the borrower would pay $7,833 in interest expenses and that the borrower's monthly payment would be $203, or approximately $1 more than under current law. Parent PLUS Borrower Under the President's proposal, a parent borrower who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $43,646 in Direct PLUS Loans would pay an estimated total of $27,083 in interest expenses. The estimated monthly payment would be $589, or approximately $45 less than under current law. If a parent borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, based on currently projected rates, it is estimated that the borrower would pay $36,839 in interest expenses and that the monthly payment would be $671, or approximately $37 more than under current law. H.R. 1911, the Smarter Solutions for Students Act Undergraduate Dependent Borrower Under H.R. 1911, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $8,647 in interest expenses. As the interest rate would adjust annually, the estimated monthly payment would vary from $207 to $210, or approximately $5 to $8 more than under current law. Based on projected future interest rates (which do not vary during this period), if a similar student borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, it is estimated that under H.R. 1911 , the borrower would pay $8,996 in interest expenses and that the borrower's monthly payment would be $212, or approximately $10 more than under current law. Parent PLUS Borrower Under H.R. 1911 , a parent borrower who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $43,646 in combined Direct PLUS Loans would pay an estimated total of $39,342 in interest expenses. The estimated monthly payment would from $682 to $689, or approximately $48 to $55 more than under current law. If a parent borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, based on currently projected rates (which do not vary during this period), it is estimated that the borrower would pay $42,014 in interest expenses and that the borrower's monthly payment would be $711, or approximately $77 more than under current law. S. 953, the Student Loan Affordability Act Undergraduate Dependent Borrower Under S. 953, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $6,850 in interest expenses. As the interest rate would adjust annually, the estimated monthly payment would be $195, or approximately $7 less than under current law. Since S. 953 would not affect the interest rate structure of loans made during AY2015-2016 and future years, if a similar student borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, it is estimated that under S. 953 , the borrower would pay $7,804 in interest expenses and that the borrower's monthly payment would be $202, the same as under current law. Parent PLUS Borrower S. 953 would not affect the interest rate structure for Direct PLUS Loans. Thus, borrowers of Direct PLUS Loans would pay the same amount under S. 953 as under current law. S. 1003, the Comprehensive Student Loan Protection Act Undergraduate Dependent Borrower Under S. 1003, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $6,793 in interest expenses. The estimated monthly payment would be $194, or approximately $8 less than under current law. Under S. 1003 , interest rates would be indexed to market rates at the time a loan is made and future loans would likely be made with different rates. Based on projected rates, if a similar student borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, it is estimated that the borrower would pay $9,588 in interest expenses and the monthly payment would be $217, or approximately $15 more than under current law. Parent PLUS borrower Under S. 1003 , a parent borrower who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $43,646 in combined Direct PLUS Loans would pay an estimated total of $22,831 in interest expenses. The estimated monthly payment would be $554, or approximately $80 less than under current law. If a parent borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, based on currently projected rates, it is estimated that the borrower would pay $33,552 in interest expenses and that the monthly payment would be $643, or approximately $9 more than under current law. S. 897, the Bank on Students Loan Fairness Act Undergraduate Dependent Borrower Under S. 897, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $6,953 in interest expenses. As the interest rate would adjust annually, the estimated monthly payment would be $195, or approximately $7 less than under current law. Since S. 897 would not affect the interest rate structure of loans made during AY2014-2015 and future years, if a similar student borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, it is estimated that under S. 897 , the borrower would pay $7,804 in interest expenses and that the borrower's monthly payment would be $202, the same as under current law. Parent PLUS Borrower S. 897 would not affect the interest rate structure for Direct PLUS Loans. Thus, borrowers of Direct PLUS Loans would pay the same amount under S. 897 as under current law. Senate Amendment to H.R. 1911, the Bipartisan Student Loan Certainty Act of 2013 Undergraduate Dependent Borrower Under the Senate amendment to H.R. 1911, an undergraduate dependent student who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $16,491 in combined Direct Subsidized Loans and Direct Unsubsidized Loans would pay an estimated total of $5,615 in interest expenses. The estimated monthly payment would be $184, or approximately $18 less than under current law. Under the Senate amendment to H.R. 1911 , interest rates would be indexed to market rates at the time a loan is made and future loans would likely be made with different rates. Based on projected rates, if a similar student borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, it is estimated that the borrower would pay $8,309 in interest expenses and that the monthly payment would be $207, or approximately $5 more than under current law. Parent PLUS borrower Under the Senate amendment to H.R. 1911 , a parent borrower who, during the four-year period from AY2013-2014 through AY2016-2017, borrowed a cumulative total of $43,646 in combined Direct PLUS Loans would pay an estimated total of $30,262 in interest expenses. The estimated monthly payment would be $616, or approximately $18 less than under current law. If a parent borrowed the same amount during the four-year period from AY2017-2018 through AY2020-2021, based on currently projected rates, it is estimated that the borrower would pay $41,825 in interest expenses and that the monthly payment would be $712, or approximately $78 more than under current law. Student Loan Interest Rate Policy Considerations During the 113 th Congress, a number of factors are contributing to elevated interest in federal policy for setting the interest rates borrowers pay on federal student loans. Many of these factors are interrelated. These factors have often been wrestled with in some shape or form during past deliberations over policies for setting borrower rates. Policy discussions regarding these factors have also often been shaped by broader temporal economic conditions. Some of the major factors that have affected student loan interest rate policy deliberations are briefly discussed below. Cost to the Government There are a series of costs associated with making student loans. These costs include the cost of raising capital, loan servicing costs, costs for collecting on delinquent and defaulted loans, and costs for losses due to default or loan discharge. Other costs include lost interest payments from loans that are repaid early and costs for borrower benefits, such as loan forgiveness programs. Some portion of the cost of making loans are passed on to borrowers through the interest they pay on their loans and the fees they are charged (e.g., loan origination fees, costs for collecting on defaulted loans). When the government establishes an interest rate for borrowers to pay, a major consideration centers on the extent to which the borrower will be expected to pay for the costs of the loan. When borrowers pay less than the full cost of a loan, the amount less than the full cost is referred to as the loan subsidy. The Direct Loan program is a federal credit program. Most of the costs to the government associated with the program are accounted for on an accrual basis according to criteria specified under the Federal Credit Reform Act of 1990 (FCRA; P.L. 101-508 ). Under FCRA, the net present value of future credit flows associated with the loans are discounted to the fiscal year in which the loans are made using interest rates on Treasury securities with comparable maturities; and these discounted credit flows are expressed as loan subsidy rates. The costs of administering the Direct Loan program are accounted for separately on a cash basis. Since the early 1980s, there has been a general long-term downward trend in market interest rates; and during the past several years, the government's cost of borrowing has been exceptionally low by historical standards. Since 2006, federal student loans have been made with fixed interest rates. Thus, interest rates on Direct Loans have not moved in tandem with market rates. With the federal government's cost of borrowing near historic lows, CBO projects that federal student loans will be made through the Direct Loan program with a negative subsidy rate for the foreseeable future. In other words, as accounted for according to rules specified under the FCRA, the government expects to earn more through the Direct Loan program than the amount it costs to make the loans. Potential changes to the terms and conditions of Direct Loans, such as a change in interest rates, would result in a change in future cash flows; and hence a change in loan subsidy rates and the cost to the government of making credit available to student borrowers. Importantly, any potential change to student loan subsidy rates is measured against the current baseline. Thus, any change that would reduce the currently projected negative subsidy rate would be considered an increase in direct spending relative to the current baseline. Fair-Market or Below-Market Rates One of the central aims of the federal student loan programs has been to ensure access to loans that can enable students and their families to finance the costs of a postsecondary education. Thus, there are no requirements for student borrowers to pass a credit check, demonstrate a source of income, or obtain a co-signer to obtain Direct Subsidized Loans and Direct Unsubsidized Loans. Individuals with adverse credit histories, however, are not eligible for Direct PLUS Loans unless they secure an endorser. In addition to making access to student loans widely available for certain types of borrowers (e.g., high-need borrowers), and during certain time periods, the federal government has sought to provide subsidies to borrowers in the form of below-market borrower interest rates or by paying the interest or part of the interest on the borrower's behalf. A perennial set of issues has pertained to how heavily the government should subsidize the interest payments for borrowers and how widely these subsidies should be extended (e.g., across how many types of borrowers and loans). For the student loans currently being made through the Direct Loan program, fixed interest rates are specified in a manner that does not adjust to account for variations in market conditions, nor borrower repayment risk. The current fixed interest rate structure does provide borrowers with certainty regarding the interest rates that will apply for the duration that their loans are in effect. However, borrowers neither benefit from lower borrowing costs during periods of low market interest rates, nor face increased costs during periods of high market rates. Also, within each loan type, the interest rates charged to borrowers are unaffected by factors such as their individual credit risk or the program of study for which they borrow. Interest Rate Structure Throughout the history of the federal student loan programs, there have been two prevalent structures used for setting the rates borrowers pay: statutorily specified fixed interest rates and market-indexed variable interest rates. Several of the policy options being considered during the 113 th Congress propose a market-indexed, fixed interest rate structure. Student loans with fixed interest rates and variable interest rates present different benefits and risks to borrowers and to the government (i.e., the lender). For borrowers, fixed rate loans offer the benefit of predictability, as loan payments will not change as a result of variations in prevailing interest rates. However, depending on the interest rate environment, fixed rate loans may present borrowers with interest rates that are either higher or lower rates than prevailing rates. For the government, it is difficult to accurately predict future interest rates. If interest rates are statutorily specified for loans that will be made in future years based on then-current prevailing rates, there remains the risk that the interest rate environment may be substantially different by the time future loans are made. This is the situation currently at hand. Market-Indexed, Variable Rate Structure A variable interest rate structure would align the rates borrowers pay with market conditions throughout the period that their loans are in effect. This approach would also more closely align the interest rate structure on federal student loans with some other forms of unsecured consumer credit that carry variable interest rates (e.g., private education loans, credit cards). For borrowers who take out loans over multiple years, the same interest rate structure would apply to all their loans of similar type. With a variable rate structure, however, borrowers would be subject to future fluctuations in market rates unknowable to them at the time they borrow. A monthly payment amount that a borrower may have perceived to be manageable based on the rate in effect at the time the loan is first disbursed may be perceived as excessive should rates adjust upwards. These concerns may be mitigated by procedures such as a cap on the maximum interest rate. In addition, repayment plans such as the income-based repayment (IBR) may afford repayment relief to affected borrowers. Given the current interest rate environment, borrower interest rates are projected to be lower initially than the statutorily specified fixed interest rates currently applicable to student loans. However, as CBO projects that rates on Treasury securities will rise in future years, interest rates would likely be adjusted upwards in future years—affecting both loans made during the low-interest rate environment projected for the near term, as well as loans made after rates are projected to begin rising. Market-Indexed, Fixed Rate Structure A market-indexed, fixed-rate structure would align the rates borrowers pay with market conditions at the time of loan origination, but rates would remain fixed for the life of the loan. This approach would more closely align the rates borrowers pay with market conditions at the time they borrow each of their loans. It would be somewhat similar to the way rates are set on fixed-rate mortgages. With a fixed rate structure, borrowers would be insulated against fluctuations in market rates that occur after their loans are made. However, since a new rate would be established for loans made during each award year, borrowers who take out loans over multiple years would likely have a series of loans that each has a different interest rate. Additionally, should rates drop during the years after a loan is made, the borrower would be unable to benefit from a lower interest rate environment. Given the current interest rate environment, borrower interest rates would generally be lower initially than the fixed interest rates currently applicable to student loans. However, as noted earlier, CBO projects that rates on 10-year Treasury notes will rise in future years, resulting in interest rates on future loans being higher than currently applicable rates. Appendix A. Description of Borrower Cases and Technical Notes This appendix presents information on the construction of the three cases used to exemplify borrowing patterns of typical borrowers for purposes of the case simulations used in the analysis of the student loan interest rate policy options presented above. It also presents technical notes detailing assumptions that were made in the analysis of the student loan interest rate policy options examined in this report. Estimates of Average Amounts Borrowed by Prototypical Borrowers The undergraduate student borrower cases used for the analysis in this report were constructed using estimates of average cumulative amounts borrowed by students over differing multi-year periods of undergraduate study. Estimates of average amounts borrowed are from the 2007-2008 National Postsecondary Student Aid Study (NPSAS:08), which is the most recent NPSAS survey available from the U.S. Department of Education. For each year, it is assumed that students borrow the year-on-year difference in the average cumulative amount borrowed by undergraduate students, based on the total number of years borrowers have received either Subsidized or Unsubsidized Loans. The parent borrower case was constructed in a slightly different manner because the NPSAS:08 data are not compiled in a way that allows for a determination of the total number of years a parent has borrowed a Parent PLUS Loan. For the parent borrower case, estimates of average amounts borrowed are based on the average Parent PLUS Loan amount borrowed on behalf of undergraduate dependent students for the first through fourth years of undergraduate study. Estimates of average amounts borrowed by undergraduate dependent students, undergraduate independent students, and parent borrowers are presented in Table A-1 . Additional Technical Notes and Assumptions In preparing estimates involving market-indexed loans, the amount of interest projected to accrue is highly dependent on future rates of 10-year Treasury notes. For the simulations presented here, all calculations use the actual high-yield rate of 1.81% from the May 8, 2013 auction for the period from July 2013 through June 2014; and CBO projections of 10-year Treasury note interest rates (2 nd quarter) for future periods. CBO's projections do not extend past 2023. Projected rates for 2023 are used for future years. Comparisons between policy options that involve market-indexed rates and current law would be impacted by any differences in actual rates from the projected rates used in these simulations. In addition, fluctuations in market-rates would have different effects on the rates borrowers pay under a market-indexed, fixed rate structure than under a market-indexed, variable rate structure. Unfortunately, these differences are masked when projected rates are held at constant levels for future years. The following loan characteristics were assumed in this analysis: Loans are disbursed in two equal disbursements. The first disbursement occurs on September 1 and the second occurs on January 1. Interest starts to accrue on Direct Unsubsidized Loans and Direct PLUS Loans once a disbursement is made. Interest accrues during the grace period on Direct Subsidized Loans disbursed during AY2013-2014; and on all Direct Unsubsidized Loans and PLUS Loans. Borrowers defer payment of the interest that accrues while in school and during the grace period. This interest is capitalized at the beginning of the repayment period, which begins after the six-month grace period. Loans are repaid according to a standard 10-year repayment plan. The interest rate on market-indexed variable rate loans adjusts July 1 of each year and remains in effect for the remainder of the year. On variable rate loans, monthly payments may increase or decrease with changes in the interest rate. 'Interest paid' includes interest that accrues while in school and during the grace period, which is capitalized at the beginning of repayment; and interest that accrues and is paid during repayment according to the standard (10-year) repayment plan. The interest rate on market-indexed fixed rate loans is established effective July 1 of each year and remains in effect for the life of the loan. Appendix B. Historical Data on Federal Student Loans and Borrowers Figure B-1 and Figure B-2 present trend data spanning the past quarter century that show changes in the number of individuals who borrow different loan types and in the total amounts of different loan types borrowed. Data on borrowing for undergraduate and graduate education are presented separately. The information presented in Figure B-1 shows that over the period from AY1995-1996 through AY2007-2008, there was a gradual increase in the total amount of loans borrowed. There also was a gradual increase in the number of students who borrowed Unsubsidized Loans—both the number who borrowed both Subsidized Loans and Unsubsidized Loans, and the number who borrowed only Unsubsidized Loans. Beginning with AY2008-2009, and following the enactment of the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA; P.L. 110-227 ), there has been a marked change in the nature of undergraduate borrowing. The ECASLA amendments to the HEA increased the annual total that undergraduate students could borrow in Unsubsidized Loans by $2,000. As a consequence of this change, the number of students who borrow Unsubsidized Loans increased substantially. During AY2011-2012, the most recent year for which data are available, there were approximately 8.8 million undergraduate borrowers of Direct Loans. Nearly 7.9 million of these borrowers (89%) obtained Direct Subsidized Loans; however, only 1.4 million (16%) borrowed only Direct Subsidized Loans. Approximately 7.4 million undergraduate borrowers (84%) obtained Direct Unsubsidized Loans, although only 0.9 million (11%) borrowed only Direct Unsubsidized Loans. It was most common for student borrowers to borrow both loan types. Nearly 6.5 million students (73%) did so in AY2011-2012. In AY2011-2012, there were 879 thousand borrowers of Parent PLUS Loans. Figure B-2 shows historical data on graduate student borrowing. Graduate student borrowing began to increase most notably following the enactment of the Higher Education Reconciliation Act of 2005 (HERA; part of P.L. 107-171 ) which extended eligibility to borrow PLUS Loans to graduate and professional students. During most of the past five award years, there was a marked increase on graduate student borrowing of all Direct Loan types. However, graduate student borrowing of Direct Subsidized Loans and Direct Unsubsidized Loans decreased slightly in AY2011-2012 compared with the prior year. Beginning with AY2012-2013, graduate students are no longer eligible to borrow Direct Subsidized Loans. During AY2011-2012, 1.6 million graduate students borrowed either a Direct Subsidized Loan and/or a Direct Unsubsidized Loan. Of these borrowers, 1.5 million (94%) obtained Direct Subsidized Loans; however, only 239 thousand (15%) borrowed only Direct Subsidized Loans. Nearly 1.4 million graduate student borrowers (85%) obtained Direct Unsubsidized Loans, although only 102 thousand (6%) borrowed only Direct Unsubsidized Loans. As with undergraduate students, it was most common for graduate student borrowers to borrow both loan types. Nearly 1.3 million graduate students (79%) did so in AY2011-2012. Approximately 360 thousand graduate students borrowed Direct PLUS Loans. Students typically do not borrow PLUS Loans without exhausting their eligibility for Direct Subsidized Loans and Direct Unsubsidized Loans because PLUS Loans have higher interest rates.

The interest rates that borrowers pay on federal student loans made through the William D. Ford Federal Direct Loan program are specified in statutory language of the Higher Education Act of 1965, as amended. For the past two years, one type of loan—Direct Subsidized Loans—has been made with a fixed interest rate of 3.4%. Effective July 1, 2013, Direct Subsidized Loans began to be made with a fixed interest rate of 6.8%. Direct Unsubsidized Loans are currently being made with a fixed interest rate of 6.8% and Direct PLUS Loans are currently being made with a fixed interest rate of 7.9%. In the 113th Congress, numerous proposals have been made that would affect the interest rates that borrowers pay on student loans made through the Direct Loan program. These include long-term proposals to establish a new interest rate structure for all Direct Loans made during future years, and short-term proposals to temporarily extend the authority to make Direct Loans at the rates currently in effect. Several of the long-term student loan interest rate proposals would amend the Direct Loan program to index student loan interest rates to market indices, such as the rate on 10-year Treasury notes. Some policy options would establish a market-indexed, fixed interest rate structure, while others would establish a market-indexed, variable interest rate structure. In his FY2014 budget, President Obama proposed a market-indexed, fixed interest rate structure that would apply to Direct Loans made in future years. On May 23, 2013, the House passed H.R. 1911, which would establish a market-indexed, variable interest rate structure for new Direct Loans. Numerous proposals were introduced in the Senate. Some bills would make short-term changes to student loan interest rates and would affect only Direct Subsidized Loans. S. 953 would extend for two years the authority to make Direct Subsidized Loans with a fixed interest rate of 3.4%. S. 897 would set the borrower interest rate on new Direct Subsidized Loans made only during the upcoming federal student aid award year at the Federal Reserve discount window primary credit rate. Other bills would establish a new market-indexed, fixed interest rate structure for Direct Loans made in future years. These include S. 1003 and the Senate amendment to H.R. 1911. On July 24, 2013, the Senate passed the amendment to H.R. 1911. This report describes and analyzes student loan interest rate proposals that have been made in the 113th Congress to establish new policies for setting the interest rates that borrowers will pay on loans made through the Direct Loan program. The report compares and contrasts selected loan interest rate policy options and provides information on proposed student loan interest rate structures, projections of future interest rates, and estimates of future costs to the government. The report also presents estimates of borrower repayment amounts associated with the different interest rate proposals based on case simulations for three types of typical borrowers: undergraduate dependent students, undergraduate independent students, and parent borrowers. Finally, the report highlights some of the perennial tensions that often arise when student loan interest rates are debated. Should federal student loan programs provide below-market or fair-market interest rates to borrowers? What value is ascribed with providing borrowers predictable fixed monthly payments as opposed to payments that may vary in accordance with market conditions? To what extent should the federal government seek to subsidize loans or borrower repayment and for what subset of borrowers should subsidies be available?

Introduction On July 8, 2014, the Administration requested $4,346 million in FY2014 supplemental appropriations to address two issues: the federal costs of managing the surge of both unaccompanied alien children (UAC) and escorted alien children illegally crossing the southwest border, and a projected shortfall in federal funding to pay the costs of wildfires. The Senate Appropriations Committee conducted a hearing July 10, 2014, focusing on the border security and immigration aspects of the Administration's request. In addition, the following hearings on the issues involved in the supplemental request were held between the submission of the request and the introduction of the respective bills: Senate Committee on Homeland Security and Government Affairs, July 9 and 16, 2014, "Challenges at the Border: Examining the Causes, Consequences, and Responses to the Rise in Apprehensions at the Southern Border," and "Challenges at the Border: Examining and Addressing the Root Causes Behind the Rise in Apprehensions at the Southern Border"; Senate Committee on Energy and Natural Resources, July 15, 2014, "Wildfire Preparedness and Forest Service 2015 Fiscal Year Budget"; and Senate Committee on Foreign Relations, July 17, 2014, "Dangerous Passage: Central America in Crisis And the Exodus of Unaccompanied Minors." On July 23, 2014, the Senate introduced S. 2648 , which included $3,571 million in supplemental appropriations for those purposes as well as providing funding for defense assistance to Israel. The legislation would designate the appropriations as an emergency requirement, meaning the funding would not count against the discretionary budget caps for FY2014. On July 29, 2014, the House introduced H.R. 5230 , which included $659 million in supplemental appropriations to address the situation at the southwest border. The original legislation included $659 million in offsets. After consideration under the initial rule was postponed, a second rule was passed that increased the amount appropriated by $35 million, the offsets by $35 million, and altered the policy provisions included in the bill. This amended bill passed the House by a vote of 223-189 on August 1, 2014. Overview Table 1 below outlines the Administration's request for supplemental funding for FY2014, and the proposed new budget authority provided in response to those requests. All figures are in millions of dollars of budget authority, and like all numbers in this report, are rounded to the nearest million. The figures in the table below are presented thematically between the issue areas: (1) the southwest border crisis, (2) wildfires, and (3) aid to Israel. Headers in bold italics note the theme. Under each theme, appropriations are listed by department and subtotaled. The left column notes the department or agency and the funded activity by appropriation. The Administration's request is in the next column, in millions of dollars of budget authority, followed by the appropriations that would be provided under the Senate bill and the House bill. The table only reflects new budget authority that would be provided in the legislation: transfers, rescissions, and redirection of appropriated funds are not included in the table. A brief narrative description of the request and each bill follows, which explores those issues, as well as the potential budgetary impact of each proposal. Supplemental Request The Administration requested $4,346 million in supplemental appropriations to address two issues: the surge in unaccompanied and escorted children illegally crossing the southwest border, and a shortfall in federal funding to pay the costs of wildland fires. Of the request, $3,731 million was for the southwest border crisis to be distributed through appropriations that would fall under four appropriations subcommittees: Commerce, Justice, Science, and Related Agencies (2% of the border funding); Homeland Security (42%); Labor, Health, and Human Services, Education, and Related Agencies (49%); and State, Foreign Operations, and Related Programs (8%). The request included a general provision allowing up to $250 million of this amount to be transferred among applicable appropriations, which would give the Administration additional flexibility in how these funds may be used. The Administration also requested expanded transfer authority specifically for supplemental funds appropriated to DHS. The request included $615 million to cover wildland fire suppression and emergency rehabilitation activities. Similar to the Administration's request, the bill would also create a new adjustment to statutory spending limits to accommodate a portion of spending subsequently provided for "wildfire suppression operations," formulated with the intent of minimizing any additional spending beyond what is allowed under current law by tying it to the existing disaster relief cap adjustment. The Administration requested the supplemental funding be designated as an emergency under the budget laws. Funding with the designation would not count against the discretionary spending caps for FY2014, and an offset would not be needed to avoid violating those caps. S. 2648 S. 2648 has four titles, one each for border issues, wildfire, and aid to Israel, as well as a title of general provisions that apply broadly across the bill. It would provide $1 billion less than the Administration requested for managing the situation on the southwest border, and $225 million in funding for military assistance to Israel that the Administration had not formally requested. The bill would provide the requested wildfire funding, and includes an amendment sought by the Administration to make it easier to fund federal costs for fighting wildland fires. The Senate bill would provide almost double the supplemental funding requested for DOJ to speed the adjudications of those taken into custody along the border, appropriating $125 million. It would provide 28% less than requested for DHS—just over $1.1 billion—and would provide roughly two-thirds of the requested level of funding for HHS—$1.2 billion. The Senate bill would appropriate $300 million for the State Department and foreign operations work to address the flow of migrants, the same overall amount as requested by the Administration, but would reprioritize some of the funding. Title II of the bill would provide the requested $615 million for wildland fire costs, and the amendment sought by the Administration to create a new adjustment to discretionary spending limits for wildfire suppression operations and emergency restoration. Title III of S. 2648 would provide $225 million, through the Department of Defense, to the Government of Israel for the procurement of the Iron Dome defense system to counter short-range rocket threats. All funding in the bill would be designated as emergency funding, as the Administration requested. Transfers and Transfer Authority The Senate bill's southwest border title includes a number of provisions that would require a total of $3 million of the funding be transferred to various inspectors general to oversee the use of funds that would be provided in the bill. Under the appropriation for the Economic Support Fund, funds are also designated to be transferred to the Inter-American Foundation for youth training programs ($5 million) and DOJ efforts "to build investigative and prosecutorial capacity" in source countries ($10 million).   There are three provisions in the same title that would allow for transfer and reprogramming of funds. Funding for DHS in S. 2648 could be transferred between appropriations accounts or reprogrammed within them without limitation, and up to $250 million could be transferred between appropriations in other parts of the southwest border title with the approval of the Director of the Office of Management and Budget. Use of either authority would require advance notification to the appropriations committees—a common practice. The bill would also allow HHS to transfer funds for medical response expenses to the Public Health and Social Services Emergency Fund. H.R. 5230 The House bill has two divisions: the first is a five-title appropriations act; the second has three titles that would modify immigration laws, provide a framework for National Guard deployment to the southwest border, and provide exemptions from certain environmental laws for border security activities. The third title of the second division also includes a sense of Congress statement regarding the housing of undocumented minors on military installations. The analysis of this report only focuses on the first division of the House bill. Unlike the Senate bill, House-passed H.R. 5230 would provide funding only for the southwest border crisis—no supplemental funding is included for wildland fire management or aid to Israel. Its $694 million in new budget authority is $3.1 billion less than the request for the southwest border crisis, and over $2 billion less than the amount the Senate bill would provide for those activities. House-passed H.R. 5230 would provide $22 million for DOJ to speed the adjudications of those taken into custody along the border—$41 million less than the request. The House bill would provide $405 million (74% less than requested) for DHS, and $197 million (89% less) for HHS. The House bill would not provide any new budget authority for the State Department and foreign operations work to address the flow of migrants, but would allow $40 million of previously appropriated aid for Central America to be made available for "repatriation and reintegration activities." No transfers or additional transfer or reprogramming authority would be provided in the House bill. Offsets Unlike the Senate bill, which includes an emergency designation for the funding it would provide, the House bill is fully offset. H.R. 5230 as passed by the House would provide $694 million in new budget authority, which would be offset by the following permanent rescissions of $694 million: $405 million from the Federal Emergency Management Agency's Disaster Relief Fund; $70 million from Department of Defense-wide operations and maintenance; $22 million from the Department of Justice Assets Forfeiture Fund; and $197 million from international bilateral economic assistance through the Economic Support Fund.

On July 8, 2014, the Administration requested $4,346 million in FY2014 supplemental appropriations to address two issues: the surge in both unaccompanied and escorted children illegally crossing the southwest border, and a shortfall in federal funding to pay the costs of wildfires. The appropriations were requested to be designated as emergency funding, meaning the requested funds would not count against the discretionary budget caps for FY2014. On July 23, 2014, the Senate introduced S. 2648, which includes $3,571 million in supplemental appropriations for the Administration's requested purposes as well as for defense assistance to Israel. S. 2648 would designate the appropriations as an emergency, meaning they would not count against the discretionary budget caps for FY2014. On July 29, 2014, the House introduced H.R. 5230, which included $659 million in supplemental appropriations to address the situation at the southwest border. The legislation also included $659 million in rescissions that would offset the budgetary impact of the bill. An amended version of H.R. 5230, which includes an additional $35 million to defray the cost to states of National Guard deployments to the southern border, $35 million more in offsets, and a different set of policy provisions, passed the House 223-189 on August 1, 2014. The primary focus of this report is the Administration's request for supplemental appropriations, and the appropriations legislation considered in response to that request. Other policy-related provisions of the legislation will be analyzed in other CRS materials. This report will be updated as events warrant.

Appendix A A1. Review Dates and Outcomes Individually by State a Source: Prepared by CRS based on analysis of state Title IV-E Foster Care Eligibility Review final reports. a. Includes only those 43 state reviews with a six month period under review after Mar. 25, 2001, the date that all aspects of the final rule were effective.

Title IV-E of the Social Security Act authorizes states to seek federal reimbursement forcertain costs of providing foster care for children who can no longer safely remain in their homes. The statute permits states to make a claim for federal reimbursement of costs that are linked toproviding foster care to each federally eligible child. In FY2003, the most recent year for which dataare available, states sought federal reimbursement under this authority for approximately $4.5 billionin foster care costs. The U.S. Department of Health and Human Services (HHS), periodicallyconducts Title IV-E Foster Care Eligibility Reviews to ensure that states are properly determiningthe eligibility of children for federal foster care support and are thus making correct claims forreimbursement. Federal eligibility for foster care is defined in Section 472 of the Social Security Act and isalso described in regulations. A child is eligible for federal foster care if (1) a judge has madecertain determinations regarding the necessity of his/her removal from the home, regarding thetimely efforts of the state child welfare agency to prevent the child's removal, and regarding timelyefforts to find a new permanent home for the child; (2) if (except for the removal from his or herhome) the child would have met the state's program requirements for the Aid to Families withDependent Children (AFDC) program (as that program existed on July 16, 1996); (3) the child isplaced in a licensed foster family home that is determined to be safe or in an otherwise eligiblelicensed care facility; and (4) the child is the care and placement responsibility of the state. Title IV-E eligibility reviews are designed primarily to improve program management in thefederal foster care program. A January 25, 2000 rule established the current form of the review andincludes certain checks that flow from the 1997 Adoption and Safe Families Act ( P.L. 105-89 ),which are intended to ensure both the safety of children in foster care and the timely actions of thestate child welfare agency to establish permanence for children. Since all aspects of the new rulebecame effective, HHS has conducted reviews in 43 states; of these, 16 were found not to besubstantially compliant with Title IV-E foster care eligibility rules. Requirements associated withjudicial determinations dominated as reasons for cases being found ineligible, making up 61% oferrors. Time limits for obtaining judicial determinations concerning permanency planning createda significant challenge for states. Safety and licensing disqualifications constituted 24% of errors. Problems were due mainly to lack of documentation to verify that state safety requirements weremet. Provisions related to AFDC eligibility made up 15% of all errors. About half of AFDC errorswere related to income rules, while the rest were linked to other program rules such as establishmentof "deprivation." Only 1% of errors were a result of the responsibility and care of the child not beingvested with the state. This report provides an overview of the current Title IV-E Foster Care Eligibility Reviewprocess and a discussion of state performance on available reviews conducted after the January 25,2000 rule's effective date. This report will be updated as additional state performance reportsbecome available.

Introduction U.S. security sector assistance to foreign countries is funded primarily in the foreign affairs and defense budgets. As the 115 th Congress considers its spending priorities for the coming fiscal year, the magnitude, trends, and uses of such assistance may be examined and debated. The Department of State, Foreign Operations, and Related Programs (SFOPS) appropriations; the National Defense Authorization Act (NDAA); and the Department of Defense (DOD) appropriations all contain provisions that could affect security assistance funding in FY2018 and beyond. While the Department of State (DOS) and the Department of Defense (DOD) are the primary actors in the provision of such assistance to foreign countries—and the primary focus of this CRS report―other U.S. agencies may also conduct related programs, including the U.S. Agency for International Development (USAID); the Departments of Energy (DOE), Homeland Security (DHS), Justice (DOJ), and the Treasury; and parts of the intelligence community. With the Foreign Assistance Act of 1961 (FAA, P.L. 87-195) and later the Arms Export Control Act of 1976 (AECA, P.L. 90-629), as amended, Congress established the foundational authorities for contemporary U.S. security assistance programs. These authorities charged the Secretary of State with responsibility to provide "continuous supervision and general direction" of foreign assistance and contained specific reference to "military assistance, including military education and training," to ensure its coherence with foreign policy. Over time, the Secretary of State's security assistance authorities expanded to include international narcotics control, peacekeeping operations, antiterrorism assistance, and nonproliferation and export control assistance. The State Department's authorities were codified in Title 22 of the U.S. Code (Foreign Relations and Intercourse), and funds for such assistance programs are largely appropriated through State Department accounts. Such assistance to foreign governments, security forces, and militaries covers a wide spectrum of activities, including the transfer of conventional arms, training and equipping regular and irregular forces for combat, law enforcement training, defense institution reform, humanitarian assistance, and engagement and educational activities. These activities may serve multiple purposes for both the United States and the recipient country. DOD has long played a crucial role in the implementation of Title 22 security assistance programs and activities, but for many decades, it otherwise relegated the training, equipping, and assisting of foreign military forces as a secondary mission on its list of priorities, far below war-fighting. Beginning in the 1980s, Congress began providing DOD with additional authority in Title 10 of the U.S. Code and annual NDAAs to conduct a range of programs and activities funded by DOD appropriations. Congress began providing such authorities in the 1980s for counternarcotics and humanitarian assistance; authority for nonproliferation and counterterrorism programs was subsequently added in the 1980s and 1990s. In recent years, the international security environment, and the associated perceived threats to the United States homeland, has led DOD increasingly to give greater priority to building and strengthening security partnerships in a variety of contexts around the world. Particularly since the terrorist attacks of September 11, 2001, Congress has granted DOD new authorities in annual NDAAs and in Title 10 (Armed Services) of the U.S. Code to engage in "security cooperation" with foreign militaries and other security forces—now considered by DOD to be an "important tool" for executing its national security responsibilities and "an integral element of the DOD mission."  This trend underlies a significant expansion of DOD direct engagements with foreign security forces and an accompanying increase in DOD's role in foreign policy decisionmaking. As the United States undertook military action and increased the scope of its foreign counterterrorism operations, Congress provided a number of DOD crisis and wartime authorities, some providing new global authority and some specific to certain geographic areas. In enacting these new authorities and appropriations, Congress has bolstered an expanding global DOD role in building foreign partner capacity through programs to train and equip foreign security forces, notably in the realms of counterterrorism, counternarcotics, and defense institution building. In addition, DOD is authorized to carry out various security cooperation and logistical support activities, as well as advise and assist missions that may have the added impact of boosting partner country capabilities. DOD's security cooperation authorities were most recently and significantly modified in the FY2017 National Defense Authorization Act (NDAA) ( P.L. 114-328 ; signed December 23, 2016), which enacted several new provisions that modify the budgeting, execution, administration, and evaluation of DOD security cooperation programs and activities. Implementation of these provisions remains a work in progress. The expansion of DOD's engagement with foreign partner militaries over the past decade has both policy and budgetary implications. These include the overall size and scope of U.S. security assistance activities worldwide, the geographic distribution of such activities, and the relative influence of DOS and DOD in interagency security policymaking processes. Another implication relates to congressional committees of jurisdiction, as primary oversight and funding prerogatives have progressively extended and migrated from foreign relations to defense authorizers and appropriators. Yet, challenges continue to exist in the development of consistent interagency action and terminology to describe the range of security assistance and cooperation programs and activities funded by the U.S. government. Moreover, funding data for security assistance and data on historical security assistance funding are incomplete. Although DOS has long been required to track most security assistance funding by aid account and on an individual country basis, DOD has not. As a result, comparisons between security assistance funding provided by both departments are challenging, and totaling the two may leave gaps. The 115 th Congress is continuing scrutiny and debate on security assistance matters. Within the Department of State, Foreign Operations, and Related Programs FY2018 budget request, the Administration is seeking to reduce international security assistance by about $2.3 billion, or 24.4%. Each of the security assistance programs would be reduced by amounts ranging from 9% to more than 54%. In addition, the Administration proposes making changes to security assistance programs, such as designating 95% of the Foreign Military Financing (FMF) program to four countries. The remaining 5% of the funds, rather than being made available on a grant basis globally as FMF is currently implemented, would be made available to all other countries with a combination of grant and loan assistance to be coordinated with DOD. Congress is also debating a possible increase of Overseas Contingency Operations (OCO) funds for defense and nondefense, including for funding security assistance activities in FY2018. Currently, there is no DOD budget request for security cooperation programs and activities that is comparable to the Department of State, Foreign Operations, and Related Programs FY2018 budget request for State Department-managed security assistance accounts. Soon, however, this may change; Section 1249 of the FY2017 NDAA added a new section to Title 10 of the U.S. Code , requiring the President, beginning with the FY2019 budget, to submit a formal, consolidated budget request for all DOD's security cooperation efforts, including the military departments and, as practicable, by country or region and by authority. For further background on U.S. security assistance and cooperation policies, see CRS Report R44444, Security Assistance and Cooperation: Shared Responsibility of the Departments of State and Defense ; CRS Report R44602, DOD Security Cooperation: An Overview of Authorities and Issues ; CRS Report R44313, What Is "Building Partner Capacity?" Issues for Congress ; and CRS In Focus IF10582, Security Cooperation Issues: FY2017 NDAA Outcomes . Security Assistance Funding Trends Overview Based on DOS and DOD funding data, the U.S. government has provided at least $204.6 billion to provide security assistance and cooperation to allied countries abroad between FY2006 and FY2016. In that timeframe, DOD funded approximately $115.4 billion in security cooperation activities worldwide, averaging $10.5 billion annually, while the State Department funded approximately $89.2 billion in security assistance worldwide, averaging $8.1 billion annually. Overall funding peaked in FY2011, when a total of $21.6 billion was obligated, largely due to the surge in support activities in Afghanistan. Security assistance funding managed by DOS peaked at $9.4 billion in FY2015 because of increased funds to counter the Islamic State terrorist organization and security aid to the Middle East. For DOD, funding peaked at $12.8 billion in FY2008, with funding increases for Afghanistan and Iraq security. After adjusting for inflation, the constant dollar total trend line illustrates the same peaks and troughs as the current dollar trend. However, it illustrates a general decline overall in recent years as compared with the funding levels of earlier years―FY2006-FY2012 funding levels (see Figure 1 ). In the past decade, DOD has typically obligated a larger portion of overall security cooperation funding compared to DOS, though State obligated nearly half of U.S. security assistance funding in FY2013, FY2014, and FY2016. The highest share of DOD obligations occurred in FY2007 (61%) and FY2008 (63%). (See Figure 2 below.) Top Recipients In FY2016 (the most recent year for which complete country allocations are available), the top 10 recipients of U.S. security assistance and cooperation accounted for $7.8 billion (45%) of the combined funding provided by DOS and DOD for that year. Figure 3 illustrates the dollar amount and share of the top 10 recipients of U.S. security assistance and cooperation. Of the $7.8 billion that went to the top 10 recipients in FY2016, Israel had the largest share at 40%, followed by Egypt at 17%, Afghanistan at 10%, and Iraq at 9%. Combined, Israel and Egypt received 57% of the top 10 share. The amount of FY2016 security assistance and cooperation funding for Pakistan is $533 million; it had been more than double that level as recently as FY2011, when it was $1.3 billion; Pakistan is the sixth-largest recipient of U.S. security assistance and cooperation funds in FY2016 with 6% of the $7.8 billion. Key Accounts The top five DOS/DOD appropriations accounts through which security assistance has been funded from FY2006 to the FY2017 request are Afghanistan Security Forces Fund (ASFF), Foreign Military Financing (FMF), International Narcotics Control and Law Enforcement (INCLE), Iraq Security Forces Fund (ISFF), and Coalition Support Funds (CSF). (See Figure 4 .) Figure 5 and Figure 6 show a comparison of the top-ranking DOS and DOD accounts for FY2016 compared with the FY2017 request. FMF is the highest-funded account for both years. Other top accounts include ASFF, INCLE, CSF, and the Counterterrorism Partnerships Fund (CTPF). State Department and USAID Security Assistance Funding Levels DOS and U.S. Agency for International Development (USAID) security assistance programs are authorized by the Foreign Assistance Act of 1961 (FAA, P.L. 87-195) and the Arms Export Control Act of 1976 (AECA, P.L. 90-629), as amended, and codified in Title 22 of the U.S. Code . Congress appropriates a significant amount of security assistance funding within the Department of State, Foreign Operations, and Related Programs (SFOPS) appropriations. Although funds are appropriated to the State Department or USAID, some of the programs themselves are administered by DOD under the direction and oversight of the Secretary of State. For program descriptions, see Appendix A . State Department security assistance program obligations for the past 10 years are shown in Table 1 . Top DOS Security Assistance Accounts and Recipient Countries Of the security assistance accounts within the Department of State, Foreign Operations, and Related Programs since FY2006, FMF is the largest, with typically 55%-65% of annual DOS security assistance funding. INCLE follows with about 20%-30% of State's security assistance funding. In FY2016, FMF and INCLE represent more than 80% of all DOS security assistance obligated that year. (See annual funding for the five major DOS security assistance accounts in Figure 7 .) Israel and Egypt are the top recipients of DOS security assistance, accounting for 52% of State's security assistance obligations in FY2016. FMF accounted for all of the $3.1 billion to Israel and $1.3 billion of the U.S. security assistance to Egypt (see Figure 8 ). Department of Defense Security Cooperation Funding Levels DOD security cooperation programs are authorized by Title 10 of the U.S. Code and provisions in NDAAs. Not all Title 10 and NDAA authorities have funding levels specified by authorization and/or appropriations legislation. Funding for some security cooperation authorities may be incorporated into a larger budget category or simply drawn from the defense-wide operations and maintenance budget. As a result, accurate accounting of DOD funding levels for all security cooperation programs and activities, in addition to comparison of funding data between the two agencies, remains a challenge. Table 2 provides 10-year obligations data for a majority of significant security cooperation authorities and programs. Table 3 reflects DOD's approximations of counternarcotics support to foreign countries, including both base and OCO funds. DOD funding for foreign counternarcotics support peaked in FY2010, largely due to additional commitments to combat Afghanistan's opium cultivation and opiate trafficking. Top DOD Security Cooperation Accounts and Recipient Countries Of the DOD security cooperation accounts in Table 2 , Afghanistan Security Forces Fund (ASFF) is the largest, with most years receiving more than 50% of the security cooperation funding, and in FY2011 receiving 74%. Coalition Support Fund (CSF) follows, often between 12%-17% and as much as 26% of the funds. Figure 9 represents the top budget accounts of obligated funds since FY2006. Top recipient countries of DOD security cooperation differ from those of DOS; Afghanistan, Iraq, and Pakistan make up the top DOD country recipients. Figure 10 shows the top defense security cooperation recipients in FY2016. For program descriptions, see Appendix B . Obligations data disaggregated for DOD's multiple authorities for providing counternarcotics support to foreign security forces were not available for a comparable timeframe. Some reports required by provisions within NDAAs show allocations or expenditures for security cooperation counternarcotics authorities for some fiscal years. Selected Issues for Congress Interagency Terminology Discussion of military and related assistance to foreign countries is sometimes hindered by a lack of a standard terminology. The following terms are frequently used to describe assistance to foreign governments, security services, and militaries: Security Assistance (Title 22) . Although not defined in Title 22 of U.S. Code , the term security assistance is commonly used to refer to the six budget accounts for which the State Department requests international security assistance appropriations and whose underlying authorities reside in the Foreign Assistance Act of 1961 (FAA, P.L. 87-195) and Arms Export Control Act of 1976 (AECA, P.L. 90-629), as amended. Security Cooperation (Title 10) . DOD uses the term security cooperation to refer to activities authorized by provisions in Title 10 and National Defense Authorization Acts (NDAAs). The FY2017 NDAA defines security cooperation as "any program, activity (including an exercise), or interaction of the Department of Defense with the security establishment of a foreign country to achieve a purpose as follows: To build and develop allied and friendly security capabilities for self-defense and multinational operations. To provide the armed forces with access to the foreign country during peacetime or a contingency operation. To build relationships that promote specific United States security interests." Security Sector Assistance . In April 2013, the Obama Administration issued Presidential Decision Directive 23 (PPD-23). The directive called for an overhaul of U.S. security sector assistance policy and for the creation of a new interagency framework for planning, implementing, assessing, and overseeing security sector assistance. The term security sector assistance refers to all State Department security assistance programs and virtually all DOD security cooperation programs, exercises, and engagements, as well as related activities of USAID, DOJ, and other agencies. Security Assistance and Cooperation Funding Transparency Challenges exist in identifying funding data for security assistance, and data on historical funding are incomplete. Although the State Department has long been required to track most security assistance funding by aid account and on an individual country basis, the Defense Department has not. In the latter case, DOD's security cooperation programs and activities were not consistently planned for and budgeted by authority or funding account at the country level; moreover, existing security cooperation authorities may be subject to different congressional notification requirements that may report funding in different formats. As a result, comparisons between security assistance funding provided by both departments have been methodologically fraught. This report addresses several challenges in securing and analyzing funding information for security sector assistance programs by obtaining obligations over the past decade—the longest historical period for which obligations data are available. The report includes obligations data for major DOD security cooperation authorities and programs but not all DOD security cooperation programs. Prior obstacles to data collection and harmonization between departments on security assistance and cooperation funding may be remedied by provisions of the FY2017 NDAA, which incorporated new or extended existing mechanisms for congressional oversight and public accountability of DOD's security cooperation programs and activities. Beginning with the FY2019 budget, due in 2018, the President is required to submit a formal, consolidated budget request for DOD's security cooperation efforts. Already, DOD is submitting quarterly reports to Congress on the obligation and expenditure of some security cooperation funds. As DOD begins to submit a consolidated security cooperation budget, Congress many consider monitoring DOD's progress in implementing congressional requirements that it more rigorously track security cooperation programs and resources and assess whether funding data provided by DOD will allow for comparisons between agencies and on a per-country basis. Foreign Military Financing (FMF) Loans As part of its FY2018 budget proposal, the Trump Administration announced its support for modifications to the structure of some security assistance programs. For example, the Administration proposed shifting some foreign military assistance from grants to loans. Such a change, the Administration argues, would allow "recipients to purchase more American-made weaponry with U.S. assistance, but on a repayable basis." To date, Congress has explored the feasibility of transitioning the FMF program from grants to loans. Pursuant to Section 7034(b)(8)(D) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2017 ( P.L. 115-31 ), Congress requested the Secretary of State, in coordination with the Secretary of Defense, to provide a report on the impact of transitioning the FMF from grants to loans. The Administration's report, delivered to Congress in August 2017, concluded that although such a transition may theoretically allow some recipients to potentially purchase more U.S.-made defense equipment and services, not all foreign countries may qualify for loans due to budget constraints or other factors. Furthermore, the report notes some FMF recipients may be inclined to seek out loans or other type of assistance under more favorable terms from other countries, such as China or Russia, while others may view the use of loans as a signal of declining U.S. commitment. In S.Rept. 115-152 accompanying S. 1780 , Department of State, Foreign Operations, and Related Programs Appropriations Act, 2018, the Senate Committee on Appropriations concluded it did not support the transition of the FMF program from grants to loans due to lack of study of the Administration's proposal and its unknown impact on U.S. national security interests and on foreign countries receiving U.S. security sector assistance. Congress may consider whether a transition to FMS loans would have an effect on the overarching U.S. security sector assistance structure. State Department Reorganization Plans In its FY2018 budget proposal, the Trump Administration announced its intention to restructure the use of appropriated funds for diplomatic and development aid and to pursue structural changes at the State Department and USAID. Some Members of Congress have expressed concern about the effects of such a restructuring on U.S. diplomatic and development efforts. The committee reports accompanying the House and Senate versions of the State Department and Foreign Operations Appropriations Acts for FY2018 noted that reorganization could improve efficiency and effectiveness, but raised concern that the process not be undertaken with predetermined targets. Other Members of Congress have also expressed their concerns about the Administration's plans and requested additional information about the role of the Office of Management and Budget (OMB) in the State Department and USAID reorganization. As debates continue, Congress may consider how a State Department reorganization (or realignment) might affect the ability of various bureaus within the department to plan, develop, implement, and coordinate security sector programs. Implementation of FY2017 NDAA Security Cooperation Provisions Since December 2016, DOD and State Department officials have begun the process of implementing various provisions under newly established Chapter 16 (Security Cooperation) of Title 10 in U.S. Code . In discussions with CRS, officials have noted that this is a lengthy process, involving several stakeholders, and may take years to be fully realized. A DOD-State Security Sector Assistance Steering Committee has been established to identify how to best use existing Title 22 and Title 10 authorities in the provision of security sector assistance and ensure that programs are clearly aligned with the core goals of those authorities. A potential hurdle to more efficient coordination identified by both DOD and State Department officials stems from existing budget and planning timelines. Various State Department security assistance and DOD security cooperation programs have dissimilar timelines, posing a challenge for more efficient coordination between activities conducted by the two agencies. For instance, budget planning for the Foreign Military Financing (FMF) program is for two out-years, while some DOD authorities are subject to more immediate planning timelines. DOD officials note that discussions are under way to possibly bridge the gap between planning and budget timelines. DOD officials have also identified budget planning and funding challenges resulting from the lack of a central funding account for security cooperation activities. Staffing requirements at both the State Department and DOD also remain in flux. As the State Department and DOD continue to implement various FY2017 NDAA security cooperation authorities, Congress may consider continuing to evaluate the roles and responsibilities of the Departments of State and Defense in the coordination, budgeting, and approval of U.S. security assistance and cooperation programs and activities. As Congress considers authorization and appropriations legislation for security assistance and cooperation programs and agencies, questions on improving DOS and DOD coordination, cooperation, and data collection may be important for improved oversight going forward. Appendix A. DOS/USAID Security Assistance Programs This appendix describes the security assistance programs funded through the Department of State, Foreign Operations, and Related Programs (SFOPS) appropriations: International Narcotics and Law Enforcement (INCLE) . The INCLE account funds international counternarcotics activities, anticrime programs, and anti-human trafficking programs. In addition, activities conducted under INCLE include rule of law programs, such as law enforcement support and justice sector capacity building. For example, funds support efforts to enhance bilateral and regional cooperation to combat drug trafficking and organized crime in Mexico, drug interdiction and alternative development in Colombia and the Andean region, and judicial system reform and counternarcotics activities in Afghanistan. Although programs authorized under INCLE generally provide nonmilitary support, DOD may play a role if defense articles or services are provided through the Defense Security Cooperation Agency (DSCA). State Department authority for counternarcotics programs is contained in Chapter 8 of Part I of the FAA (22 U.S.C. 2291 et seq.). Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR). The NADR account funds a variety of State Department-managed activities aimed at countering proliferation of weapons of mass destruction, supporting antiterrorism training and related activities, and promoting demining operations in developing countries. Programs conducted include border security activities and may involve law enforcement and military personnel. If necessary, DOD, through DSCA, may provide defense articles and services for some NADR programs. DOD may also provide other support, including conducting DOD-funded programs in conjunction with NADR-funded programs. NADR is authorized by several provisions of law (Part I, §301, and Part II, Chapters 8-9, of the FAA; §23 of AECA; §504, FREEDOM Support Act (FSA) of 1992 [ P.L. 102-511 ]). Peacekeeping Operations (PKO). The PKO account funds programs to provide articles, services, and training for countries participating in international peacekeeping operations, including United Nations (U.N.) and regional operations. Most support under PKO is provided to foreign militaries. PKO programs include efforts to diminish and resolve conflicts, address terrorism threats, and reform military establishments. In addition, PKO funds U.S. military participation in the Multilateral Force and Observers (MFO) in the Sinai. DOD sometimes uses its own funds to complement or assist PKO-funded programs. In addition, DOD provides support to the Global Peace Operations Initiative (GPOI) to train, equip, and support the deployment of foreign military troops and police for U.N. and regional peacekeeping missions. DOD, through DSCA, may also contribute defense articles and services to other PKO-funded missions such as maritime security and counterpoaching activities. PKO programs are authorized by FAA Sections 551-553 (22 U.S.C. 2348). Andean Counterdrug Initiative (ACI) . The ACI account provided assistance from FY2002 to FY2008 (although some obligations continue to flow) to Colombia, Bolivia, Brazil, Ecuador, Panama, Peru, and Venezuela to address drug trafficking and economic development issues. ACI was authorized by 22 U.S.C. 2291a-j (Chapter 8, Part I, §§481-490, FAA, as amended). International Military Education and Training (IMET). IMET provides grant financial assistance to selected foreign military and civilian personnel for training and education on U.S. military practices and standards, including democratic values. For example, IMET sends foreign personnel to the military service senior-level war colleges and the National Defense University, as well as to military service Command and Staff Colleges, where they take basic and advanced officer training. In 1990, the program was expanded (E-IMET) to provide opportunities for foreign civilian defense and related personnel to attend educational programs promoting responsible defense resource management, in addition to other purposes. The State Department controls the funds and has policy authority; DOD, through DSCA, administers this program. IMET is authorized by FAA Sections 541-543 (22 U.S.C. 2347). Foreign Military Financing (FMF) . The FMF program provides financing of the purchase of defense articles, services, and training (usually on a grant basis) through the Foreign Military Sales (FMS) system—the U.S. government's conduit for selling weapons, equipment, and associated training to friendly foreign countries—or through Direct Commercial Sales (DCS). The State Department is primarily responsible for determining which nations are to receive military assistance. DOD, through the Defense Security Cooperation Agency (DSCA), implements this program. FMF is authorized by Section 23 of the AECA (22 U.S.C. 2763). Pakistan Counterinsurgency Capability Fund (PCCF). Section 1224 (NDAA FY2010, P.L. 111-84 ), as amended, authorized the Pakistan Counterinsurgency Fund (PCF) and permitted the Secretary of Defense, with Secretary of State concurrence, to provide assistance for Pakistan's security forces to bolster their counterinsurgency efforts. Title III of the Supplemental Appropriations Act, 2009 ( P.L. 111-32 ) appropriated $400 million for PCF. After authorization expired, the Secretary of State assumed responsibility in subsequent fiscal years under the name Pakistan Counterinsurgency Capability Fund with funding from State, Foreign Operations and Related Programs appropriations. PCCF was authorized by 22 U.S.C. 2291, 22 U.S.C. 2311, 22 U.S.C. 2347, 22 U.S.C. 2348, 22 U.S.C. 2349aa, and 22 U.S.C. 2763. Global Security Contingency Fund (GSCF). GSCF is a joint DOD-DOS fund to provide assistance to enhance the capabilities of a country's military or other national security forces to conduct border and maritime security, internal defense, and counterterrorism operations, or participate in military, stability, or peace support operations. It is also authorized to support the justice sector in countries where conflict or instability challenges the capacity of civilian providers. The GSCF authority provides authority for DOD to transfer up to $200 million per fiscal year to the fund, but caps DOD contributions to each project at 80% of the cost. GSCF is authorized by Section 1207 (NDAA FY2012, P.L. 112-81 ), as amended. GSCF authority expired on September 30, 2017. Appendix B. Major DOD Security Cooperation Authorities/Programs This appendix describes DOD security cooperation programs: Afghanistan Security Forces Fund (ASFF). ASFF permits the Secretary of Defense to provide assistance to the security forces of Afghanistan, which may include provision of equipment, supplies, services, training, facility and infrastructure repair, renovation, and construction and funding. It also authorizes the Secretary of Defense to accept contributions to the ASFF from non-U.S. government sources, and to transfer ASFF funds to other accounts. ASFF is authorized by Section 1513 (FY2008 NDAA, P.L. 110-181 ), as amended. Afghanistan Infrastructure Fund (AIF). AIF allows the Secretary of Defense and Secretary of State jointly to develop and carry out infrastructure projects in Afghanistan. The authority expired on September 30, 2015, but FY2017 appropriations legislation ( P.L. 115-31 ) makes funds appropriated to the Afghanistan Security Forces Fund (ASFF) available for additional costs associated with existing projects funded under AIF. AIF was authorized by Section 1217 (FY2011 NDAA, P.L. 111-383 ). Building Capacity of Foreign Security Forces . Commonly described as DOD's "Global Train and Equip" authority, the Secretary of Defense may build the capacity of a foreign country's national military forces to enable such forces to conduct counterterrorism operations or to support or participate in military, stability, and peace support operations that benefit U.S. national security interests. The Secretary may also authorize activities to enable a foreign country's maritime or border security forces, and other national-level security forces with counterterrorism responsibilities, to conduct counterterrorism operations. DOD's global train and equip activities were originally authorized by Section 1206 (FY2006 NDAA, P.L. 109-163 ), as amended. Section 1206 was the first major DOD authority to be used expressly for the purpose of training and equipping the national military forces of foreign countries worldwide. The authority was later codified as 10 U.S.C. 2282 in the FY2015 NDAA ( P.L. 113-291 ). Activities permitted under 10 U.S.C. 2282 have been incorporated into a new, broader global train and equip authority established by Section 1241(c) of the FY2017 NDAA: 10 U.S.C. 333. Commander's Emergency Response Program (CERP). CERP authorizes U.S. military commanders in Afghanistan to carry out small-scale projects to address urgent humanitarian relief or urgent reconstruction needs within their areas of responsibility. CERP is authorized by Section 1201 (FY2012 NDAA P.L. 112-81 ), as amended. Combatant Commanders Initiative Fund (CCIF). CCIF provides discretionary funding for combatant commanders to conduct various activities, especially in response to unforeseen contingencies. A few permitted uses are related to foreign assistance. These include humanitarian and civic assistance, urgent and unanticipated humanitarian relief, and reconstruction. Permitted activities also include force training, contingencies, selected operations, command and control, joint exercises, military education and training for military and related civilian personnel of foreign countries, including transportation, translation, and administrative expenses (up to $5 million per year). Up to $10 million per year may be spent to sponsor the participation of foreign countries in joint exercises. 10 U.S.C. 166a authorizes the fund, but activities are carried out under other authorities. Cooperative Threat Reduction (CT R). The purpose of CTR is to (1) facilitate the elimination and safe and secure transport and storage of chemical, biological, or other weapons (and weapons components, related materials, and delivery vehicles), and (2) facilitate the safe and secure transport and storage of nuclear weapons, nuclear weapons-usable or high-threat radiological materials, nuclear weapons components, and delivery vehicles, as well as the elimination of nuclear weapons, components, and delivery vehicles. CTR also authorizes the Secretary to prevent the proliferation of nuclear, chemical, and biological weapons, components, and related materials, technology, and expertise, as well as of weapons of mass destruction-related materials. The FY2017 NDAA authorized $325.6 million to be available for obligation in FY2017, FY2018, and FY2019. CTR is authorized by Sections 1301-1352 (FY2015 NDAA, P.L. 113-291 ), as amended. Counterterrorism Partnerships Fund (CTPF) . CTPF provides support and assistance to foreign security forces or other groups or individuals to conduct, support, or facilitate counterterrorism and crisis response activities pursuant to Section 1534 of the FY2015 NDAA. Section 1534 of FY2015 NDAA stipulates that funds may be transferred to other accounts for use under existing DOD authority established by "any other provision of law." DOD may conduct CTPF activities only in areas of responsibility of the U.S. CENTCOM and AFRICOM, unless the Secretary of Defense determines that authority needs to be applied elsewhere to address threats to U.S. national security. Section 1510 (FY2016 NDAA, P.L. 113-235 ), as amended, authorizes the appropriation of funds for CTPF. Coalition Support Fund (CSF). CSF Authorizes the Secretary of Defense to reimburse key cooperating countries for logistical, military, and other support, including access, to or in connection with U.S. military operations in Iraq, Afghanistan, or Syria and to assist such nations with U.S.-funded equipment, supplies, and training. Aggregate amount of reimbursements may not exceed $1.1 billion between October 1, 2016, and December 31, 2017. Additional reimbursement restrictions apply to Pakistan for certain counterterrorism activities and activities along the Afghanistan-Pakistan border region. CSF is authorized by Section 1233 (FY2008 NDAA, P.L. 110-181 ), as amended. Defense Institutional Reform Initiative (DIRI). The Defense Institution Reform Initiative (DIRI) is conducted through the Office of the Secretary of Defense (OSD) Rule of Law program under 10 U.S.C. 168, military-to-military contacts authority, and 10 U.S.C. 1051, developing country participation in multilateral, bilateral, or regional events. DIRI supports foreign defense institutions and related agencies by determining institutional needs and developing projects to meet them. DIRI both scopes out projects for execution under the MODA and conducts its own military-to-military informational engagements. European Reassurance Initiative (ERI). ERI permits the Secretary of Defense to provide assistance to reassure NATO allies and improve the security and capacity of U.S. partners. ERI permits an increased U.S. military presence in Europe, additional exercises and training with allies and partners, improvements to infrastructure to enhance responsiveness, prepositioning U.S. equipment in Europe, and increasing efforts to build partner capacity for new NATO members and other partners. ERI is authorized by Section 1535 (FY2015 NDAA, P.L. 113-291 ). Iraq Train and Equip Fund (ITEF) . ITEF authorizes the Secretary of Defense to provide up to $630 million in assistance to Iraq and partner nations to defend against the Islamic State and its allies, which may include training, equipment, logistics support, supplies, services, stipends, facility and infrastructure repair, renovation, and sustainment. ITEF is authorized by Section 1236 (FY2015 NDAA, P.L. 113-291 ), as amended. Logistic Support for Allied Forces in Combined Operations: 10 U.S.C. 127d (Global Lift and Sustain) authorizes the Secretary of Defense to provide logistics, supplies, and services to allied forces participating in a combined operation with the United States, as well as to a nonmilitary logistics, security, or similar agency of an allied government if it would benefit U.S. Armed Forces. Ministry of Defense Advisors Program (MODA). The MODA program allows the Secretary of Defense to assign civilian Department of Defense employees as advisors to foreign ministries of defense or security agencies serving a similar defense function to provide advice and other training and to assist in building core institutional capacity, competencies, and capabilities. MODA is authorized by Section 1081 (FY2012 NDAA, P.L. 112-81 ), as amended. Regional Centers for Security Studies (RCSS). DOD Regional Centers for Security Studies function to provide bilateral and multilateral research, communications, and exchange of ideas involving military and civilian participants. 10 U.S.C. 184 authorizes the administration of Regional Centers. Regional Defense Combating Terrorism Fellowship Program (CTFP) . The program allows the Secretary of Defense to use funds appropriated to DOD to pay any costs associated with the education and training of foreign military officers, ministry of defense officials, or security officials at military or civilian educational institutions, regional centers, conferences, seminars, or other training programs conducted under the Regional Defense Combating Terrorism Fellowship Program. The total amount of funds spent under this authority may not exceed $35 million per fiscal year. The program is authorized by 10 U.S.C. 2249c. Southeast Asia Maritime Security Initiative (MSI) . MSI permits the Secretary of Defense to increase maritime security and maritime domain awareness of specific foreign countries along the South China Sea by providing assistance and training to national military or other security forces whose functional responsibilities include maritime security missions. Ukraine Security Assistance Initiative (USAI) . The USAI permits the Secretary of Defense to provide up to $300 million in FY2016 and $350 million in FY2017 for security assistance and intelligence support, including training, equipment, logistics support, and supplies and services to military and other security forces of Ukraine. USAI is authorized by Section 1250 (FY2016 NDAA, P.L. 114-92 ), as amended. Wales (formerly Warsaw) Initiative Fund (WIF). The WIF was formerly named the Warsaw Initiative Fund, but was renamed after the Wales NATO summit in September 2014. It supports the participation of 16 developing countries in the State Department-led Partnership for Peace Program. This fund has enabled a wide range of assistance, including equipment and training, but is currently used primarily for defense institution building, according to DSCA officials. Activities funded by WIF are conducted using the authority of three statutes (10 U.S.C. 168, 10 U.S.C. 1051, and 10 U.S.C. 2010).

Since FY2006, the United States government has provided more than $200 billion for programs providing security assistance and security cooperation to foreign countries. The Departments of State (DOS) and Defense (DOD) are the primary U.S. government agencies involved in providing security sector assistance and related support to foreign governments, militaries, and international organizations and groups. Congress has authorized security assistance programs through the Foreign Assistance Act of 1961 (FAA, P.L. 87-195) and the Arms Export Control Act of 1976 (AECA, P.L. 90-629), as amended. Assistance provisions, including those for security assistance, in the FAA and the AECA have since been codified in Title 22 of the U.S. Code, and funds for security assistance are regularly appropriated through DOS accounts. Beginning in the 1980s, Congress also provided DOD with authority to conduct security cooperation programs under Title 10 of the U.S. Code and annual National Defense Authorization Acts (NDAAs), as well as funding through defense appropriations. Cooperation between the two agencies to provide security sector assistance depends on statutory authority, applicable executive directives, and other established policy arrangements. With the 115th Congress considering legislation designed to fund and improve U.S. security assistance and security cooperation programs, this report provides funding data, top country recipients, and major funding accounts for Title 22 security assistance programs and major Title 10 and NDAA security cooperation authorities and programs. It may be updated as information and funding data are available. For further background on U.S. security assistance and cooperation policies, see CRS Report R44444, Security Assistance and Cooperation: Shared Responsibility of the Departments of State and Defense; CRS Report R44602, DOD Security Cooperation: An Overview of Authorities and Issues; CRS Report R44313, What Is "Building Partner Capacity?" Issues for Congress; and CRS In Focus IF10582, Security Cooperation Issues: FY2017 NDAA Outcomes.

Introduction On May 18, 2017, the Office of the U.S. Trade Representative (USTR) formally notified Congress of the Trump Administration's intent to renegotiate the North American Free Trade Agreement (NAFTA). As during the original NAFTA negotiations in the early 1990s among the United States, Canada, and Mexico, textile and apparel trade is once again likely to attract considerable congressional attention and debate. NAFTA, which took effect nearly a quarter-century ago, lowered or removed many barriers to goods trade within North America. Prior to NAFTA, 65% of U.S. apparel imports from Mexico entered duty-free, and the remaining 35% faced an average tariff rate of 17.9%. Mexico's average tariff on U.S. textile and apparel products was 16%, with duties as high as 20% on some products. Over the 10-year period after NAFTA entered into force, all tariffs on textile and apparel produced and traded within North America were fully eliminated, spurring more integrated textile and apparel production in the region. Many specific provisions affecting textile and apparel trade appear in NAFTA's Annex 300-B. The Trump Administration has stated that its objectives for renegotiation of NAFTA include maintaining duty-free access to the Mexican and Canadian markets for U.S. textile and apparel products and improving competitive opportunities for U.S. textiles and apparel, while taking into account U.S. import sensitivities. The Administration has also proposed changes in other areas of the agreement, such as customs enforcement and rules for determining a good's origin, which may be significant for the textile and apparel industries. U.S. textile producers and the domestic retail and apparel sectors have asked that the Trump Administration strive to "do no harm" in the renegotiation and avoid any disruption to trade and investment linkages encouraged by NAFTA. Formal talks with Canada and Mexico began in August 2017. If a new NAFTA deal is reached, it would be subject to ratification by the legislatures of all three countries. Another possibility is that President Trump may decide to withdraw from NAFTA, which the United States can do with six months' notice to the other parties. Textile Industry Inputs and Markets The textile industry is one of the oldest manufacturing industries in the United States. Since NAFTA took effect more than two decades ago, there have been substantial changes in the U.S. textile industry—perhaps most notably, it has become highly automated and capital-intensive. In addition, textile businesses have arranged their North American production around the agreement's terms. Textile Manufacturing Inputs U.S. textile manufacturers, generating $18.3 billion in value added in 2016, make yarns and fabrics from raw materials such as cotton and various man-made fibers. The United States is a significant producer of cotton, the most common natural fiber. Consumption of cotton by U.S. textile mills peaked in 1997. Since then, U.S. mill use of cotton has dropped about 70% due to the decrease in domestic textile production caused by competition from imported textile and apparel products. In 2016, Mexico was the 5 th -largest U.S. export market for U.S. raw cotton, accounting for about 9% of total U.S. cotton exports, and Canada was 35 th . Neither Canada nor Mexico is a significant producer of other natural fibers, such as jute, flax, or sisal. The United States accounted for about 4% of global production of man-made fibers in 2016. Since 2000, most of the global growth in man-made textile manufacturing has taken place in China, which by 2016 accounted for two-thirds of total worldwide production, principally polyester, which is substitutable for cotton fiber. Other important producers of man-made fibers are India, Taiwan, Indonesia, South Korea, Turkey, and Japan. End-Use Markets for U.S.-Made Textiles The U.S. textile industry is a supplier industry to three main industrial end-use sectors: apparel, home textiles and floor coverings, and technical textiles consumed in manufactured industrial production. Each faces different market conditions. Apparel Manufacturing Prior to the implementation of NAFTA, the domestic apparel industry consumed about a quarter of U.S.-manufactured fibers. By 2015, roughly 9% of U.S. manufactured fibers went to domestic apparel use. The United States' share of global apparel exports has fallen to 1.3% in 2015 from 4.4% in 2000, according to the World Trade Organization (WTO). According to the American Apparel & Footwear Association, an industry group, 98% of all apparel purchased by U.S. consumers is produced outside the United States. Mexico, the leading source of U.S. apparel imports in the late 1990s and early 2000s, slid to sixth place in 2016, behind China, Vietnam, Bangladesh, Indonesia, and India. Apparel imports from Canada comprised less than 1% of all U.S. apparel imports in 2016. Another way the apparel industry has changed since 1994 is that although many of the world's largest apparel retailing and marketing firms are headquartered in the United States, they now frequently manufacture through a combination of facilities they own and third-party arrangements in low-cost regions of the world. U.S.-headquartered apparel firms commonly contract directly with apparel sourcing companies, which in turn portion out the production work to independent manufacturers. NAFTA rules have encouraged the sourcing of apparel from Mexican plants that use U.S.-made yarn and fabric rather than from Asian plants that use little or no U.S. content. Home Textiles and Floor Coverings About 40% of domestic textile output went into home textiles, furnishings, and floor coverings (a category known as "made-up textiles") in 2015. U.S. manufacturers of these products have fared far better against import competition than apparel manufacturers. This is mainly because manufacturing of carpets, curtains, and tablecloths is highly automated and labor costs are relatively unimportant. For example, the development of larger, faster carpet-tufting machines contributed to a decline in employment at U.S. carpet and rug mills from 47,800 workers in 2006 to 31,600 in 2016. The health of the carpet and rug mill industry is tied in large part to conditions in domestic housing and commercial building construction, raw material prices, and competition from foreign producers. Canada and Mexico are the top two export markets for the United States' made-up textiles. Technical Textiles Technical textiles, which are used across various industrial sectors from agriculture, construction, and medical use to transportation, accounted for about half of U.S. textile output in 2015. Technical textiles are reportedly the fastest-growing segment of the textile industry worldwide. IBISWorld, a market research firm, estimates the U.S. domestic market for industrial textiles at $22 billion in 2017. Industry observers say the United States is a leader in the production of technical textiles chiefly because these high value-added products require advanced manufacturing processes and significant research and development, limiting import competition from low-wage countries. According to the U.S. Department of Commerce, Mexico is the largest market for U.S. technical textiles, especially for use in Mexico's large automotive sector, followed by Canada. Canada also ranks as a top market for U.S.-made industrial protective apparel, with end-user industries such as oil and gas, construction, manufacturing, and mining. Canada and Mexico are the first- and second-largest markets, respectively, for U.S. exports of medical textiles. Because the automotive industry is a large user of technical textiles, domestic producers could be affected by proposed changes to NAFTA's domestic content requirements for motor vehicle products. According to one estimate, automotive manufacturers in the United States used about 330 million square yards of fabric in 2015 for headliners, fabric seats, airbags, seat belts, door panels, engine filters, and trunk liners. One change in NAFTA proposed by the United States would require motor vehicles to have 85% North American content and 50% U.S. content to qualify for tariff-free treatment. If auto manufacturers were to import more passenger cars from outside the NAFTA region and pay the 2.5% U.S. import duty rather than complying with stricter domestic content requirements, automotive demand for U.S.-made technical textiles could be adversely affected. Domestic Textile and Apparel Production and Employment NAFTA has been criticized for causing a loss of production and employment in U.S. manufacturing. The effects of NAFTA with respect to textiles and apparel, however, are not straightforward, and the drop in domestic textile and apparel production and jobs cannot be blamed solely on the agreement. Making it difficult to isolate the impact of NAFTA are the many other factors that have contributed to the shrinking size of the domestic textile and apparel sectors over the past quarter-century, among them automation, industry consolidation, currency fluctuations, and economic growth. Textile Production and Employment The textile industry has been less prone to relocation to lower-wage countries than apparel manufacturing because yarn and fabric production is capital- and scale-intensive, demanding higher worker skills than apparel production; as discussed below, apparel production tends to be low-tech and labor-intensive. Nonetheless, since 1994, textile manufacturers have shed about 500,000 jobs, with direct employment dropping to around 230,000 in 2016 (as shown in Figure 2 ). The Bureau of Labor Statistics predicts the overall employee count in textile manufacturing will shrink to about 185,000 by 2026. Output by U.S. textile mills, which transform fibers such as cotton, wool, and polyesters into products such as yarn, fabric, and thread, reached an all-time peak in December 1997, nearly four years after NAFTA took effect. It began to trend down in 2000: by the end of 2007, production was 39% lower than at its peak a decade earlier. At the end of 2016, the output of U.S. textile mills was 29% less than in 2007 and about 60% less than in 1997. The number of textile mills has fallen by half since 1997. The number of employees has declined by three-quarters over the same period as the surviving mills have invested heavily in technology to reduce operating costs. However, significant textile production remains in the United States. Textile production requires sizable capital investment; weaving mills can cost an estimated $12 million to $25 million and spinning mills $50 million to $70 million. Among all U.S. manufacturing industries, textiles rank near the top in productivity increases, which can be attributed both to automation and to the closure of less efficient mills. Similar trends are seen in the textile product mills segment of the industry. These firms manufacture home textiles and floor coverings, as well as other textiles, for industrial uses from purchased yarn, fabric, and thread. Output at textile product mills began to sink in 2001; by 2016, production was 34% less than a decade earlier. According to the U.S. Census Bureau, the number of textile product mills operating in the United States fell 10% over the decade 2005 to 2015. The number of jobs in the textile product mill segment dropped from a high of 242,900 in 1994 to about 115,000 in 2016. Only 4% of U.S. textile product mills employ 100 or more workers. The U.S. International Trade Commission (USITC) concluded that imports of textiles had a tiny effect on U.S. textile industry employment (a 0.4% decline) from 1998 to 2014, which covers most of the period since NAFTA's enactment. However, the collapse of the domestic apparel industry and changing clothing tastes may have had a more significant impact on domestic textile production. Domestic production of textiles and textile products is primarily located in the southeastern states and in California, although every state has some textile manufacturing. In 2016, more than one-third of all textile jobs were located in Georgia and North Carolina. Appendix B compares textile employment in the top 10 states, which accounted for more than two-thirds of all textile jobs, in 1994 and 2016. Apparel Production and Employment Apparel production and the number of companies in the sector have fallen off in recent decades. In 2016, apparel manufacturers directly employed about 128,800 workers—roughly 830,000 fewer than in 1990 (see Figure 2 ). In 2015, there were around 7,000 domestic apparel manufacturers, compared to more than 11,100 in 2005. Industry output declined by about 85% between 1997 and 2016. In September 2017, the sector's output reached an all-time low, with apparel production down 11% since the start of 2017. Apparel brands, retailers, importers, and wholesalers based in the United States are highly dependent on global supply chains, with suppliers making sourcing choices based on factors such as price, speed, and flexibility. In the United States, apparel production has dwindled because many manufacturers no longer physically sew U.S.-produced apparel and other fashion products that directly compete with low-value imports, especially low-cost "fast-fashion" garments. Apparel production in the United States is largely focused on high-quality niche products and the military market, which is statutorily required to purchase U.S.-produced garments and textiles. As a result of more and more apparel production moving to lower-wage countries, including Mexico, apparel manufacturing employment in the United States has shrunk every year since 1990. NAFTA likely accounts for the loss of some of these jobs, but there is little evidence that NAFTA was the decisive factor, given that the major growth in apparel manufacturing for the U.S. market has occurred in Asian countries that receive no preferences under NAFTA. According to a study by researchers at Duke University, the U.S. apparel industry has retained the more skilled, higher-paying jobs such as those involving the design, branding, and marketing of products, with lower-skilled apparel production having moved offshore. Because of the difficulty in automating most sewing functions, assembly of garments remains largely labor intensive, but that could change if robotic sewing machines eventually automate some apparel assembly. U.S. Textile and Apparel Trade U.S. Trade in Textile Products Overall, the United States has a strong export position in yarns and fabrics, with global export shipments of $12.9 billion in 2016 (see Table 1 ). For two decades, the United States has posted a modest trade surplus in these products. The U.S. trade surplus in textiles in 2016 came to $1.6 billion. When made-up textile articles are included, the United States ran a textile trade deficit of $18.8 billion in 2016. Import penetration—the share of U.S. demand met by textile imports—reached roughly 40% in 2016, up from 35.5% in 2010 (see Appendix A ). Table 2 shows that the United States exported nearly $6 billion in yarns and fabrics to its NAFTA partners in 2016, with U.S. export shipments of $4.3 billion to Canada and $1.6 billion to Mexico. NAFTA partners account for nearly half (46%) of U.S. yarn and fabric exports. Last year, the United States registered a bilateral trade surplus in yarns and fabrics with both NAFTA partners of $4.1 billion and a surplus of more than $720 million in made-up textile products. Although U.S. textile products can be more expensive than those from other countries, apparel producers in Canada and Mexico use U.S.-made textiles in products that are exported to the United States because the goods may enter the United States free of tariffs. In addition, in 2016 about $2.4 billion of U.S.-made yarns and fabrics was exported to the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) region and $46 million was imported from the region, resulting in a $2.3 billion trade surplus. A tiny amount of U.S. yarns and fabrics ($52 million in 2016) was exported from the United States to the Caribbean Basin Initiative (CBI) countries, representing less than 1% of total U.S. yarn and fabric exports last year. By comparison, the United States exported almost a fifth of its textiles outside the Western Hemisphere last year, to the 28-member European Union and China. U.S. Trade in Apparel Products In the apparel sector, import penetration reached more than 90% of U.S. demand in 2016 (see Appendix A ), when the U.S. trade deficit in apparel products was $77.5 billion. Whereas Mexico accounted for about 4% of imported apparel for the U.S. market in 2016, about 35% of imported apparel came from China. Vietnam, a fast-growing source of apparel for the U.S. market, furnished 13% of imports. The United States had a trade surplus in apparel products with Canada of $1.4 billion and a trade deficit with Mexico of $2.7 billion last year. Mexico's apparel exports to the United States grew rapidly following the signing of NAFTA in 1994 and extended through 2000. By then, Mexico was the largest source of apparel imports into the U.S. market, reaching a market share of 14.4%. Mexico benefited from quota-free access to the U.S. market, which gave its apparel an advantage over other products from other countries, which were subject to U.S. quotas on many textile and apparel imports through 2004. The quota system made it necessary for buyers of textile and apparel products to source from countries for which quotas for particular products were available. Once other countries were no longer constrained by textile and apparel quotas, however, Mexican apparel exports to the United States began to shrink. The elimination of almost all textile and apparel quotas did not eliminate import tariffs. Tariffs on textile and apparel imports vary considerably, but major textile- and apparel-producing countries face average U.S. tariff rates of 7.9% for textiles and 11.6% for clothing. Rates on particular products may be as high as 32% (see Appendix C ). However, its exemption from these tariffs under NAFTA has not been sufficient to maintain the level of Mexican apparel exports to the United States, as Mexico's apparel industry has an unfavorable cost structure compared to the leading Asian apparel-exporting countries. Textile and Apparel Trade in the Western Hemisphere Since NAFTA was implemented, producers in North America, particularly Mexico, have had to adjust to intensifying global competition. Some of this competition comes from other textile and apparel producers in the Western Hemisphere, an influence largely bolstered by the CAFTA-DR yarn-forward rule of origin. Still, the most significant competitive challenge for textile and apparel production in North America has come from outside the region, specifically China and Vietnam. Although neither country has a preferential trading relationship with the United States, they have become the leading sources of lower-cost apparel for U.S. importers and retailers. Canada and Mexico Within the NAFTA supply chain, the United States typically exports textiles to Mexico or Canada, which turn U.S.-made yarns and fabrics into apparel, home furnishings, or other industrial textiles for sale in the U.S. market. Canada and Mexico have more limited textile and apparel trade with one another, although some Canadian apparel producers have turned to Mexico for lower-wage assembly operations. Canadian producers of textiles tend to focus on higher-value-added products, often technical textiles for the aerospace, construction, medical, agricultural, and defense industries. Canadian clothing companies compete directly with U.S.-owned apparel brands in designing and producing high-end attire and specialty garments. Canada ships about 90% of its garments to the United States. Similar to Canada, Mexico's apparel industry relies almost entirely on the U.S. market for exports. Its cut and assembly operations often use U.S.-made fabrics to produce basic items such as denim jeans and T-shirts, which are then exported to the United States. For example, manufacturers of cotton T-shirts or cotton twill trousers in Mexico can avoid a 16.5% import duty if U.S. inputs are used. Geographic proximity to the United States gives Mexican apparel producers an advantage over Asian producers, allowing quick replenishment of items for which time is a critical factor. Mexico's focus on basic apparel items suggests that U.S. importers could quickly source from elsewhere if duty savings under NAFTA are eliminated. But even now, some U.S. fashion companies say the duty savings are not worth the time and resources required to comply with the NAFTA rules of origin and documentation requirements. In 2016, roughly 16% of qualifying textile and apparel imports from NAFTA failed to take advantage of the duty-free benefits and instead paid applicable tariffs. Central America and the Caribbean Central America and the Caribbean is another source of regional competition for NAFTA-based textile and apparel producers. The CAFTA-DR region and the Caribbean have limited textile production—virtually all fibers are imported, yielding export opportunities for U.S. yarn and fabric producers—but ample capacity to cut fabric and make apparel. CAFTA-DR includes provisions structured much like NAFTA's, with a few important differences. CAFTA-DR and the Caribbean Basin Initiative allow regional apparel products to enter the United States duty-free as long as the yarn and fabrics used for these manufactures originate in the region. A special U.S. preference program encourages apparel imports from Haiti, and the United States also has free-trade agreements with Colombia, Peru, and Chile, with each adhering to a yarn-forward rule of origin, with some exceptions. Competition from China and Vietnam Notwithstanding rising labor and production costs, no other country, including U.S. NAFTA partners, comes close to competing with China's enormous capacity to make complex textiles and apparel. China, which provided more than a third of total U.S. garment imports, was the top supplier of apparel to the United States, with U.S. imports registering at $29 billion in 2016, and it led in U.S. imports in the yarn, fabric, and made-up textile categories. It is also the world's largest manufacturer of man-made fibers, a large producer of cotton, and a major supplier of yarns, fabrics, and trims. Vietnam, which had a small garment manufacturing sector a decade ago, is the second-largest exporter of apparel to the United States (see Figure 3 ). In 2016, Vietnam's apparel shipments to the United States totaled $10.9 billion, accounting for 13% of all U.S. apparel imports. Vietnam tends to sell fewer basic apparel products (e.g., T-shirts and trousers) and more shirts, suits, and overcoats in the United States than do Mexico and other trading partners in the Western Hemisphere. On the textile side, Vietnam's apparel sector buys the majority of its yarns and fabrics regionally, from China and other suppliers such as South Korea and Taiwan. It purchases a limited amount from the United States. The Vietnamese government has announced plans to substantially increase its yarn and fabric capacity in the coming years. The highly competitive textile and apparel sectors in China and Vietnam are a consideration in the current NAFTA renegotiations. For example, U.S. textile manufacturers are concerned about existing NAFTA exceptions, such as tariff preference level (TPL) rules, which allow Mexico and Canada to bring in a limited amount of yarn and fabric each year from China and Vietnam duty free and use those imports in products for the U.S. market. Because of this, the U.S. textile industry has urged that yarns and fabrics from China and Vietnam be excluded from all NAFTA benefits. A separate issue, but one that could in the long term affect the NAFTA textile and apparel supply chain, is whether the United States will decide to enter into a free-trade agreement with Vietnam in coming years. Textiles and apparel from Vietnam would have had free access to the U.S. market under the recently negotiated Trans-Pacific Partnership trade agreement, but the United States did not ratify the agreement and withdrew from the Partnership in January 2017. Possible Effects of Potential Trade Agreement Modifications If NAFTA were changed or terminated such that Mexican producers lose duty-free access to the U.S. market, it is possible that CAFTA's textile and apparel industry, as well as manufacturers in the Caribbean or free-trade agreement partners in South America, could benefit if increased foreign investment and trade follow. For these countries, as is the case for NAFTA partners, tariff preferences appear to be important in keeping apparel producers in the Western Hemisphere competitive in the U.S. market, and thereby helping to preserve export markets for U.S.-made textiles. Beyond apparel, if NAFTA were terminated, U.S.-made technical and industrial fabrics would lose their protected access to Canada and Mexico. NAFTA Provisions Affecting Textiles and Apparel Rules of Origin Rules of origin are an important aspect of trade agreements affecting the textile and apparel industries. They generally stipulate how much processing must occur within the region for a product to obtain duty-free trade benefits. The U.S. textile industry generally wants to ensure that textiles and apparel are chiefly manufactured within the NAFTA region. Apparel brands and retailers say this requirement reduces their sourcing and manufacturing flexibility. As such, the apparel industry generally opposes the yarn-forward standard, supporting instead simplified and more flexible rules of origin in new or renegotiated U.S. trade agreements. One possible outcome in the NAFTA renegotiation might be a modification of these rules. For textile and apparel products, rules of origin are usually based on the production process, which is shown in Figure 4 . The major distinctions for textiles and apparel are the following: Fiber Forward . Fiber must be formed in the free-trade agreement (FTA) member territory. Natural fibers such as wool or cotton must be grown in the territory. Man-made fibers must be extruded in the trading area. Yarn Forward . Fibers may be produced in any country, but each component starting with the yarn used to make the textiles or apparel must be formed within the FTA. This rule is sometimes called "triple transformation," as it requires that spinning of the yarn or thread, weaving or knitting of the fabric, and assembly of the final product all occur within the region. Fabric Forward . Producers may use fibers and yarns from any country, but fabric must be knitted or woven in FTA member countries. Cut and S ew . Only the cutting and sewing of the finished article must occur in FTA member countries, providing maximum flexibility for sourcing. NAFTA was the first FTA to include the yarn-forward rule of origin. Since then, the rule has become standard in nearly every FTA negotiated by the United States. As described earlier in this report, NAFTA's rule of origin ensures a large market for U.S. yarns and fabrics because they are produced only in limited quantities in Canada and Mexico. In the original NAFTA agreement, there was a textile and apparel safeguard. It allowed the United States or any other NAFTA member to reimpose tariffs if import surges caused or threatened to cause serious damage to domestic industry. The safeguard option expired on January 1, 2004, a decade after NAFTA's entry into force. NAFTA also established a Committee on Textile Trade and Apparel Matters, which may be convened at the request of any NAFTA member, to raise concerns under the FTA regarding mutual trade in these products. Exceptions to Rules-of-Origin Requirements When certain inputs are not available in the partner countries, NAFTA allows for several exceptions to its detailed rules-of-origin requirements. This gives producers flexibility to use materials not widely produced in North America. Tariff Preference Levels Under NAFTA, TPLs are an exception to the textile rules of origin. This concession to the apparel industry allows duty-free access for limited quantities of wool, cotton, and man-made fiber apparel made with yarn or fabric produced or obtained from outside the NAFTA region, thereby permitting the use of some yarns and fabrics from China and other Asian suppliers. In nearly every year since 2010, Mexico has come close to exporting the maximum allowable amount of cotton and man-made fiber apparel with duty-free foreign content. Canada's TPL fill rates are typically highest for cotton and man-made fiber fabric and made-up products, but are not usually fully filled. NAFTA's TPL program requires special paperwork to be filed with U.S. Customs and Border Protection to make a TPL claim. The issue of NAFTA TPLs divides textile manufacturers and the apparel sector. In the NAFTA renegotiation, the United States has reportedly proposed an end to the NAFTA TPL regime, as urged by textile manufacturers. Apparel and retail groups, on the other hand, claim that abandoning the TPL regime could disrupt the regional supply chains that have developed over more than two decades. It is not clear that eliminating the TPL program would result in a substantial return of textile production or jobs to the United States; if it were to raise the cost of Mexican apparel production, it could instead result in imports from other countries displacing imports from Mexico. Mexico and Canada reportedly oppose the elimination of the NAFTA TPL program. Other NAFTA Exemptions Apparel produced in the NAFTA region benefits from duty-free access to the United States even if certain inputs, such as sewing threads, pocketing, and narrow elastics, are not made in the NAFTA countries. NAFTA also has a de minimis threshold that permits up to 7% of a garment's content, by weight, to come from outside the NAFTA region. Textile manufacturers generally want these exemptions eliminated in a revised NAFTA agreement, while apparel companies and retailers contend that the exemptions are critical for Mexican apparel plants to be able to adapt quickly to shifting consumer demand. Short Supply Process NAFTA has a short supply process, whereby its rules of origin may be amended through consultation among the NAFTA partners if yarns and fabrics are not available in commercial quantities for specific products. Under Annex 401 of NAFTA, apparel inputs in short supply include fine-count cotton knit fabrics for nightwear; linen; silk; cotton velveteen and fine-wale corduroy fabrics; and certain hand-woven Harris Tweed wool fabrics. Apparel and retail groups contend that the procedure for determining that a product is in short supply is burdensome, and they want a renegotiated NAFTA agreement to include "defined timetables and clearer requirements to achieve speedier outcomes" for materials that could come from outside the FTA region. According to press reports, U.S. negotiators have proposed that the short-supply list be incorporated in the NAFTA agreement itself, as is the case with the CAFTA-DR agreement, which lists more than 150 fibers, yarns, and fabrics that are considered to be in short supply. Other Provisions The U.S. textile industry wants the NAFTA renegotiation to address certain exemptions granted to Canada and Mexico under the Kissell Amendment (6 U.S.C. §453b), a Buy American-type law that requires 100% U.S. content for textile and apparel purchases by the Department of Homeland Security, with limited exceptions. The Kissell Amendment treats manufacturers in Mexico, Canada, and Chile as "American" sources, thus opening U.S. government procurement to imported goods from these countries. Another priority for the textile industry in the NAFTA renegotiation is to avoid any future change to government procurement rules that could undermine the Berry Amendment (10 U.S.C. §2533a), a 100% domestic-in-origin requirement for textile and apparel items purchased by U.S. national security agencies. Customs Enforcement and Trade Facilitation Customs enforcement is particularly important to the industry, as textile and apparel trade accounts for approximately 40% of all U.S. duty revenue and involves 20% of all U.S. importers. According to U.S. Customs and Border Protection, more than $21.1 billion of entered textiles and wearing apparel claim preferential tariff treatment, placing textiles and apparel at a high risk for noncompliance. This makes the issue of transshipment of special relevance to the U.S. textile and apparel industry because of concerns that major textile- and apparel-producing countries such as China are shipping products through countries that have free-trade agreements with the United States, including the NAFTA countries. Conclusion As the NAFTA renegotiations progress, there are at least three possible outcomes: (1) no change to the textile and apparel provisions in NAFTA; (2) adjustments to NAFTA, such as changes to rules of origin; or (3) full U.S. withdrawal from NAFTA. Over the long run, global textile and apparel supply chains would adjust to a modified NAFTA or to its elimination, but it is unclear how long that may take. Under a withdrawal scenario, some analysts believe U.S. textile manufacturers could see a reduction in net income by as much as 1 percentage point if the result is less demand for U.S.-made yarns and fabrics within the NAFTA region. According to one textile and apparel industry expert, ending NAFTA would likely result in U.S. apparel brands and retailers importing more garments from other suppliers, such as China and Vietnam. Moreover, U.S. textile manufacturers could lose export sales to Mexico, the United States' single largest export market. It is possible that Asian textile and apparel suppliers would benefit the most from NAFTA's dismantlement by taking market share from Mexico. Whatever the outcome of the NAFTA renegotiation, in the medium and long run, the profitability of the North American textile and apparel industry will likely depend less on NAFTA preferences such as yarn forward and more on the capacity of producers in the region to innovate to remain globally competitive. Another matter worth considering is that although the United States withdrew from the proposed TPP in January 2017, the 11 remaining TPP countries are continuing to pursue a TPP-type trade deal. If negotiations among the TPP-11 move forward, this could affect the supply chains established under NAFTA, although the implications are unknown because no specific proposals for a possible TPP-11 agreement have been tabled to date. If the TPP-11 countries strike a trade deal, one possible effect is that the amount of textiles and apparel sourced from the newly established TPP region would increase. Canada and Mexico are both parties to the TPP talks, and a TPP-11 agreement could result in them importing more textile and apparel products from other TPP countries, including Vietnam. This could ultimately be a disadvantage for U.S.-based producers. How the inclusion of Canada and Mexico in a fresh TPP arrangement would affect their participation in NAFTA is unknown. It may take a couple of years to know exactly what changes the NAFTA renegotiation will bring, and how they will affect the existing textile and apparel regional supply chain. President Trump currently has Trade Promotion Authority until July 1, 2018, allowing him to negotiate trade agreements that Congress must approve or reject without amendment. This authority expires on July 1, 2018, but current law allows it to be extended through July 1, 2021. Appendix A. Textile Industry Overview Appendix B. Top 10 States in Textile Employment Appendix C. Selected Apparel and Textile Duties Appendix D. Selected Textile and Apparel Industry Comments on NAFTA Negotiating Objectives Links to several statements by industry representatives for U.S. fiber and textile manufacturers, U.S. fashion brands, and U.S. apparel retailers are listed here. These statements reflect a consensus from all stages of the textile and apparel supply chain that NAFTA should continue because it helps maintain both sectors' overall competitiveness. Without NAFTA, according to these statements, current textile and apparel production and jobs could be shifted to other regions of the world, especially low-cost markets in Asia. The comments also suggest a few general recommendations for other policy issues of interest, including matters related to improving intellectual property rights to combat counterfeit goods, preventing restrictions on e-commerce and digital trade, improving regulatory cooperation, and updating NAFTA's labor provisions.

When the North American Free Trade Agreement (NAFTA) was negotiated more than two decades ago, textiles and apparel were among the industrial sectors most sensitive to the agreement's terms. NAFTA, which was implemented on January 1, 1994, has encouraged the integration of textile and apparel production in the United States, Canada, and Mexico. For example, under NAFTA's "yarn-forward" rule of origin, textiles and apparel benefit from tariff-free treatment in all three countries if the production of yarn, fabric, and apparel, with some exceptions, is done within North America. The United States maintains a bilateral trade surplus in yarns and fabrics with its NAFTA partners. In 2016, the United States had a $4.1 billion surplus in yarns and fabrics and a positive balance of around $720 million in made-up textile products (such as home textiles and furnishings) with Canada and Mexico. U.S. exports of yarns and fabrics shipped to Mexico and Canada were valued at close to $6 billion last year. In apparel, the United States had a trade surplus with Canada of $1.4 billion and a trade deficit with Mexico of $2.7 billion in 2016. On May 18, 2017, the Trump Administration notified Congress of its intent to renegotiate the agreement. In July 2017, the Administration announced specific goals for textiles and apparel among its renegotiating objectives, which include improving competitive opportunities for U.S. textile and apparel products, but also taking into account U.S. import sensitivities. Also germane to textiles and apparel are several other renegotiating objectives, such as enhancing customs enforcement to prevent unlawful transshipment of these goods from outside the region and ensuring that requirements for use of domestic textiles and apparel in U.S. government purchases primarily benefit producers located in the United States. NAFTA renegotiation started in August 2017. There is widespread support for continuation of the agreement among U.S. textile and apparel producers, although there are significant differences of opinion with respect to certain provisions. In particular, U.S. textile manufacturers generally favor eliminating all exceptions to NAFTA's yarn-forward rule, whereas U.S. retailers and apparel groups oppose tightening the rule. If the United States were to exit NAFTA, imports of textiles from Mexico and Canada would face U.S. tariffs as high as 20%, and imports of apparel would have tariff rates of up to 32%. U.S. exports of textiles and apparel could face higher tariff rates entering Canada and Mexico. One possibility is that U.S. withdrawal from NAFTA could lead U.S. retailers and apparel brands to source more of their goods from Asia, which could reduce demand for U.S.-made yarns and fabrics within the NAFTA region.

Background Following the 2000 census, Texas was apportioned two additional congressional seats. Subsequently, the state legislature was unable to enact a redistricting map, resulting in litigation and, ultimately, imposition of a court-ordered congressional redistricting plan. The 2002 election was held under the court-ordered plan, resulting in a Democratic majority in the Texas congressional delegation. In October 2003, after the Republican party gained control of the Texas State House of Representatives, and thus, both houses of the legislature, it enacted a new congressional redistricting map with the goal "to increase [Republican] representation in the congressional delegation." The League of United Latin American Citizens (LULAC) and others challenged the new plan in court, alleging various statutory and constitutional violations. The district court entered judgment against LULAC on all claims, and they appealed to the U.S. Supreme Court. As the Court had just issued its decision in Vieth v. Jubelirer , it vacated the district court decision and remanded in light of its holding in Vieth. On remand, the district court again ruled against LULAC, finding that the scope of its consideration was limited to questions of political gerrymandering. In their appeal to the Supreme Court, appellants argued that the new redistricting plan should be invalidated as an unconstitutional partisan gerrymander. Analysis of Supreme Court Ruling League of United Latin American Citizens (LULAC) v. Perry was a consolidation of four appeals before the U.S. Supreme Court. In this ruling, the Supreme Court's nine Justices filed six different opinions, each with subparts. Many issues were raised by the appellants in this case, but the decision primarily addressed two topics: (1) the constitutionality of partisan gerrymandering and (2) whether the Texas redistricting plan violated Section 2 of the Voting Rights Act. Constitutionality of Partisan Gerrymandering While not ruling out the possibility of a claim of unconstitutional partisan gerrymandering being within the scope of judicial review, the Court in LULAC v. Perry was unable to find a sufficient standard for making such a determination. Appellants in LULAC challenged the 2003 mid-decennial Texas redistricting plan on the grounds that it was an unconstitutional political gerrymander motivated by partisan objectives, in violation of equal protection and First Amendment guarantees under the Constitution. They maintained that the plan served no legitimate public purpose and burdened one group because of its political opinions and affiliation. Appellants urged the Court to adopt a rule or presumption of invalidity when a mid-decade redistricting plan is enacted solely for partisan purposes, thereby alleviating the need for courts to inquire about (or for parties to prove) the discriminatory effects of partisan gerrymandering. In evaluating appellants' arguments, the Court first noted that there were indications that "partisan motives did not dictate the plan in its entirety." The Court further determined that ascertaining the legality of an act arising from "mixed motives" can be complicated, and indeed, "hazardous," particularly when the actor is a legislature and the act is a series of choices. Hence, the Court expressed skepticism of a claim seeking to invalidate a statute based on a legislature's unlawful motive without reference to its content. Notwithstanding its skepticism, the Court also found that in order for a claim of unconstitutional partisan gerrymandering to prevail, it must show a burden on complainants' representational rights, "as measured by a reliable standard." Indeed, the Court noted, for this exact reason, a majority of the Vieth Court had rejected a test "markedly similar" to the one proposed by the appellants. In regard to appellants' reliance on the fact that the redistricting plan was enacted mid-decade, the Court announced that the Constitution and the Court's case law "indicate that there is nothing inherently suspect about a legislature's decision to replace, mid-decade, a court-ordered plan with one of its own." Even if there were, the Court commented, "the fact of mid-decade redistricting alone is no sure indication of unlawful political gerrymanders." The Court also observed that the "sole-intent standard" is no more compelling when bolstered by the fact that the redistricting was enacted mid-decade. Appellants proffered a second political gerrymandering theory: that mid-decade redistricting for exclusively partisan purposes violates the Constitution's one-person, one-vote requirement. Citing landmark Supreme Court holdings in Karcher v. Daggett and Kirkpatrick v. Preisler , they observed that population variances among congressional districts are acceptable only if they are "unavoidable," despite good faith efforts to attain complete equality "or for which justification is shown." From that premise, appellants maintained that due to population shifts in Texas since the 2000 census, the 2003 redistricting, which still relied on the 2000 census numbers, created unlawful population variances among the districts. To distinguish the Texas 2003 redistricting plan's reliance on three-year-old census numbers from other, more typical redistricting plans' reliance on three-year-old (or older) census numbers, appellants again highlighted the "voluntary, mid-decade" nature of the redistricting and its "partisan motivation." The Court found that the appellants' theory merely restated their primary argument that it was impermissible for the Texas legislature to redraw the districting map, mid-decade, for solely partisan purposes. Hence, for the same reasons it had originally rejected this argument, the Court once again found it unpersuasive. In its concluding statement, the Court announced: In sum, we disagree with appellants' view that a legislature's decision to override a valid, court-drawn plan mid-decade is sufficiently suspect to give shape to a reliable standard for identifying unconstitutional political gerrymanders. We conclude that appellants have established no legally impermissible use of political classifications. For this reason, they state no claim on which relief may be granted for their statewide challenge. Writing for the Court, Justice Kennedy announced that a majority of the Justices were unable to find a "reliable measure" of what constitutes unconstitutional partisan gerrymandering and therefore determined that the claims presented were not justiciable. Notably, however, a majority of the Court stopped short of concluding that standards a court could use to evaluate such claims do not exist, which left existing Court precedent basically unchanged. In the 2004 Supreme Court case of V ieth v. Jubelirer, a plurality of four justices argued that claims of unconstitutional partisan gerrymandering are not justiciable while another plurality of four justices maintained that such claims are justiciable, but were unable to agree upon a standard that courts could use in order to make such determinations. The deciding vote in Vieth , Justice Kennedy, determined that the claims presented were not justiciable, but left open the possibility that such standards might exist. Similar to its decision in Vieth , the Court in LULAC was also divided into three camps on the issue of whether partisan gerrymandering claims are beyond the scope of judicial review. In LULAC , the same four justices from Vieth argued that claims of unconstitutional partisan gerrymandering are justiciable, while not agreeing upon a standard for adjudicating such claims. Of the four justices in Vieth who believed that such claims are not justiciable, the two who remain on the Court maintained that same position in LULAC . Two justices who joined the Court since its ruling in Vieth , Chief Justice Roberts and Justice Alito, generally agreed with Justice Kennedy's position, leaving open the possibility that the Court might discern a standard for adjudicating unconstitutional partisan gerrymandering claims in a future case. As a result, a majority of the Court in LULAC was unable to find a "reliable measure" of what constitutes an unconstitutional partisan gerrymandering. Therefore, the Court determined that the claims presented in this case were not justiciable, but declined to conclude that standards a court could use to evaluate such claims do not exist. In the aftermath of LULAC , it appears theoretically possible for a claim of unconstitutional partisan gerrymandering to prevail. However, the critical standard that a court could use to ascertain such a determination and grant relief remains unresolved. Compliance with the Voting Rights Act Appellants in LULAC argued that changes to Texas's congressional District 23 diluted the voting rights of Latinos who remained in the district after the 2003 redistricting, causing the Latino share of the citizen voting-age population to drop from 57.5% to 46%, in violation of Section 2 of the Voting Rights Act. Although the Supreme Court acknowledged the district court's finding that Latino voting strength was unquestionably weakened, the question for the Court was whether it constituted vote dilution. Engaging in a threshold analysis for establishing a Section 2 violation in accordance with its landmark decision, Thornburg v. Gingle s, the Court determined that appellants satisfied all three Gingles requirements; that is, District 23 possessed the requisite cohesion among the Latino minority group, bloc voting among the majority population, and a Latino citizenry that was "sufficiently large and geographically compact to constitute a majority in a single-member district." Nevertheless, the appellee argued that it met its Section 2 obligations by creating a new District 25 as an "offsetting opportunity" district. Noting that it has rejected the premise that a state can compensate for the "less-than-equal" opportunity of some individuals by providing greater opportunity to others, the Court rejected the appellee's argument. Next, as directed by the text of Section 2 of the Voting Rights Act, the Court turned to consider the "totality of the circumstances" to determine whether members of the Latino population have less opportunity than other members of the electorate to participate in the political process and to elect candidates of their choice. The Court determined that changes to District 23 stymied the progress of a racial group that had historically been subject to substantial voting-related discrimination and was increasingly politically active and cohesive. In effect, the Court noted, "the State took away the Latinos' opportunity because Latinos were about to exercise it." The Court further announced that the state "chose to break apart a Latino opportunity district to protect the incumbent congressman from the growing dissatisfaction of the cohesive and politically active Latino community in the district." Then, purporting to compensate for the injury, the state created an entirely new district, combining two groups of Latinos, geographically far apart and representing differing communities of interest. Even assuming that the redrawing of District 23 was close to proportional representation, the Court held that "its troubling blend of politics and race—and the resulting vote dilution of a group that was beginning to achieve §2's goal of overcoming prior electoral discrimination—cannot be sustained." Accordingly, the Supreme Court ruled that District 23 violated Section 2 of the Voting Rights Act because it diluted the voting power of Latinos. This portion of the opinion was written by Justice Kennedy and joined by Justices Souter, Ginsburg, Stevens, and Breyer. Consequences After rejecting the statewide challenge to Texas's redistricting as an unconstitutional partisan gerrymander, and holding that congressional District 23 violates Section 2 of the Voting Rights Act, the Supreme Court in LULAC remanded the case for further proceedings. In accordance with the Supreme Court's ruling, on June 29, 2006, a federal district court in Texas ordered parties in the case to submit remedial proposals, including supporting maps and briefs. The court heard oral argument on August 3 and adopted a new plan on August 4 redrawing Texas congressional districts 15, 21, 23, 25, and 28. The court ordered that special elections in the redrawn districts for the 110 th Congress be held in conjunction with the November 7, 2006, general election. As a result of the Court's ruling, commentators have observed other states may dispense with the tradition of redrawing congressional districts only once per decade following the decennial census, and instead, redistrict following a change in political control of the state government. It has also been noted, however, that there does not appear to be any urgency on the part of state legislatures to do so. Selected Legislation in the 111th Congress In the 111 th Congress, H.R. 3025 , the "Fairness and Independence in Redistricting Act of 2009," (Representative Tanner) and S. 1332 , the "Fairness and Independence in Redistricting Act of 2009," (Senator Johnson) are pending. These bills would, among other things, prohibit states from carrying out more than one congressional redistricting after a decennial census and apportionment, unless a court required the state to conduct subsequent redistricting to comply with the Constitution or to enforce the Voting Rights Act; require states to conduct redistricting through the use of independent commissions; and impose standards of compactness, contiguity, and geographical continuity.

In a splintered, complex decision, the U.S. Supreme Court in League of United Latin American Citizens (LULAC) v. Perry largely upheld a Texas congressional redistricting plan that was drawn mid-decade against claims of unconstitutional partisan gerrymandering. The Court invalidated one Texas congressional district, District 23, finding that it diluted the voting power of Latinos in violation of Section 2 of the Voting Rights Act. While not ruling out the possibility of a claim of partisan gerrymandering being within the scope of judicial review, a majority of the Court in this case was unable to find a "reliable" standard for making such a determination. In the 111 th Congress, H.R. 3025 , the "Fairness and Independence in Redistricting Act of 2009," (Representative Tanner) and S. 1332 , the "Fairness and Independence in Redistricting Act of 2009," (Senator Johnson) are pending. These bills would, among other things, prohibit states from carrying out more than one congressional redistricting after a decennial census and apportionment, unless a court required the state to conduct subsequent redistricting to comply with the Constitution or to enforce the Voting Rights Act; require states to conduct redistricting through the use of independent commissions; and impose standards of compactness, contiguity, and geographical continuity.

Management and Ownership of Partnership Parks The partnership parks vary in their physical characteristics and legislative histories, but in each, NPS collaborates with outside entities to manage the land, significant portions of which may be owned by the partnering entity. Congress typically establishes the broad terms of partnerships in the enabling legislation for the unit. Details of the partnership arrangement may be worked out in cooperative agreements, memoranda of understanding, the park's general management plan, or combinations of these and other tools. Partnership arrangements are specific to each unit and vary widely; there is no overall model that partnership parks must follow. For example, NPS may be the sole or primary manager of land that is owned by another party, such as a conservancy or land trust (as in Tallgrass Prairie National Preserve in Kansas). NPS and a state or local government partner may manage side by side, with each unit of government administering land it owns within the park (as in Redwood National Park in California). In a park unit spread out over an urban or suburban area, NPS may manage visitor centers and provide overall supervision, while a variety of partners own and manage specific sites in the park (as in New Bedford Whaling National Park in Massachusetts). At other units, NPS may serve in a supervisory role only, with partners providing all of the day-to-day management, even on federally owned land (as in First Ladies National Historic Site in Ohio). Types of Management Partners Partnership parks may be loosely grouped by the type of management partner, whether federal, tribal, state or local, private, or a mix of several types. Table 1 gives examples of partnership parks of each type across the National Park System. Parks with Federal Partners. Federal park partnerships occur when a park unit contains resources managed by a federal agency other than NPS. For example, NPS co-manages some national recreation areas built around reservoirs with the Bureau of Reclamation, which administers the reservoirs' water resources. Similarly, NPS works with the Fish and Wildlife Service to manage several national seashores containing wildlife refuges. Other federal park partners include the Bureau of Land Management, the Forest Service, the Navy, and the Coast Guard, among others. Many of the Park Service's federal management partnerships are of long standing, dating back 40 years or more. Parks with Tribal Partners. Many national park units have a connection to Native American history and culture. In some of them, Indian tribes play a major role in ownership and/or management of the park. Along with federal partnerships, tribal partnerships are among the longest-standing types of shared land stewardship in the National Park System. Parks with State and Local Government Partners. When NPS manages a national park unit in cooperation with state or local government, some significant portion of the land is generally still owned by the state or locality. In establishing such management partnerships, Congress may aim to leverage both federal and state/local financial resources. For example, cost savings could be realized through smaller outlays for land acquisition (as each level of government owns only a portion of the unit) or through management efficiencies. By ensuring that some park land remains under state or local control, Congress may also address concerns about extending the federal estate. Parks with Private Partners. The number of parks with private ownership and/or management partners has grown in recent decades. Congress may achieve cost savings through these public-private partnerships—as, for example, when historic preservation groups provide the primary on-site staff at a historic site, allowing the Park Service to save on personnel costs. Congress may also establish private partnerships where there is controversy over federal land control. Parks with a Mix of Partners. These parks are often in urban or suburban population centers, where the park coexists with many other public and private land uses. In such areas, the Park Service has stated, "managing through agreements and partnerships is a matter of both practical necessity and philosophy." Congress may specify in these parks' establishing legislation that much of the land is to remain in nonfederal ownership. The legislation may establish a cooperative management body made up of many types of landowners and administrators. With their diverse ownership and management arrangements, some of these park s have served as sites for innovative management techniques within the Park Service. Issues for Partnership Parks When considering NPS management partnerships, Congress faces a number of issues. Some relate to the treatment of individual partnership sites: Is administration within or outside the National Park System most appropriate? How should financial responsibilities be shared between NPS and its partners? What issues must be resolved with respect to federal versus nonfederal land ownership? What administrative benefits and challenges might the partnership bring? More broadly, do partnership parks further the mission of the National Park Service, or does extending the agency's reach through partnerships weaken its focus on its core priorities? Inclusion in the National Park System In considering proposals to establish partnership areas, a basic question for Congress is whether the area should become a unit of the National Park System or whether some other arrangement (perhaps with less federal involvement) is more appropriate. On the one hand, inclusion in the park system might better ensure ongoing conservation and stewardship of the land. NPS assumes a basic financial responsibility for park system units, which may be desirable to previous land managers (although in some cases partnership terms may dictate ongoing financial participation by existing land managers). Furthermore, there is evidence that park system units benefit surrounding communities by drawing tourism to the area. On the other hand, some in Congress are reluctant to add new units to the system, contending that the federal government's land holdings are already too large and that budgetary resources would be better used to address problems in existing parks. Existing landholders, too, may have concerns about joining the park system, fearing a loss of control over their lands. In addition, there are procedural hurdles to establishing a new unit of the National Park System. Potential units typically undergo study to determine whether they meet explicit criteria for establishment and then must win congressional approval and funding. Even if successful, this process may take many years. For such reasons, it may be more attractive to legislators to enable the Park Service to assist in other ways—for instance, through the model of a national heritage area (a type of area established by Congress that is not under federal control but receives technical and financial assistance from NPS) or through grant programs such as the Historic Preservation Fund. NPS studies of sites for potential addition to the National Park System are required to consider "whether direct NPS management or alternative protection by other public agencies or the private sector is appropriate for the area." Beyond this broad requirement, individual legislation to authorize studies of potential park units may also contain specific directions for NPS to consider a range of protection options in addition to traditional park unit status. Allocation of Financial Responsibilities Both NPS and its partners may face constrained financial resources for management of a partnership park. Nonfederal partners may seek national park status with the idea of receiving an infusion of federal funds for a struggling area, while federal legislators may specify partnership arrangements in order to limit the government's financial obligations for a new unit. In some cases, the establishing legislation for partnership units does not specify the exact breakdown of financial responsibilities between the Park Service and partnering managers. Instead, it delineates the broad functional responsibilities of each entity, and the Park Service subsequently works with partners to develop the financial details of these arrangements—for example, through cooperative agreements or memoranda of understanding. In other cases, the establishing legislation does include specific funding directions, such as requiring a 50/50 cost share between the federal government and nonfederal partners. Reflecting current federal economic constraints, some proposals have been made to create National Park System units with no federal funding. Degree of Federal Land Ownership Many units of the National Park System—not just the partnership units—contain parcels of land not owned by the federal government. However, Congress typically gives the Park Service authority to acquire these "inholdings" over time, with the goal that the entire unit will eventually come under Park Service management. In many partnership parks, this is not the case; instead, when establishing these parks, Congress has taken into account that land ownership by the federal government may not be feasible or desirable. In heavily populated areas, for example, lands might be prohibitively expensive to acquire, owners might not be willing to sell, and some land might be inappropriate for Park Service management because of existing natural resource degradation or uses that are not part of the NPS mission. Federal land ownership also may be opposed for economic, philosophical, or other reasons. No statute specifies the amount of park land that must be owned by the federal government to justify creation of a national park unit. In a few cases, Congress has created a partnership park with the explicit provision that the federal government will acquire no land in the unit, or will acquire only a very small amount. More commonly, provisions for partnership units (as well as traditionally managed units) state that the federal government may acquire land, but only from willing sellers or donors. In partnership parks with little federally owned land, management plans, cooperative agreements, and/or memoranda of understanding are used to clarify partners' responsibilities and create a joint management framework in accordance with the laws governing the National Park System and the purposes for which the park was created. Still, questions may arise about whether the Park Service has adequate—or excessive—jurisdiction over these nonfederally owned or managed areas within park units. Administrative Arrangements Beyond funding issues and land ownership questions, partnership parks face a variety of administrative issues. Different organizational mandates may lead to conflicts or differences in focus between the Park Service and its partners. From the visitor's standpoint, partnership management may result in confusion about what is and is not a national park—for example, when both NPS and nonfederal partners contribute branding and signs to a unit. From a managerial standpoint, challenges arise as partner organizations confront the institutional culture of the Park Service, and vice versa. Several studies of park partnerships have identified partners' failure to understand each other's procedural requirements, timetables, reporting needs, and similar matters as sources of delays and frustration. Despite administrative challenges, both the Park Service and its partners have reported successes in managing partnerships. NPS case studies have pointed to administrative benefits including cost savings, shared expertise, and innovative management ideas from private-sector partners. The Park Service has reported a growing acceptance of partnerships within the agency and in the general public. Congress may consider both administrative challenges and successes when determining whether to create new partnership parks, or in providing oversight for existing parks. The Park Service has attempted to address administrative issues through active efforts to improve partnering skills among agency staff. The agency established a national partnership office in Washington and regional partnership coordinators around the country. A website contains partnership resources and case studies for agency staff, and the agency encourages training in partnering skills. NPS Director Jonathan Jarvis has stated that when selecting park superintendents, he ranks partnership skills "at the top of my list." Role of Partnership Parks in Fulfilling the Park Service Mission Do partnership parks extend the Park Service's capacity to accomplish its central missions of preservation and public enjoyment of resources, or do they draw funds and staff away from the Park Service's core needs and priorities? Members of Congress and other observers have expressed both views. On the one hand, partnerships can enable the preservation of valuable natural, historical, and recreational resources in cases where a traditional national park is not feasible for financial or other reasons. Partnerships also may encourage a paradigm of joint citizen responsibility for the system, rather than agency control. They may bring innovative approaches needed to manage new types of parks in "living landscapes." The National Park Service Advisory Board has recommended partnership management as a way to address large-scale landscape challenges, tackle problems of invasive species control and air and water quality, and better ensure the economic viability of neighboring communities. The board stated: The future should not be about doubling the amount of land owned by NPS; instead it should look to increasing the impact of NPS by enabling the service to do much more through affiliations and partnerships. The "old think" is park units with strict boundaries within which NPS must own, manage, maintain and operate everything. New think is "park areas" in which NPS works collaboratively with other public, private and non-profit organizations—each with a distinct role and complementary function. On the other hand, some Members of Congress and other observers have raised the concern that partnership efforts may divert resources from the Park Service's central needs and priorities. Some in Congress contend that partnership management has served as an incentive to add new units to the National Park System that do not necessarily warrant federal protection or investment. They claim that some of these units lack the national significance of earlier national parks. Rather than seeking to create more parks that might be better managed by nonfederal interests, these observers suggest, Congress should focus NPS funding on the agency's growing maintenance backlog for its existing units, estimated at $11.93 billion for FY2015. Despite these concerns, numerous parks with partnership management provisions have been established or proposed in recent years. Many of the proposals have included cost-sharing requirements for joint activities. Given current economic constraints, ongoing questions about federal land acquisition, and the desire to preserve resources in areas with many different existing uses, interest in partnership parks can be expected to continue.

In recent decades, it has become more common for the National Park Service (NPS) to own and manage units of the National Park System in partnership with others in the federal, tribal, state, local, or private sectors. Such units of the park system are often called partnership parks. Congressional interest in partnership parks has grown, especially as Congress seeks ways to leverage limited financial resources for park management. Congress generally specifies the shared management arrangements for partnership parks in the establishing legislation for each park. The arrangements may aim to save costs for both NPS and nonfederal stakeholders, combining investments so that neither partner carries the entire burden for park administration. Partnerships may also address concerns of Members of Congress and others about federal land acquisition by allowing nonfederal partners to own significant portions of a park unit, and they may address concerns about local input into decisionmaking. Partnership parks span a range of physical settings, including "lived-in" landscapes, where natural and historical attractions are mixed with homes and businesses. When considering NPS management partnerships, Congress faces both specific questions about the suitability and effectiveness of partnerships in particular units and larger questions about the role of these parks in the system as a whole. For specific areas, how much federal involvement is warranted, and how should financial responsibilities be shared between NPS and its partners? What concerns might arise around federal land ownership? What administrative benefits and challenges would NPS and its partners face in a given unit? More broadly, does partnership management help NPS fulfill its statutory mission to preserve valued natural and historic resources and provide for their enjoyment by the public, or does it too broadly diversify the agency's portfolio, compromising its ability to focus on core priorities? To the extent that partnerships enable or require new units to be protected as part of the National Park System, is this desirable? Some in Congress are reluctant to add units to the system, contending that the system is already too large and that NPS's budgetary resources would be better used to address concerns in existing parks, including a substantial maintenance backlog. Others see partnership parks as an opportunity to protect valuable resources that would not be feasible for NPS or its outside partners to administer alone.

Brief Historical Overview Federal campaign finance law emphasizes limits on contributions, restrictions on funding sources, and public disclosure of information about fundraising and spending. These goals and others are embodied in the 1971 Federal Election Campaign Act (FECA), which remains the cornerstone of the nation's campaign finance law. Major FECA amendments (in 1974, 1976, and 1979) expanded the presidential public-financing system and placed limits on campaign contributions and expenditures. After these post-Watergate efforts to reduce the risk or appearance of corruption, campaign finance received relatively little legislative attention until the late 1990s. The Bipartisan Campaign Reform Act of 2002—also known as "BCRA" or "McCain-Feingold" for its principal Senate sponsors—constituted the first major change to the nation's campaign finance laws since 1979. Among other points, BCRA banned large corporate and union donations to political parties (soft money) in federal elections and restricted certain political advertising preceding elections (electioneering communications). Much of the policy activity since that time has emphasized implementing BCRA, particularly at the FEC and in the courts. FEC Nominations and the Commission's Operating Status Due to the loss of its quorum between January and June 2008, the FEC was unable to execute some of its core functions, including rulemaking to implement campaign finance law. On June 24, 2008, the Senate confirmed five nominations to the agency. Together with a sixth commissioner who continues to serve in holdover status, the FEC is now back at full strength. The new Commission held its first open meeting on July 10, 2008. At that meeting, Donald McGahn was unanimously elected chairman. Steven Walther was unanimously elected vice chairman. Pending issues facing the Commission include rulemaking to implement portions of the Honest Leadership and Open Government Act of 2007 (HLOGA, discussed later in this report), pending enforcement cases and advisory opinion requests, and administering the presidential public campaign financing program. The Commission may also need to respond to ongoing litigation surrounding BCRA. Overview of the Nominations Dispute During the first session of the 110 th Congress, the Senate considered four nominations—those of Robert D. Lenhard (D), David M. Mason (R), Steven T. Walther (D), and Hans A. von Spakovsky (R)—to the six-seat FEC. Mason originally began serving at the Commission in 1998 and had been re-nominated. Lenhard, Walther, and von Spakovsky were serving in recess-appointments at the agency. Amid controversy surrounding the von Spakovsky nomination in particular, and over whether the nominations should be considered separately or as a group, the Senate declined to confirm or reject any of the nominations. The three recess appointees' terms subsequently expired at the end of the first session of the 110 th Congress, leaving the agency with just two sitting commissioners (Mason (R) and Ellen L. Weintraub (D)). The stalemate over FEC nominations continued with few developments between January and April of 2008. In April, Lenhard requested that his nomination be withdrawn. In May 2008, in addition to withdrawing Lenhard's nomination, President Bush withdrew the Mason and von Spakovsky nominations. This series of events left the Walther nomination pending and Weintraub in holdover status. Also in April 2008, the President nominated Cynthia L. Bauerly (D), Caroline C. Hunter (R), and Donald F. McGahn II (R) to the Commission. The Senate Rules and Administration Committee held a confirmation hearing on the Bauerly, Hunter, and McGahn nominations on May 21, 2008. The committee favorably reported all three nominations on May 22, 2008. Also on May 22, the White House announced the President's intention to nominate Matthew S. Petersen (R) to the Commission. The Rules and Administration Committee did not hold a confirmation hearing on Petersen (a staffer on the committee). On June 24, 2008, the Senate confirmed Bauerly, Hunter, McGahn, Petersen, and Walther. The five new commissioners joined Ellen Weintraub, who continues to serve at the FEC in holdover status. McGahn was elected the Commission's chairman. Between January and June 2008, the FEC's operating status was significant because, under FECA, at least four Commissioners must vote affirmatively to approve, among other things, agency rules, enforcement decisions, and advisory opinions. The Commission also could not implement legislation without at least four Commissioners in office. Campaign Finance Legislation in the 110th Congress Legislative activity regarding campaign finance has occurred on two fronts during the 110 th Congress. First, and most notably, the Honest Leadership and Open Government Act (HLOGA) contains some campaign finance provisions, but the law is primarily devoted to lobbying and ethics. HLOGA and the AFP extension were the only legislation changing campaign financing policy to become law during the 110 th Congress. Second, various other bills that emphasize campaign finance have been the subject of committee or floor action, but none have become law. Overall, approximately 50 bills that would affect campaign finance policy have been introduced in the 110 th Congress. The following discussion provides additional details on campaign finance bills that have been the subject of committee action or floor votes during the 110 th Congress. Campaign Finance Provisions in HLOGA S. 1 , which became P.L. 110-81 on September 14, 2007, contains two significant campaign finance provisions: one related to bundling and another related to travel aboard private aircraft. Both were seen as sources of potential abuse in the past. The law also prohibits Member attendance at presidential convention events in their honor if registered lobbyists or "private entit[ies]" that hire lobbyists pay for the events. It also requires additional disclosure about lobbyists' contributions (exceeding $200) to political committees, presidential inaugural committees, and presidential libraries. FEC rulemaking (discussed below) is required to implement the bundling and campaign travel portions of HLOGA (sections 204 and 601 respectively). Although the travel section took effect upon the bill's enactment, the FEC in late 2007 adopted rules providing its interpretation of the law. HLOGA requires the FEC to promulgate regulations implementing the bundling provision within six months of enactment (March 14, 2008), although the lack of a quorum prevented the agency from doing so. Bundling "Bundling" refers to a campaign fundraising practice in which an intermediary—often a lobbyist—either receives contributions and passes them to a campaign or is credited with soliciting contributions that a campaign receives directly. Before HLOGA became law, although FEC regulations on "earmarked" contributions technically restricted bundling, they were viewed as largely inapplicable to designated campaign fundraisers, including certain lobbyists. In response, HLOGA requires disclosure of bundling activities by registered lobbyists. Specifically, political committees (candidate committees, party committees, and PACs) must report to the FEC the name, address, and employer of each Lobbying Disclosure Act (LDA)-registered lobbyist "reasonably known" to have made at least two bundled contributions totaling more than $15,000 during specified six-month reporting periods. HLOGA only requires disclosure of bundling by registered lobbyists—not other fundraisers. Therefore, HLOGA will provide more transparency than was previously available about which lobbyists arrange bundled contributions. However, it does not mandate disclosure of bundled contributions that do not meet the time and monetary thresholds discussed above or require information about bundling by non-lobbyists. FEC Rulemaking The FEC issued a notice of proposed rulemaking (NPRM) on the bundling issue on October 30, 2007. Most notably, and consistent with HLOGA, the FEC's proposed rules would require political committees to report bundled contributions if the same source arranged or was credited with arranging two or more contributions totaling at least $15,000 during a six-month period. (The FEC also solicited comments about an alternative proposal for quarterly reporting.) The proposed rules would also add the term "lobbyist/registrant PACs"—those committees "established or controlled" by registered lobbyists—to existing examples of political committees subject to FECA regulation and bundling disclosure. Despite some specificity, the NPRM did not address how all reporting issues would be resolved. Rather, throughout the document, the Commission posed several questions about a range of issues, such as how widely disclosure requirements should apply and how committees should determine whether contributions were bundled. Parts of the NPRM suggested that bundling disclosure could apply beyond lobbyists per se. Specifically, the FEC asked whether Congress intended for bundling disclosure to apply only to contributions arranged by registered lobbyists (who would be known as "lobbyist/registrants" under proposed rules), or also to fundraising by other actors. The latter could include non-lobbyist employees at lobbying organizations or hosts of fundraisers at which bundling occurs. Several interested parties, including Members of Congress, submitted comments responding to the NPRM. A September 17, 2008, FEC hearing explored many of the issues raised in the NPRM. In particular, discussion and debate among Commissioners and witnesses (election lawyers and interest-group representatives) addressed how bundling activities should be reported to the FEC, which activities should be reported, and how fundraising should be reported if several individuals are involved in fundraising at a single event. The FEC has yet to announce final bundling rules. As noted previously, HLOGA requires the FEC to issue bundling rules within six months of the law's enactment (the relevant deadline would have been March 14, 2008). However, the agency was unable to act between January and June 2008 due to the loss of its quorum. On July 28, 2008, FEC Chairman Donald F. McGahn reportedly stated that bundling regulations could not realistically be promulgated in time to affect the 2008 elections. If it chose to do so, Congress could legislate bundling-disclosure details that would normally be left to the FEC. Campaign Travel HLOGA restricts campaign travel on private, non-commercial aircraft. Before HLOGA became law, political committees were permitted to reimburse those providing private aircraft at the rate of first-class travel as long as commensurate first-class commercial service were available for the route flown. Reimbursement at non-discounted coach or charter rates was required if commensurate first-class service were unavailable on that route. Under the new law, Senators, candidates, and staff may continue to travel on private aircraft only if they reimburse the entity providing the aircraft for the "pro rata share of the fair market value" for rental or charter of a comparable aircraft. Those amounts could be well above the old first-class rate that applied to most flights before the law took effect. Unlike their Senate counterparts, House Members, candidates, and staff are "substantially banned" from flying aboard private, non-commercial aircraft, as the law precludes reimbursements for such flights. FEC Rulemaking Under rules adopted by the FEC on December 14, 2007, all Senate, presidential, and vice-presidential campaign travel must be reimbursed at the "pro-rata share" of the charter rate, regardless of the route flown. Consistent with HLOGA, political committees related to House of Representatives candidates are prohibited from making reimbursements for campaign travel aboard private aircraft, which essentially bans such travel. The "pro-rata share" reimbursement standard for Senate, presidential, and vice-presidential travel is based on the number of candidate committees (i.e., candidate campaigns) represented on a flight. If more than one candidate is represented on a flight, reimbursement would be shared among the relevant candidate committees. Specifically, political committees must provide reimbursement for all campaign travelers' shares of the "normal and usual charter fare or rental charge for travel on a comparable aircraft or comparable size." These requirements also apply to travel on behalf of PACs, including leadership PACs, and party committees, although candidate committees represented on the flight would be responsible for covering costs for those travelers. Travel aboard government aircraft must also be reimbursed at the per-person charter rate or at the rate the government entity providing the aircraft specifies for "private travel." Certain exceptions exist for travel aboard aircraft owned or leased by a candidate or an immediate family member, but reimbursement for campaign travel is nonetheless required. Before publishing the final travel rules in the Federal Register , the Commission must approve an "explanation and justification" (E&J) document summarizing the public comments the FEC received and the agency's reasoning in interpreting the law. These documents typically provide additional information about how the Commission intends to enforce the new rules and what those rules mean in practice. Although the FEC approved final travel rules in December 2007, it did not formally consider an E&J document. That document cannot be approved without affirmative votes from at least four Commissioners. The matter remains pending. The Administrative Fine Program P.L. 110-433 , which originated as H.R. 6296 (Brady), will extend until 2013 the FEC's authority to conduct the Administrative Fine Program (AFP). The House passed the bill on July 15, 2008, under suspension of the rules and by voice vote. The Senate passed the bill by unanimous consent on October 2, 2008. President George W. Bush signed the bill into law on October 16, 2008. The AFP sets standard penalties for routine financial-reporting violations and requires fewer resources than the Commission's full enforcement process. Since the program's inception in FY2000, the FEC has processed more than 1,600 enforcement cases, and assessed more than $3.1 million in fines, through the AFP. Revenues from the program are deposited into the U.S. Treasury and do not directly benefit the FEC. Congress first granted authority for the AFP in the Treasury and General Government Appropriations Act of 2000 and has extended the program three times. Because AFP legislative language has always included a "sunset" date, the program is not permanent. The previous authorization to conduct the AFP would have expired on December 31, 2008. Although AFP extensions have been traditionally handled through the appropriations process, H.R. 6296 was a stand-alone measure that amended FECA. Senate Activity on Other Campaign Finance Legislation Other than HLOGA and H.R. 6296 , no campaign finance measures have passed the Senate during the 110 th Congress. However, the Rules and Administration Committee has held hearings on four bills. First, on March 28, 2007, the committee held a hearing on S. 223 (Feingold), which would require Senate campaign committees (including candidate committees and party committees) to file campaign finance disclosure reports electronically. Currently, Senate campaign committees are the only federal political committees not required to do so. The bill has not received floor consideration, despite attempts to bring it up by unanimous consent. Second, on April 18, 2007, the committee considered S. 1091 (Corker), which would lift existing limits on coordinated expenditures that political parties may make on behalf of candidate campaigns. S. 1091 remains in committee. Third, on June 20, 2007, the committee held a hearing on S. 1285 (Durbin), which proposes a voluntary system to publicly finance Senate campaigns. That bill also has not been subject to additional legislative action. Finally, the committee considered S. 2624 (Feinstein) at a February 27, 2008, hearing on automated political telephone calls. That topic is discussed below in more detail. The bill has not been subject to additional legislative action. House Activity on Other Campaign Finance Legislation The House has passed three bills (in addition to lobbying reform measures and H.R. 6296 ) containing campaign finance provisions. First, H.R. 3093 , the House version of the FY2008 Commerce, Justice, Science, and Related Agencies appropriations bill, contained an amendment sponsored by Representative Pence that would have prohibited spending funds for criminal enforcement of BCRA's electioneering communication provision (discussed below). However, the measure was not included in companion Senate legislation or the FY2008 consolidated appropriations law. A second House bill, H.R. 2630 (Schiff), would prohibit candidate campaign committees and leadership PACs from paying candidate spouses for campaign work. The bill would also require disclosure of certain payments to other family members. It would not affect spouses working for other campaigns (e.g., as political consultants). Another provision in the bill would hold candidates personally liable for violations of the new restrictions (if they knew violations occurred). That proposal marks a departure from existing FECA requirements, which largely hold campaign organizations and treasurers (not candidates) responsible for compliance. H.R. 2630 passed the House on July 23, 2007, without a committee hearing. It has not been considered in the Senate. Third, the House passed H.R. 3032 (Jones, NC) on July 15, 2008, under suspension of the rules and by voice vote. The bill would permit candidates to designate to the FEC an individual (or a backup) to spend campaign funds if the candidate dies. Upon the candidate's death, only the designee would have authority to disburse campaign funds. Currently, campaign treasurers have authority over campaign funds, as is discussed below. The bill would not relieve treasurers from FEC reporting responsibilities. The bill could alleviate the potential for asset disputes following candidate deaths, provided that designees would be more faithful to candidates' wishes than would be treasurers. To that end, H.R. 3032 also permits candidates to provide instructions for disbursing campaign funds in the event of their death. H.R. 3032 would provide more candidate control over campaign assets than currently exists. FECA is largely silent on candidate responsibility for campaign operations, including spending. In fact, treasurers—not candidates—are legally responsible for disbursing campaign funds (and for most FEC compliance) regardless of whether the candidate is living or dead. FECA also does not specify a role for candidates in campaign financial decisions. Accordingly, although H.R. 3032 would provide a legal mechanism for circumventing the treasurer after a candidate dies, the bill would not provide additional remedies for such action while the candidate is living. This may be a minor distinction due to candidates' de facto influence over their campaigns, despite FECA's general silence on the issue. Nonetheless, if Congress chose to enact H.R. 3032 and felt it were important to create parity in candidates' abilities to direct campaign spending in life and after death, it could amend FECA to create a clearer candidate role over campaign funds regardless of whether the candidate is living or dead. Congress might also provide explicit permission in FECA for candidates to hire and fire campaign treasurers. Hearings on Automated Political Calls Also during the 110 th Congress, House and Senate committees have held hearings on automated political telephone calls (also known as "robo calls" or "auto calls"). This issue is related to campaign finance because FEC reporting and disclaimer requirements apply to many such calls. Legislation aimed at restricting automated political calls also often references or would amend FECA. Another CRS report provides additional detail. Several bills introduced in the 110 th Congress would address automated political calls in some way, but none has been reported from committee or received floor consideration. The Committee on House Administration, Subcommittee on Elections, held an oversight hearing on automated political calls on December 6, 2007. In addition to providing background information about automated calls practices, Members and witnesses at the hearing considered whether, or if, automated calls could be constitutionally restricted. Some Members also emphasized the value of official (franked) automated calls to arrange telephone-based town hall meetings. The Senate Rules and Administration Committee also held a hearing on the calls, and related bill S. 2624 (Feinstein), on February 27, 2008. Discussion at that hearing emphasized voter and candidate frustration with the calls, and whether the calls could be constitutionally restricted. Other Recent Developments Electioneering Communications BCRA prohibits corporate and union treasury funds from financing political advertising known as electioneering communications. Under BCRA, electioneering communications are broadcast, cable, or satellite political advertising aired within 30 days of a primary election (or convention or caucus) or 60 days of a general election (or special or runoff election) that refers to a "clearly identified" federal candidate and is targeted to the relevant electorate. Before BCRA became law, such advertising was often viewed as thinly veiled electioneering by corporations and unions, although some observers contended that the advertising reflected sponsors' policy positions. On June 25, 2007, the U.S. Supreme Court issued a 5-4 decision in Federal Election Commission v. Wisconsin Right to Life, Inc. (WRTL II) . In brief, the case considered whether the electioneering communication provision prohibited the group Wisconsin Right to Life (WRTL) from paying for advertising, mentioning a Senate candidate, it intended to run during the 2004 election cycle. The Court held that the electioneering communication provision was unconstitutional as applied to the WRTL ads. Shortly thereafter, the FEC announced that it would revise its electioneering communications rules. FEC Rulemaking The FEC held hearings on its electioneering communications rulemaking on October 17-18, 2007. The Commission approved final rules in December 2007. Although corporate and union treasury funds are generally prohibited in federal elections, the new rules allow payments for certain electioneering communications that focus on public policy issues rather than electing or defeating federal candidates. As with other electioneering communications, certain information about spending on, and donations received for, these advertisements must be reported to the FEC. The advertisements must also contain disclaimers identifying the person or organization responsible for the electioneering communication. The new rules also require that electioneering communications paid for with corporate or union treasury funds must meet three "safe harbor" criteria intended to ensure that the advertising is not directly aimed at electing or defeating candidates. Specifically, the advertising may not: (1) mention "any election, candidacy, political party, opposing candidate, or voting by the general public" or (2) take a position on a candidate's "character, qualifications, or fitness for office." Third, the advertisement must either "[focus] on a legislative, executive or judicial matter or issue," such as urging the public or candidates to adopt a policy position, or propose "a commercial transaction" (e.g., an advertisement for a candidate's business). Overall, the new rules permit corporations and unions to fund issue-oriented advertising in ways that were prohibited by BCRA. For those who view issue advertising as thinly veiled electoral advocacy, the rules could be seen as a loophole that allows otherwise prohibited corporate and union money to influence elections—the same concern that motivated BCRA's electioneering communications provision that was held unconstitutional as applied to the WRTL ads. On the other hand, the FEC's explanatory statement accompanying the new rules suggests that even general references to elections or candidates (e.g., election dates or a party name) could void the safe harbor protection for corporate and union spending. If the Commission reaches such a determination in future enforcement cases, electioneering communications funded by corporate or union treasury funds would have to be strictly related to public policy issues, although they could be aired during election periods. Precise implications of the new rules are likely to become clearer over time, as advertisers test the rules during the 2008 election cycle and beyond and as the FEC considers future advisory opinions and enforcement cases. Additional litigation, which has been common following BCRA rulemakings, is also possible. "Millionaire's Amendment" On June 26, 2008, a 5-4 majority of the U.S. Supreme Court declared the "Millionaire's Amendment" unconstitutional in Davis v. Federal Election Commission . (Another CRS product provides a legal analysis of the case. ) The Millionaire's Amendment, which was enacted in BCRA, permitted congressional candidates facing certain self-financed opponents to receive larger campaign contributions than would normally be permitted. In some cases, political parties could also make unlimited coordinated expenditures on behalf of campaigns facing self-financed opponents. The FEC issued a public statement on July 25, 2008, noting that the "Court's analysis in Davis precludes enforcement of the House provision of the [Millionaire's Amendment] and effectively precludes enforcement of the Senate provision as well." Accordingly, the amendment's reporting requirements and increased contribution limits no longer apply. The Commission will initiate a rulemaking to comport with the ruling, but "will no longer enforce the Amendment." On October 2, 2008, the Commission approved a notice of proposed rulemaking in light of Davis . Essentially, the FEC proposes to repeal its rules originally promulgated to implement the Millionaire's Amendment language in BCRA (particularly rules currently at 11 C.F.R. § 400). Repealing these and other relevant rules would clarify that the Millionaire's Amendment is no longer applicable in House and Senate elections. Such a repeal would be consistent with the Commission's stated practice of no longer enforcing the Amendment. The public comment period on the proposed repeal of the FEC's Millionaire's Amendment rules will close on November 21, 2008. Conclusion and Analysis HLOGA represents the most significant legislative development related to campaign finance during the 110 th Congress. More than 50 other campaign finance bills have been introduced in the 110 th Congress, but few have received major legislative attention. Other significant campaign finance developments have occurred away from Capitol Hill, particularly at the FEC and in the federal courts. FEC activity has focused on rulemakings in response to recent congressional activity, particularly regarding HLOGA. The campaign travel rules are relatively straightforward and consistent with the new lobbying and ethics law. Those rules, however, could be clarified by an E&J statement that has yet to be considered. The bundling and electioneering communications rulemakings (the latter was undertaken in response to the Supreme Court's ruling in WRTL II ) are more complicated and, in some cases, less clear. Although the proposed bundling rules are consistent with HLOGA's content, the many questions and regulatory alternatives posed in the NPRM and at the September 2008 FEC hearing suggest that the agency is still considering how to implement that section of the law. Similarly, although the Commission has already adopted final electioneering communications rules, what those rules mean in practice will depend on how the FEC decides to pursue future enforcement and advisory cases. These issues could also be revisited now that additional Commissioners are in office. The long-term effect of the FEC's inability to consider major policy questions between January and June 2008 remains to be seen. It is clear, however, that the agency faces a substantial rulemaking and enforcement backlog in the short term. The fact that four of six Commissioners are new to the agency could also delay some activities. The HLOGA rulemaking is perhaps the most prominent one now facing the FEC. The absence of bundling rules means that certain disclosure required under HLOGA is not occurring, nor can it occur until the agency tells political committees how to report their bundled contributions. The schedule set forth in HLOGA would have facilitated partial reporting for the 2008 cycle. It now appears, however, that bundling disclosure as envisioned in HLOGA will not take effect until the 2010 cycle. Even if bundling-disclosure rules were in place now, however, they would not necessarily alter fundraising practices. Indeed, as was discussed at the September 17 FEC hearing, HLOGA requires more transparency about bundling, but does not restrict the practice. In addition, and as noted previously, although the HLOGA travel rules also have yet to be finalized via publication in the Federal Register , implementation of those rules is perhaps a less pressing matter because the relevant portion of the law took effect upon enactment, whereas the FEC bundling-disclosure provisions in HLOGA require Commission action to take effect. Overall, recent changes in campaign finance policy have been incremental, as has been the case since FECA became law in the 1970s. Congress generally did not focus on campaign finance legislation in the immediate aftermath of FECA and BCRA, perhaps because passing those laws had required substantial momentum that was difficult to replicate in the short term. That pattern could also hold following HLOGA, although most of that bill was related to lobbying and ethics rather than campaign finance. Even if Congress decides not to undertake major legislative activity on campaign finance in the near future, non-legislative activity is likely to keep campaign finance before the public and lawmakers. This is particularly true given the high-profile 2008 elections and heavy spending that has and will accompany those contests. Litigation, and the FEC's response, is also likely to continue shaping the policy environment. These events demonstrate that the evolution of campaign finance policy occurs not only in Congress, but also at the FEC, in the courts, in other federal agencies, and, perhaps most of all, in campaigns themselves. As long as those campaigns continue, Congress will be faced with questions about how to regulate political money.

During the 110th Congress, the House and Senate's campaign finance work has overlapped in three areas. First and most significantly, a lobbying and ethics law enacted in September 2007, the Honest Leadership and Open Government Act (HLOGA; P.L. 110-81, which was S. 1), contains some campaign finance provisions. Second, P.L. 110-433 (H.R. 6296) will extend the Federal Election Commission's (FEC) Administrative Fine Program (AFP) until 2013. Third, the Committee on House Administration and the Senate Rules and Administration Committee have held hearings on automated political telephone calls (also known as "robo calls" or "auto calls"), a subject that is related to campaign finance. Otherwise, the House and Senate have largely focused on different campaign finance issues. Specifically, the House has passed three bills, not passed by the Senate, containing campaign finance provisions. First, H.R. 3032 would allow candidates to designate an individual to disburse remaining campaign funds if the candidate dies. Second, H.R. 2630 would restrict campaign and leadership political action committee (PAC) payments to candidate spouses. Third, a provision in the House-passed version of an appropriations bill (H.R. 3093) would have prohibited spending Justice Department funds on criminal enforcement of the Bipartisan Campaign Reform Act (BCRA) "electioneering communication" provision. However, the language was not included in the FY2008 consolidated appropriations law (P.L. 110-161). Similarly, the Senate has largely considered legislation not considered in the House. The Senate's campaign finance activity has also been confined largely to hearings. S. 223, which would require electronic filing of campaign disclosure reports was reported from the Rules and Administration Committee but has not received floor consideration. During the spring and summer of 2007, the committee also held hearings on coordinated party expenditures (S. 1091) and congressional public financing legislation (S. 1285). Non-legislative items are also noteworthy. Following a Senate impasse over four nominees to the Federal Election Commission (FEC) during the first session of the 110th Congress, the Commission lacked the quorum necessary to make major policy decisions between January and June 2008. Senate confirmations of five nominees on June 24, 2008, restored the FEC to full capacity. FEC rulemakings are ongoing or expected in response to legislative activity, and Supreme Court rulings addressing electioneering communications (Federal Election Commission v. Wisconsin Right to Life, Inc.) and the "Millionaire's Amendment" (Davis v. Federal Election Commission). This report will be updated in the event of other significant legislative or policy developments in the 110th Congress.

Introduction A pension is a voluntary benefit offered by employers to assist employees in providing for their financial security in retirement. Department of Labor (DOL) data in 2017 indicated that 65% of full-time workers in the United States participated in a retirement plan sponsored by their employer. The two types of pension plans are defined contribution (DC) plans, in which participants have individual accounts that are the basis of income in retirement; and defined benefit (DB) plans, in which participants receive regular monthly benefit payments in retirement (which some refer to as a "traditional" type of pension). Pension plans are also classified by whether they are sponsored by one employer (single employer plans) or by more than one employer (multiemployer and multiple employer plans). Multiemployer pension plans are sponsored by employers in the same industry and maintained as part of a collective bargaining agreement. Multiple employer plans are sponsored by more than one employer but are not maintained as part of a collective bargaining agreement. Multiple employer pension plans are not common. Nearly all private-sector pension plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406 ), which is enforced by the Department of the Treasury, the DOL, and the Pension Benefit Guaranty Corporation (PBGC). Because of differences in the structure of the plans, single and multiemployer DB pension plans have different rules under some sections of ERISA. Examples include the existence of separate funding rules for each type of plan and pension insurance program. Multiemployer DB plans are of current concern to Congress for several reasons: about 10% to 15% of multiemployer participants are in plans that are projected to have insufficient plan assets within the next 20 years to pay 100% of the benefits promised to plan participants; because the liabilities of the pension plans that are projected to become insolvent are so great, PBGC would likely be unable to continue to guarantee participants' benefits if one or two of these plans became insolvent; legislation enacted in December 2014 provides options to stave off insolvency for some multiemployer DB pension plans; one very large plan's application to reduce benefits to stave off insolvency was denied by the U.S. Treasury; and the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), enacted February 9, 2018, created the Joint Select Committee on Solvency of Multiemployer Pension Plans to address the impending insolvencies of several large multiemployer DB pension plans and PBGC. Possible solutions to plan underfunding could involve some combination of increased contributions from the employers that sponsor pension plans, cuts in future benefits to plan participants who are currently working, cuts in current benefits to retired participants, or financial assistance from the U.S. government. Background on Pensions To protect the interests of pension plan participants and beneficiaries, Congress enacted ERISA ( P.L. 93-406 ). ERISA is codified in the U.S. Code in Title 26 (Internal Revenue Code, or IRC) and Title 29 (Labor Code) and sets standards that pension plans must follow with regard to plan participation (who must be covered); minimum vesting requirements (how long a person must work for an employer to be covered); plan funding (how much must be set aside to pay for future benefits); and fiduciary duties, which require that a pension plan be operated in the sole interests of plan participants by plan sponsors, administrators, and others who oversee the plan. ERISA established PBGC, which is an independent federal agency that insures DB pension plans covered by ERISA. ERISA covers only private-sector pension plans and exempts pension plans established by the federal, state, and local governments and by churches. Pension plans may be classified in a variety of ways, such as whether they receive tax preferences, whether they are sponsored by one or more than one employer, and whether the benefits are payable as a lifetime annuity at retirement or accrue in accounts for each of the participants. Tax-Qualified Pension Plans Sponsors of pension plans may choose for their plans to be tax qualified. Tax-qualified plans receive certain tax advantages. For example, employer contributions to qualified DB plans are tax-deductible expenses for employers in the year contributions are made. Qualified plans also meet IRC requirements with respect to vesting schedules (which determine when participants have a legal right to their benefits) and funding requirements (which determine the amounts plan sponsors must contribute to the plans they sponsor). In general, qualified DB pension plans must prefund future benefits. Nonqualified pension plans are not required by the IRC to be prefunded. Because one of the requirements to be a tax-qualified plan is to cover a broad range of employees in a company, nonqualified pension plans are designed for top-level executives and other highly compensated employees. Single Employer, Multiple Employer, and Multiemployer Pension Plans Pension plans are also classified by whether they are sponsored by one employer (single employer pension plans) or by more than one employer (multiple and multiemployer pension plans). Most pension plans are sponsored by one employer. DOL data indicate that 99.6% of all pension plans (covering 88.7% of all pension plan participants) are single-employer pension plans. Single Employer Pension Plans Single employer pension plans are sponsored by one employer and cover eligible workers employed by the plan sponsor. When an employee stops working for the employer sponsoring the plan, the worker stops accruing benefits under that plan. The sponsor may decide to cease offering its employees benefits under the plan, in which case the plan may be frozen or terminated. If a DB pension plan is frozen, participants no longer accrue benefits but employers maintain responsibility for the frozen plan (for example, employers may have to make additional contributions to make up for funding shortfalls that may result from decreases in the value of plan assets). Alternatively, employers may decide to terminate their pension plans. Employers that terminate their DB pension plans must guarantee participants' future benefits by purchasing annuities (a guaranteed monthly payment) from an insurance company for each participant's accrued benefit. If underfunded DB pension plans are terminated pursuant to company bankruptcy, PBGC becomes the trustee of the plans and pays participants their promised benefits, up to a statutory maximum benefit. Multiple Employer Pension Plans Multiple employer pension plans are sponsored by more than one employer and are not maintained under collective bargaining agreements. They are treated as single employer pension plans for the purposes of funding rules. Multiemployer Pension Plans Multiemployer pension plans are sponsored by more than one employer and, unlike multiple employer plans, are maintained under collective bargaining agreements. Participants continue to accrue benefits while working for any employer that participates in the plan. Multiemployer pension plans pool risk so that the withdrawal of a few employers from the plan does not place the plan in financial jeopardy. However, in recent years, an increasing number of employers have left multiemployer pension plans (either voluntarily or through employer bankruptcy). As a result of declines in the value of plan assets (such as occurred during the 2008 financial market decline), some participants who worked for employers that withdrew from the plan may have unfunded vested benefits in the plan. Defined Benefit and Defined Contribution Plans Pension plans are either DB or DC. Over the past 30 years, employers have been offering fewer DB plans and more DC pensions. DOL data indicate that 64.2% of all pension plan participants were in DB plans in 1981, and that percentage declined to 27.7% in 2015. Defined Benefit Pension Plans Participants in DB pension plans receive monthly payments in retirement. In multiemployer DB pension plans, the payment is typically calculated as the length of service with employers that contribute to the plan multiplied by a dollar amount. The payments are paid by the plan for the lifetime of the worker after he or she retires. Plan participants who are married may receive a joint-and-survivor annuity, which is an annuity payable for the lifetime of the participant or the participant's spouse, whichever is longer. DB pension plans in the private sector are generally funded entirely by employer contributions. DOL data in 2011 (the most recent year available) indicated that among private-sector workers who participated in DB plans, 4% were required to make an employee contribution to the plans. Among public-sector workers who participated in DB plans in 2017, 91% were required to make a contribution to their DB pension plans. Defined Contribution Pension Plans Workers in DC pension plans contribute a percentage of their wages to an individually established account. Employers may also contribute a match to the DC plan, which is an additional contribution equal to some or all of the worker's contribution. The account accrues investment returns and is then used as a basis for income in retirement. Because DC plans do not provide guarantees of lifetime income (unless participants purchase an annuity), there are no issues of underfunding in these plans. Examples of DC plans are 401(k), 403(b), and 4057(b) plans and the Thrift Savings Plan (TSP). Data on Pension Plans and Participants Table 1 provides information on the number of single and multiemployer DC and DB pension plans in 2015 (the most recent year for which data are available) and the number of active and retired participants by plan type. In 2015, there were 1,413 multiemployer DB pension plans that covered 10.3 million participants, of which 40% were active participants, meaning that 60% were retired (thus receiving benefits). DB pension plans that have high percentages of active workers are better able to rely on future contributions from plan sponsors to make up for plan underfunding. This is because, on a per participant basis , employers' contributions toward the underfunding will be lower in plans with higher percentages of active workers. Funding Levels in Multiemployer Defined Benefit Pension Plans The funding levels of multiemployer DB pension plans are varied: some plans are well funded and have adequate funds from which to pay all of their promised benefits, and a few plans are poorly funded and may become insolvent within 10 to 20 years. An insolvent multiemployer DB pension plan has depleted all of its assets and is unable to pay all of its current benefit obligations. Insolvent DB pension plans are eligible to receive financial assistance from PBGC. The Pension Protection Act of 2006 (PPA; P.L. 109-280 ) requires a plan that has a funding shortfall below specified levels to notify DOL of the plan's funding status and establish a plan to improve funding levels over time. Background on Multiemployer Defined Benefit Plan Funding DB pension benefits are accrued by eligible employees while working. The benefit is paid, typically as a monthly annuity, during the worker's retirement. The benefits in DB plans subject to ERISA are required to be prefunded, which means that in the current year the plan sponsor sets aside adequate funds, taking into account expected future investment returns, for pension benefits earned in that year. Plan sponsors may also be required to make additional contributions for investment losses that occurred in previous years and increases in the present value of future plan obligations. Plan participants receive their monthly benefit in retirement from these funds that have been set aside. The required contributions for employers in multiemployer DB pension plans are fixed for several years as established in collective bargaining agreements. Various situations have led to many pension plans having a smaller amount of funds than the amount of benefits that have been promised by the plan. These situations include declines in the values of plan assets (such as occurred during the stock market decline in 2008) and increases in the current value of future benefits (such as occurred when interest rates declined as a result of the Federal Reserve's efforts to strengthen the economy). Appendix A provides background for understanding pension plan funding issues. Funding Standard Accounts and Funding Deficiencies Multiemployer DB plans maintain funding standard accounts, which facilitate the administration of funding requirements. Charges (debits) to the account reduce the account balance and include the cost of benefits earned by participants during the year and investment losses. Credits increase the funding standard account and include employer contributions to the plan and investment gains. When the total credits to a multiemployer DB pension plan exceed the total charges, the plan has a "credit balance" and no contributions are required until future charges eliminate the credit balance. When the total charges exceed the total credits, a funding deficiency results and additional contributions to the plan may be required. According to PBGC, 90 plans (out of 1,471 plans) reported funding deficiencies in 2010. Table 2 provides the distribution of funding ratios in 2015 (the most recent year for which data are available) among (1) multiemployer DB pension plans and (2) the participants in these plans. The funding ratio was less than 50% for 784 plans, which was 56.16% of all multiemployer DB plans. These plans had about 7.5 million participants, which was 72.5% of all multiemployer DB plan participants in 2015. Withdrawal Liability When a company wishes to exit a multiemployer DB plan, the company is responsible for its withdrawal liability, defined as its share of unfunded vested benefits (benefits to which participants have a contractual right but which the plan has insufficient assets to pay). In instances in which an employer withdraws from a multiemployer DB pension plan because of the employer's bankruptcy, it may not be possible to recover the employer's withdrawal liability. As a result, there may be plan participants with vested benefits who worked for an employer that no longer participates in the plan. These participants are sometimes called orphan participants because they do not have an employer that will make additional contributions to the plan for their unfunded benefits. The existence of orphan plan participants can result in a worsening funding situation for the multiemployer plan, because DB plan assets are comingled in a trust and are not assigned to a particular employer's contributions or participant's benefit. Thus, benefit payments for all participants draw down general plan assets. Reporting of Plan Funded Status The Pension Protection Act of 2006 (PPA; P.L. 109-280 ) requires that the actuary of a multiemployer DB pension plan annually certify the plan's status in one of three categories based on, among other factors, the funded status of the plan. A plan can be in critical status , endangered status , or neither category. A plan in critical or endangered status must take measures to improve its financial conditions. The PPA provisions that created the zone certifications were scheduled to sunset on December 31, 2014, but were made permanent by Multiemployer Pension Reform Act of 2014, enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015 (MPRA; P.L. 113-235 ). In addition, MPRA added critical and declining as a fourth funded status category. Critical (Red Zone) Status A plan is in critical status if any of the following conditions apply: (1) the plan's funding ratio is less than 65% and the value of the plan's assets and contributions will be less than the value of benefits in the next six years; (2) in the current year, the plan is not expected to receive 100% of the contributions required by the plan sponsor, or the plan is not expected to receive 100% of the required contributions for any of the next three years (four years if the plan's funding ratio is 65% or less); (3) the plan is expected to be insolvent within five years (within seven years if the plan's funding ratio is 65% or less); or (4) the cost of the current year's benefits and the interest on unfunded liabilities are greater than the contributions for the current year, the present value of benefits for inactive participants is greater than the present value of benefits for active participants, and there is expected to be a funding deficiency within five years. Plans in critical status must adopt a rehabilitation plan. The rehabilitation plan is a range of options (such as increased employer contributions and reductions in future benefits accruals) that, when adopted, will allow the plan to emerge from critical status during a 10-year rehabilitation period . If a plan cannot emerge from critical status by the end of the rehabilitation period using reasonable measures, it must either install measures to emerge from critical status at a later time (after the end of the rehabilitation period) or forestall insolvency. Plans in critical status may not increase benefits during the rehabilitation period. Plans in critical status must provide notice to plan participants, beneficiaries, the collective bargaining parties, PBGC, and DOL. Critical and Declining (Deep Red Zone) Status A plan is in critical and declining status if (1) it is in critical status and (2) the plan actuary projects the plan will become insolvent within the current year or within either the next 14 years or the next 19 years, as specified in law. Plans in critical and declining status must provide notice to plan participants, beneficiaries, the collective bargaining parties, PBGC, and DOL. Endangered (Yellow Zone) Status A plan is in endangered status if (1) the plan's funding ratio is less than 80% funded or (2) the plan has a funding deficiency in the current year or is projected to have one in the next six years. A subcategory of endangered status is seriously endangered ( orange zone ). A plan is seriously endangered if it meets both of these criteria. Plans in endangered status must adopt a funding improvement plan, which is a range of options (such as increased contributions and reductions in future benefit accruals) that, when adopted, will reduce the plan's underfunding by 33% during a 10-year funding improvement period . Plans in seriously endangered status must adopt a funding improvement plan that will reduce underfunding by 20% during a 15-year funding improvement period. Plans in endangered or seriously endangered status cannot increase benefits during the funding improvement period. Plans in endangered status must provide notice to plan participants, beneficiaries, the collective bargaining parties, PBGC, and DOL. Green Status Plans that are in not in critical and declining, critical, seriously endangered, or endangered status are considered to be in green status . These plans most likely will be able to pay all of the participants' benefits without changes to employers' contributions or participants' benefits. Table 3 provides the number of multiemployer DB plan certifications within each funded status category for 1,254 plans that reported their plan status in 2015 (the most recent year for which complete information is available). PBGC Multiemployer Insurance Program PBGC is a federal government agency created by ERISA in 1974 to protect the benefits of participants in private-sector DB pension plans. PBGC operates two insurance programs: a single employer insurance program and a multiemployer insurance program. The two programs function quite differently. In the single employer program, PBGC becomes the trustee of terminated, underfunded DB pension plans and pays benefits up to a statutory maximum amount. In the case of multiemployer plans, PBGC does not insure against termination. Rather, when a multiemployer DB pension plan becomes insolvent and is unable to pay participants their promised benefits, PBGC provides financial assistance in the form of loans made to multiemployer DB plans. Because the loans are made to plans that are insolvent and typically do not have employers making contributions other than for withdrawal liability, PBGC does not expect them to be repaid. As a condition for the loans, plans must reduce participants' benefits to a statutory maximum benefit. PBGC's multiemployer insurance program receives revenues from two sources: (1) premium revenue paid by the sponsors of multiemployer pension plans and (2) interest income from holdings of the U.S. Treasury debt. Premium revenue is placed in a revolving fund that, by law, is invested in the U.S. Treasury debt. At the end of FY2017, PBGC reported a deficit of $65.1 billion in the multiemployer insurance program. If a sufficient number of multiemployer pension plans exhaust their plan assets and become unable to pay promised benefits, it is likely that PBGC would also exhaust its assets. PBGC indicated that there is more than a 50% chance of PBGC insolvency by the end of 2025, a more than 90% chance of insolvency by the end of 2028, and a 99% chance of insolvency by 2036. In its FY201 7 Projections Report , PBGC indicated that the multiemployer insurance program will face significant financial challenges over the next 10 years to 20 years: the multiemployer program is more likely to become insolvent than not, and faces a 99% likelihood of insolvency by 2026. The value of assets in the multiemployer program at the end of FY2017 was $2.3 billion, and PBGC estimated the present value of the next 10 years of insurance premiums to be $2.8 billion. These two sources of funds roughly total $5.0 billion and represent the amount of resources available to PBGC from which to provide future financial assistance over the next 10 years. PBGC estimated the present value of future financial assistance to multiemployer plans from FY2017 to FY2026 to range from $7.2 billion (assuming no future benefit suspensions or plan partitions under MPRA) to $7.4 billion (assuming future benefit suspensions and plan partitions under MPRA). This potential deficit of $2.4 billion is the amount by which PBGC would be unable to provide sufficient financial assistance for plans to pay the PBGC guaranteed maximum benefit ($12,870 per year per participant) over this period. The projections report noted that plans likely will require significant amounts of financial assistance even after FY2026 because the present value of PBGC's financial position in 2027 was estimated to be a deficit ranging from $68.0 billion (assuming future benefit suspensions and plan partitions under MPRA) to $68.9 billion (assuming no future benefit suspensions or plan partitions under MPRA). In an August 2016 report, the Congressional Budget Office (CBO) provided several estimates of the PBGC multiemployer program's financial condition. CBO's cash-based estimates account for spending and revenue in the years when they are expected to occur. CBO estimates that from 2017 to 2026, PBGC will be obligated to pay $9 billion in claims but will only have sufficient resources to pay $6 billion. From 2027 to 2036, claims to PBGC are estimated to be $35 billion but PBGC will only have sufficient resources to pay $5 billion. CBO also provided fair-value estimates, which are the present value of all expected future claims for financial assistance, net of premiums received. CBO's fair-value estimate of PBGC's future obligations was $101 billion. Current and Future Financial Assistance to Multiemployer Pension Plans PBGC provides financial assistance to insolvent multiemployer pension plans. In addition to providing details about the number of plans receiving financial assistance, PBGC estimates the number of plans that might need financial assistance in the future. Potential future financial assistance is categorized as either (1) probable or (2) reasonably possible, depending on whether the PBGC expects to provide the assistance (1) within 10 years or (2) between 10 years and 20 years. Plans Currently Receiving Financial Assistance Seventy-two multiemployer plans received financial assistance in FY2017 that totaled $141 million. The net liability associated with these plans was $2.7 billion. Probable Exposure to Future Financial Assistance Plans are classified as "probable" if the plan is (1) terminated and underfunded but not yet receiving financial assistance or (2) ongoing but expected to be insolvent within 10 years. In FY2017, 68 multiemployer plans had been terminated but had not yet started receiving financial assistance. The net liability associated with these plans was $2.0 billion. 47 plans were ongoing but expected to be insolvent within 10 years. The net liability associated with these plans was $62.7 billion. The dollar amount of probable exposure to future financial assistance increased from $58.9 billion in FY2016 to $64.6 billion in FY2017. As explained in its FY2013 annual report, PBGC indicated that approximately $26 billion of the probable future financial assistance is a result of the potential insolvency of two large plans. One plan, classified by PBGC in the "transportation, communications, and utilities" industry, had a net liability to PBGC of $20 billion as of the end of FY2013. A second plan, classified by PBGC in the "agriculture, mining, and construction" industry, had a net liability of $6 billion to PBGC at the end of FY2013. Reasonably Possible Exposure to Future Financial Assistance Plans are classified as "reasonably possible exposure to future financial assistance" if the plan is ongoing but is projected to be insolvent in 10 years to 20 years. In its FY2017 annual report, PBGC estimated its reasonably possible exposure to be $14 billion. This figure was a decrease from the $19.5 billion reported in FY2016. PBGC Guarantees PBGC guarantees benefits in pension plans up to a statutory maximum level. When an insolvent multiemployer DB pension plan becomes insolvent, the plan must reduce participants' benefit to the PBGC maximum amount before the plan receives the assistance. The statutory maximum benefit in multiemployer plans that receive financial assistance from PBGC is the product of a participant's years of service multiplied by the sum of (1) 100% of the first $11 of the monthly benefit accrual rate and (2) 75% of the next $33 of the accrual rate. For a participant with 30 years of service, the statutory monthly maximum benefit is $1,073 or an annual maximum benefit of $12,870 per year. PBGC Premium and Investment Income in FY2017 PBGC reported $291 million in premium income from multiemployer plans in FY2017. PBGC also reported a loss of $53 million in investment income from holdings of the U.S. Treasury debt. Premiums are placed in a revolving fund, which, by law, must be invested in Treasury securities. PBGC Premium Levels The PBGC multiemployer insurance program is funded by a per participant premium paid by each pension plan. In 2018, the sponsors of multiemployer DB pension plans pay an annual premium of $28 for each participant in the plan. The premium is indexed to increases in the average national wage. Inadequacy of PBGC Premiums Unlike the single employer insurance program, PBGC does not become trustee of insolvent multiemployer pension plans. For this reason, the only sources of funding for the financial assistance to insolvent multiemployer pension plans are (1) the collection of premiums that multiemployer plan sponsors pay to PBGC and (2) interest income from the investment of past premium income in the U.S. Treasury bonds. If the amount of financial assistance were to exceed the amount of premium revenue, then the revolving fund containing the investments in U.S. Treasuries could become depleted. As mentioned above, PBGC estimated its probable exposure to future financial assistance to be $64.6 billion over the next 10 years and its reasonably possible exposure to future financial assistance to be $14 billion. The premium income in PBGC's multiemployer program was $291 million in FY2017. PBGC has indicated that the multiemployer insurance program is likely to become insolvent in 10 years to 15 years, even before any new financial obligations are added. Premium levels likely are inadequate to provide continued financial assistance to insolvent multiemployer plans and could exhaust PBGC's ability to guarantee participants' benefits. PBGC has indicated that once resources are exhausted in its multiemployer program, insolvent plans would be required to reduce benefits to levels that could be sustained through premium collections only. PBGC premiums are set by law. Members of Congress and some stakeholders, such as plan sponsors, might be reluctant to raise premiums to the levels necessary to fund promised benefits if the probable exposure scenario developed. Multiemployer Defined Benefit Pension Plan Policy Issues For a number of years, some Members of Congress have expressed a desire to address the challenges faced by the sponsors of multiemployer DB pension plans and by PBGC's multiemployer insurance program. Policymakers have been giving increased attention to issues concerning multiemployer DB pension plans and PBGC's multiemployer insurance program. The Multiemployer Pension Reform Act of 2014, enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015 (MPRA; P.L. 113-235 ), among other provisions, (1) made permanent certain funding rules that were scheduled to sunset and (2) allowed some plans to stave off insolvency by reducing benefits for some participants. Some Members of Congress subsequently expressed interest in additional proposals that would create new multiemployer pension plan structures that the creators of the proposals say would eliminate some of the problems currently faced by some multiemployer DB pension plans. Likely Insolvency of a Few Large Multiemployer Pension Plans and PBGC Insurance Program Although many multiemployer DB pension plans are underfunded, some can expect their funding position to improve with modest changes to the plan, such as increased employer contributions. However, about 10% to 15% of participants are in multiemployer plans that are projected to become insolvent within 20 years. Insolvent DB multiemployer pension plans are eligible for financial assistance from PBGC. PBGC has sufficient assets from which to provide financial assistance to currently insolvent plans and to smaller multiemployer plans that may become insolvent in the future. However, if one or more large multiemployer plans become insolvent, PBGC would likely have insufficient resources from which to pay 100% of the benefits owed to plan participants. PBGC has indicated that once it has exhausted the assets in the multiemployer insurance program revolving funds, it would be able to pay total benefits equal to total premium income. This would likely mean that participants' benefits would be cut to levels below the current maximum benefit. Most participants would receive less than $2,000 per year because PBGC would be able to provide annual financial assistance equal only to its annual premium revenue, which was $291 million in FY2017. For participants' benefits to be paid at the guaranteed amount, then either (1) premiums would have to rise to levels that many plan sponsors, plan participants, and policymakers would find unreasonable or (2) federal financial assistance to PBGC would be required. PBGC estimated that premium levels would need to increase in the range of 59% to 85% to ensure solvency over the next 10 years and in the range of 363% to 552% to ensure solvency over the next 20 years. Multiemployer Pension Reform Act of 2014 In December 2014, Congress enacted MPRA, which (1) increased the premiums that multiemployer DB pension plans pay to PBGC, (2) modified certain multiemployer DB pension funding rules, (3) facilitated mergers and partitions of multiemployer DB pension plans, and (4) allowed certain multiemployer DB pension plans to reduce benefits to stave off insolvency. Many of the provisions were in a 2013 proposal put forward by the National Coordinating Committee for Multiemployer Plans (NCCMP), which is an organization that represents a number of multiemployer pension plans. NCCMP created a Retirement Security Review Commission (the commission) to gather input from a coalition of employers and labor groups for multiemployer DB pension reform proposals. In February 2013, the commission issued a report to advance a proposal that it indicated would reform and strengthen the multiemployer pension system. The commission proposed the following: (1) reforms to existing funding rules for multiemployer pension plans; (2) solutions to address deeply troubled multiemployer DB pension plans (plans that are expected to become insolvent in the next 10 years); and (3) new plan designs to encourage the creation of new multiemployer plans. MPRA contained provisions that reformed some existing funding rules and addressed the problems of deeply troubled plans. MPRA did not contain any provisions related to new plan designs. Details of the provisions of MPRA are in Appendix B . Applications for Benefit Reductions As of September 21, 2018, the U.S. Treasury has received 32 applications to reduce benefits under MPRA. Five applications, including the application by the Central States, Southeast and Southwest Areas Pension Plan (a very large plan with 400,000 participants), have been denied. Ten applications have been withdrawn, and seven applications have been approved. Decisions are still pending on the remaining 10 applications. The Central States, Southeast and Southwest Areas Pension Plan (Central States) was the first plan to submit an application to the U.S. Treasury. The application received a considerable amount of attention because the plan has more than 400,000 participants and was proposing to reduce benefits to approximately two-thirds of plan participants. It is the largest multiemployer DB pension in critical and declining status. As noted above, because of the size of its benefit obligations, and absent any federal financial assistance, the insolvency of Central States would likely lead to the insolvency of PBGC. On May 6, 2016, the U.S. Treasury denied Central States' application. It cited three instances in which the application failed to meet the criteria in MPRA for the approval of benefit suspensions: (1) the actuarial projections in the application failed to show that the proposed benefit reductions would avoid insolvency, (2) the proposed benefit reductions were not distributed equitably, and (3) the participant notices were not written so as to be understood by the average plan participant. Central States indicated that it would not resubmit its application to reduce benefits. The Joint Select Committee on Solvency of Multiemployer Pension Plans The Bipartisan Budget Act of 2018 ( P.L. 115-123 ), enacted February 9, 2018, created the Joint Select Committee on Solvency of Multiemployer Pension Plans to author a report and prepare legislative language to address the impending insolvencies of several large multiemployer defined benefit (DB) pension plans and PBGC. The committee consists of 16 Members of Congress, including four House and Senate leaders from each party. Hearings The joint committee must hold five or more public meetings and three or more public hearings, which may include field hearings. As of September 14, 2018, the committee has held six hearings. Each cochair (Senators Orrin Hatch and Sherrod Brown) will be able to select an equal number of witnesses for each hearing. Report and Legislative Language The committee must provide to Congress no later than November 30, 2018, a report and proposed legislative language to improve the solvency of multiemployer DB plans and the PBGC. The report and proposed legislative language must be approved by (1) a majority of committee members appointed by the Speaker of the House and Majority Leader of the Senate and (2) a majority of committee members appointed by the Minority Leader of the House and Minority Leader of the Senate. Consideration of Joint Committee Bill The provisions that establish the joint committee contain provisions that provide procedures for the consideration of the joint committee's bill by the Senate Committee on Finance and the Senate Committee on Health, Education, Labor, and Pensions (HELP). The bill also provides aspects of Senate procedures for consideration of the joint committee's bill by the full Senate. There are no provisions that require consideration of the bill by any committees in the House or by the full House. Appendix A. Defined Benefit Plan Funding This appendix provides background on basic concepts related to the funding of DB pension plans. Defined Benefit Plan Balance Sheet Figure A-1 depicts a typical DB pension plan's balance sheet. It consists of plan assets, which are the value of the investments made with accrued employer (and employee, if any) contributions to the plan, and plan liabilities, which are the value of participants' benefits earned under the terms of the plan. Plan assets are invested in equities (such as publicly traded stock), debt (such as the U.S. Treasury and corporate bonds), private equity, hedge funds, and real estate. Defined Benefit Plan Funding Ratio The funding ratio measures the adequacy of a DB pension plan's ability to pay for promised benefits. The funding ratio is calculated as A funding ratio of 100% indicates that the DB plan has set aside enough funds, if the invested funds grow at the expected rate of return or better, to pay all of the plan's benefit obligations. Funding ratios that are less than 100% indicate that the DB plan will not be able to meet all of its future benefit obligations. Because benefit obligations are paid out over a period of 20 years to 30 years, participants in an underfunded plan will likely receive their promised benefits in the near term. However, if the underfunding persists without additional contributions, plan participants might not receive 100% of their promised benefits in the future. In response to strong investment returns in the 1990s, many multiemployer DB pension plans increased benefits to participants. Many of these plans then became underfunded during the early 2000s as financial markets weakened. Their financial position worsened as a result of (1) stricter funding rules put in place in the Pension Protection Act of 2006 ( P.L. 109-280 ), (2) the decline in equity markets in 2008, (3) low interest rates as a result of weak economic conditions, and (4) the bankruptcy of some of the firms participating in the plans. The Value of Plan Assets Pension plans report the value of plan assets using two methods: market values (the value at which each asset can be sold on a particular date) or smoothed values (the average of the past, and sometimes expected future, market values of each asset). The smoothing of asset values prevents large swings in asset values and creates a more predictable funding environment for plan sponsors. One of the drawbacks of smoothing is that smoothed asset values may be substantially different from market values. Some advocates of reporting market values note that smoothed values are often higher than market values (particularly during periods of market declines), which could overstate the financial health of some pension plans. Some advocates of smoothing argue that market values are useful only if a plan needs to know its liquidated value (e.g., if the plan had to pay all of its benefit obligations at one point in time), which is unlikely to be the case as most pension plans are likely to be ongoing concerns. Plan Liabilities A pension plan's benefits are a plan liability spread out over many years in the future. These future benefits are calculated and reported as current dollar values (also called present value). Figure A-2 shows the process by which future benefits are discounted. Using a formula, benefits that are expected to be paid in a particular year in the future are calculated so they can be expressed as a current value. The process is called discounting , and it is the reverse of the process of compounding , which projects how much a dollar amount will be worth at a point in the future. The formula by which future values are calculated as current values is in Figure A-3 . For example, assuming a discount rate of 10%, $121 in two years' time is worth $121(1.1)2=$100 today. The present value of a dollar amount is inversely related to both the discount rate and the number of years in the future. As the discount rate or number of years in the future increases, present value decreases; as the discount rate or number of years decreases, present value increases. In the above example, if the discount rate is 15%, then $121 in two years' time is worth $121(1.15)2=$91.49 today, and $121 in three years' time is worth $121(1.1)3=$79.56. Discount Rate Used to Value Future Benefits In the context of DB pension plans, plan actuaries calculate the present value of future benefit obligations by estimating (1) the dollar amount of the benefits accrued by plan participants and (2) the years in the future in which the benefits are expected to be paid. The Internal Revenue Code does not require multiemployer pension plans to use a specific discount rate to value their future benefit obligation. The assumptions a plan uses must be reasonable and offer the best estimate of the plan's expected experience. In practice, multiemployer plans generally discount plan liabilities using the expected rate of return on the plan's assets. However, multiemployer plans are required to value plan liabilities using rates of returns to bonds, as well. On Schedule MB of Form 5500, multiemployer plans report the present value of future benefits discounted by the expected return on plan assets (listed as the Ac crued L iability U nder U nit C redit C ost M ethod ) and by long-term bond yields (listed as the C urrent L iability under the "RPA '94" Information ). The RPA '94 discount rate is generally lower than a plan's expected return on assets. Pension policy experts have several viewpoints on the appropriate discount rate that pension plans should use to value plan liabilities. Broadly speaking, some actuaries recommend that pension plans discount future benefits using the expected rate of return on plan investments (the current practice for multiemployer DB pension plans). Some financial economists, by contrast, recommend that plans discount the liabilities using a discount rate that reflects the likelihood that the benefit obligation will be paid. The rationale for the actuaries' approach is as follows: because funds are to be set aside to pay an obligation in the future, the amount that has to be set aside should consider the rate of the return on the investment. For example, given an expected return of 10%, a $100 obligation payable in one year would be valued at $90.91 in today's dollars ($100 ÷ 1.1 = $90.91), and $90.91 could be set aside today to pay the $100 future obligation. The rationale for the approach favored by financial economists is that pension obligations should be discounted based on the likelihood that they will be received by plan participants. Because participants are very likely to receive most of their pension benefits (for example, because of vesting provisions in ERISA and PBGC guaranties), their pension benefits should be discounted using a discount rate close to the risk-free rate. Financial economists say that the actuaries' approach may make an inappropriate connection between the value of liabilities and the rate of return on assets. For example, the value of the obligation can be increased or decreased by changing the assumption on the rate of return, which suggests that a pension plan could eliminate some of its underfunding by investing the plan's assets in riskier investments. The approach suggested by some actuaries results in discount rates that are generally higher than the rates that result by using the approach suggested by some financial economists. One effect of this divergence of opinion is that the value of pension plan benefit obligations is higher (and funding ratios are lower) using the approach favored by some financial economists. For example, in March 2012, a Credit Suisse study estimated the underfunding of multiemployer DB pension plans at $101 billion under the actuaries' approach and $428 billion under the financial economists' approach. Appendix B. Summary of the Provisions in the Multiemployer Pension Reform Act The National Coordinating Committee for Multiemployer Plans (NCCMP) is an organization that represents a number of multiemployer pension plans. In 2013, it created a Retirement Security Review Commission (the commission) to gather input from a coalition of employers and labor groups for multiemployer DB pension reform proposals. Many of the commission proposals were included in the Multiemployer Pension Reform Act of 2014, enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015 (MPRA; P.L. 113-235 ). Increases to PBGC Premiums MPRA increased the premiums that the sponsors of multiemployer DB pension plans pay to PBGC. The premium increased from $12 per participant to $26 per participant. In addition, beginning in 2016, the premium is increased annually for changes in the average national wage. Changes to Funding Rules Sections 101 to 111 of MPRA made the following changes to the funding rules for multiemployer DB plans: Eliminates the sunset of provisions related to the zone certification status; Permits plans to enter critical status if they anticipate being in that status in the next five years. Under prior law, multiemployer plans were required to make changes to the plan structure when they entered critical status. However, plans could not make changes if they anticipated entering that status (they had to wait until they entered that status); Allows plans that emerge from critical status not to reenter critical status for at least one year following their emergence. Under prior law, because different criteria existed in the funding status tests for plans emerging from critical status, some plans emerged from and then immediately reentered critical status; Authorizes plans that meet the criteria for endangered status but have funding improvement plans that do not require additional contributions or benefit changes not to be certified as in endangered status. Some plans that entered endangered status did not have to make any changes to contributions or benefit levels to emerge from that status. Under prior law, these plans continued to be classified as being in endangered status; Permits plan actuaries for plans in endangered status, when developing funding improvement plans, to use the funding status as of the date of certification of the status rather than having to calculate the plan's funding status as of the beginning of the funding improvement plan. Under prior law, plan actuaries had to calculate the funding status at date of certification of endangered status and make a projection of the funding status at the beginning of the funding improvement period; Allows plans in endangered status to adopt some of the rules that previously had been available only to plans in critical status, including contribution decreases and the waiver of excise taxes. Some plans that were in endangered status actively sought to be placed in critical status because a number of the restrictions placed on plans in endangered status were more onerous than those placed on plans in critical status; Enables funding improvement plans and rehabilitation plans to specify the course of action if the collective bargaining agreement expires and the parties cannot agree on a schedule. Prior law provided no guidance as to the course of action a plan must take if a collective bargaining agreement expired when a plan was in endangered or critical status; Allows rules for plans in critical status to take priority over rules for plans in reorganization when both occur simultaneously. The Multiemployer Pension Plan Amendments Act of 1980 ( P.L. 96-364 ) required plans in weak financial condition to undergo reorganization and established rules for plans in reorganization to improve funding. There potentially were conflicts between some of the rules for plans that were both in reorganization and in endangered or critical status; Permits contribution increases as part of a funding improvement plan or a rehabilitation plan to be disregarded in determining withdrawal liability. Plans that are in critical or endangered status could inadvertently make changes that could have increased plans' withdrawal liability; and Provides preretirement survivor annuities to plan participants who die after the date of plan insolvency or termination. Plan participants in multiemployer plans that are insolvent or that have been terminated were ineligible for preretirement survivor annuities. This provision is in contrast to participants in single employer plans, who remain eligible for survivor annuities after plan termination. Assistance for Deeply Troubled Plans Some multiemployer DB pension plans are in very poor financial condition and are likely to become insolvent. If one or two of the largest plans become insolvent, PBGC would likely have insufficient resources from which to guarantee participants' benefits. If PBGC is unable to pay participants' guaranteed benefits, it is unclear whether PBGC would receive financial assistance from the federal government. PBGC was established to be self-financing, and ERISA states that the "United States is not liable for any obligation or liability incurred by the corporation." Some Members of Congress have expressed a reluctance to consider providing financial assistance to PBGC. Deeply troubled multiemployer DB plans have limited options to avoid insolvency. Increased contributions and cuts to adjustable benefits to active plan participants are likely to be insufficient to return these plans to solvency. Participants' benefits in insolvent plans would be reduced to the PBGC guaranteed levels, or possibly lower, if PBGC has insufficient resources from which to pay 100% of the benefits guaranteed to participants. Facilitate Mergers and Partitions Sections 121 and 122 of MPRA provide PBGC with greater authority to facilitate mergers and partitions of multiemployer pension plans. In a plan merger, the assets and liabilities of one plan are transferred to another plan. MPRA allows PBGC to promote and facilitate mergers between multiemployer plans, provided the merger is in the interests of the participants of at least one of the plans and is not reasonably expected to be adverse to the overall interests of the participants in any of the plans. Actions by PBGC to facilitate mergers include providing training and technical assistance, mediation, and communication with stakeholders. PBGC also may provide financial assistance to the merged plan if, among other provisions, (1) one of the plans in the merger is in critical and declining status, (2) financial assistance will reduce PBGC's expected long-term loss, and (3) financial assistance is necessary for the merged plan to remain solvent. In a partition, PBGC gives approval to divide a plan that meets specified criteria into two plans. The goal of the partition is to restore the original plan to financial health. Some key features of the plan partition process include the following: The original plan must be in critical and declining status and must have taken all reasonable measures to avoid insolvency, including reducing participants' benefits to 110% of PBGC maximum guarantee benefit level; PBGC must expect that a partition of the plan would reduce PBGC's long-term loss with respect to the plan and that the partition would not impair PBGC's ability to provide financial assistance to other plans; Some or all orphan participants and their liabilities from the original plan are transferred to a newly created plan (also called a successor plan ); The successor plan is administered by the original plan; No assets from the original plan are transferred to the successor plan. The successor plan receives financial assistance from PBGC to pay benefits to the participants in that plan; and Participants' benefits in the successor plan are reduced to PBGC maximum benefit levels; the original plan provides participants the difference between (1) the reduced benefit in the original plan and (2) the PBGC maximum benefit provided in the successor plan. Benefit Reductions Section 201 of MPRA allows certain multiemployer DB plans to reduce benefits for participants. The following are features of the provisions for benefit reductions: Only plans that are in critical and declining status may cut benefits. The Treasury Secretary, in consultation with the PBGC and the Labor Secretary, may reject a plan's application to reduce benefits if the plan sponsor's determination of the need for benefit reductions is "clearly erroneous." Participants in most plans are able to reject the reduction of benefits, if a majority of all participants and beneficiaries vote to do so. However, plans deemed to be systematically important are able to reduce participants' benefits without a vote. A systemically important plan is one in which PBGC would pay $1 billion or more in benefit payments if the benefit reductions were not implemented. There are likely only a handful of plans that are systematically important. Individuals cannot have their benefits cut below 110% of the PBGC maximum guarantee. Because the maximum guarantee in 2015 is $12,870 per year, a participant whose benefit is suspended would have to receive a benefit of at least $14,157. Disabled individuals and retirees aged 80 or older may not have their benefits reduced. Individuals between the ages of 75 and 80 may not receive the maximum benefit reduction. Benefit reductions must be distributed equitably. MPRA lists a number of factors that a plan sponsor may consider in making determinations. These factors include the age and life expectancy of participants; the length of time an individual has been receiving benefits from the plan; and the years to retirement for participants who are currently working. Benefit reductions in certain plans are to be ordered, first, among participants who worked for an employer that withdrew and failed to pay, in full, the required payments to exit the plan (known as withdrawal liability ); and second, among other participants except those who worked for an employer that (1) withdrew from the plan, (2) fully paid its withdrawal liability, and (3) established a separate plan to provide benefits in an amount equal to benefits reduced as a result of the financial condition of the original plan. For example, this third exclusion applies to participants who worked for United Parcel Service and are in a trucking industry multiemployer plan. Reducing retirees' benefits was a contentious issue. For example, some feared that retirees could be asked to shoulder a burden that otherwise could be fixed by increased employer contributions. Another concern was that retirees, particularly the most vulnerable, might not have adequate representation in discussions of changes to deeply troubled multiemployer DB pensions. MPRA addressed some of these issues. For example, individuals who are disabled or who are aged 80 and older may not have their benefits reduced and, except for several systematically important multiemployer plans, plan participants must vote on whether to reject any proposed benefit suspensions. Recommendations Not Included in MPRA The following 4 of the 13 recommendations from the Retirement Security Commission for changes to the funding rules for multiemployer DB pensions were not in MPRA. These changes would have provided for automatic triggers for funding relief when dramatic declines occur in financial markets. Under current law, changes in funding rules must be authorized in statute, which can result in a delay between the onset of financial difficulties for pension plans and the implementation of funding relief; allowed plans to pay certain additional benefits (a 13 th check) that would not have been considered a part of a participant's accrued benefit. Plans that experience favorable investment returns sometimes provide participants an additional benefit. If the 13 th check is offered on a regular basis, then the benefit is considered a regular benefit, which cannot be reduced or eliminated; eliminated the potential exposure to an Internal Revenue Service (IRS) excise tax for plans that were granted amortization extensions under PPA. Prior to PPA, in exchange for a schedule of funding improvements, the IRS allowed some plans to extend the length of time to make up for investment losses. As a result of the 2008 market downturn, many plans failed to meet the requirements for the schedule of funding improvements and potentially are subject to an IRS excise tax. PPA provided for amortization extensions that made the pre-PPA extensions unnecessary; and permitted plan participants to convert DC accounts into annuities payable from their DB pension plans, whi ch would have allowed participants who have DC accounts to receive lifetime income from their DC plans.

Multiemployer defined benefit (DB) pension plans are pensions sponsored by more than one employer and maintained as part of a collective bargaining agreement. About 3.1% of all DB pension plans, covering 28% of all DB pension plan participants, are multiemployer plans. Nearly all of the remaining DB pension plans are maintained by a single employer. A few DB pension plans are maintained by more than one employer but are not maintained under a collective bargaining agreement. In DB pension plans, participants receive a monthly benefit in retirement that is based on a formula. In multiemployer DB pensions, the formula typically multiplies a dollar amount by the number of years of service the employee has worked for employers that participate in the DB plan. DB pension plans are subject to funding rules in the Internal Revenue Code (26 U.S.C. §431) to ensure they have sufficient resources from which to pay promised benefits. Because single employer and multiemployer DB pension plans have different structures, Congress has established separate funding rules for these plans. Although many multiemployer DB pension plans have sufficient resources from which to pay their promised benefits, 10% to 15% of participants are in plans that are projected to become insolvent in the next 20 years. The Pension Benefit Guaranty Corporation (PBGC) is a federally chartered corporation that insures the benefits of participants in private-sector DB pension plans. As with the funding rules, Congress established separate PBGC programs to insure single and multiemployer DB pensions. For example, when underfunded single-employer DB plans terminate, PBGC becomes the trustee of the plan. PBGC does not become the trustee of multiemployer DB pension plans; rather, it makes loans to insolvent multiemployer DB plans so the plans may continue to pay participants' guaranteed benefits. The projected insolvencies of multiemployer plans would likely result in a substantial strain on PBGC's multiemployer insurance program. In the absence of increased financial resources for PBGC, participants in insolvent multiemployer DB pension plans might not receive all of the benefits guaranteed by PBGC. In a report released in June 2017, PBGC indicated that the multiemployer insurance program is highly likely to become insolvent by 2025 and will be unable to pay 100% of participants' benefits at the guaranteed level. The Multiemployer Pension Reform Act of 2014, enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015 (MPRA; P.L. 113-235) made changes to some of the funding rules for multiemployer DB pensions and allowed plans that are expected to become insolvent to cut benefits to plan participants or to apply for a partition of the plan. As of September 21, 2018, the U.S. Treasury has received 32 applications to reduce benefits under MPRA. Five applications, including the application by the Central States, Southeast & Southwest Areas Pension Plan (a very large plan with 400,000 participants), have been denied. Ten applications have been withdrawn, and seven applications have been approved. Decisions are still pending on the remaining 10 applications. The Bipartisan Budget Act of 2018 (P.L. 115-123), enacted February 9, 2018, created the Joint Select Committee on Solvency of Multiemployer Pension Plans to address the impending insolvencies of several large multiemployer DB pension plans and PBGC. The committee must provide to Congress no later than November 30, 2018, a report and proposed legislative language to improve the solvency of multiemployer DB plans and the PBGC. The report and proposed legislative language must be approved by (1) a majority of committee members appointed by the Speaker of the House and Majority Leader of the Senate and (2) a majority of committee members appointed by the Minority Leader of the House and Minority Leader of the Senate. P.L. 115-123 provides for expedited procedures in the Senate if the committee approves of the proposed legislative language. There are no provisions that provide any special procedures governing House consideration of such legislation.

Dietary Supplements: An Overview Dietary supplements are marketed for nutritional support and health promotion, as well as for a number of other uses, including weight loss and sports performance enhancement. These products come in pill, capsule, and liquid form, as well as in forms that may appear similar to conventional food or beverages. Dietary supplement use is common in the U.S. population; over one-half of U.S. adults over age 20 take dietary supplements. Surveys show that number has been increasing. Dietary supplement production has increased over time. The number of dietary supplements on the market rose from 4,000 in 1994 to approximately 55,000 in 2009. The industry recorded over $30 billion in sales in 2011. In 2010-2011, top-selling supplements included vitamins, herbs and botanicals, sports nutrition supplements, and "specialty" supplements which the industry defines as supplements such as glucosamine, probiotics, dehydroepiandrosterone (DHEA), and fish oil that do not fit into other supplement categories. This report outlines the authority of the Food and Drug Administration (FDA) to regulate dietary supplements and summarizes dietary supplement-specific regulations for new dietary ingredients (NDI), good manufacturing practices (GMP), labeling, and claims. The report also discusses adverse event reporting for dietary supplements and other means of ensuring consumer safety through enforcement of these authorities and regulations. Dietary supplement advertising, which is regulated by the Federal Trade Commission (FTC) in coordination with the FDA, is also discussed. Finally, the report concludes with a discussion of policy issues related to the manufacture, regulation, and use of dietary supplements, including the identification of dietary supplements, the role of dietary supplements in health and health care, and dietary supplement safety. FDA's Authority to Regulate Dietary Supplements The Food and Drug Administration, U.S. Department of Health and Human Services (HHS), regulates the processing, manufacture, and packaging of dietary supplements under the Federal Food, Drug, and Cosmetic Act (FFDCA) of 1938. Since passage of the FFDCA, the federal government has generally regulated dietary supplements as food. FDA's authority specifically in regard to dietary supplements has been amended by subsequent legislation; these authorities and their implementation and enforcement are discussed in this section. Under the FFDCA, the FDA regulates the processing, manufacture, and labeling of food products. The agency has the authority to deem food (and dietary supplements) misbranded (i.e., inaccurately labeled or presenting unapproved claims) and adulterated (i.e., containing ingredients that pose a significant or unreasonable risk of illness or injury). The law authorizes the FDA to recall food (and dietary supplements) under specified circumstances. Nutrition labeling requirements for food, including dietary supplements, were established under the Nutrition Labeling Education Act of 1990 (NLEA). However, the Dietary Supplement Act of 1992 instituted a one-year moratorium on the implementation of dietary supplement labeling under NLEA. Congress subsequently required the FDA to create dietary supplement-specific regulations for labeling under the Dietary Supplement Health and Education Act of 1994 (DSHEA). DSHEA made changes to FDA's authority that differentiated certain aspects of dietary supplement regulation from regulation of conventional foods, in regard to 1) new dietary ingredients (NDI), 2) good manufacturing practices (GMP), 3) labeling, and 4) certain health claims for dietary supplements. Additionally, DSHEA excluded dietary supplement ingredients from the definition of a food additive. The Public Health Security and Bioterrorism Preparedness and Response Act required registration of food (including dietary supplement) manufacturers, processors, and packers with the FDA. Subsequent legislation provided FDA with additional authorities. Under the Dietary Supplement and Non-Prescription Drug Consumer Protection Act, Congress added requirements for mandatory reporting of adverse events for dietary supplements. Most recently, the Food Safety Modernization Act (FSMA) provided the FDA with mandatory recall authority for adulterated food (including dietary supplements) and for food that does not provide adequate allergen labeling. Within the FDA, regulation of both food and dietary supplements falls within the purview of the Office of Foods, Center for Food Safety and Applied Nutrition (CFSAN). Information on CFSAN oversight of dietary supplements is summarized in the text box that follows. Adulterated and Misbranded Supplements FDA has the authority to take enforcement action against misbranded (i.e., inaccurately labeled or presenting unapproved claims) and adulterated (i.e., containing ingredients that pose a significant or unreasonable risk of illness or injury) dietary supplements in the form of warning letters, product seizures, and mandatory recalls. It may also ban an ingredient through the rule-making process. Under the FFDCA, a dietary supplement is considered adulterated under specified circumstances related to the product's contents and manufacturing processes: if the dietary supplement or dietary ingredient presents a significant or unreasonable risk of illness or injury either (1) under conditions of use recommended or suggested in the product's labeling, or (2) under normal conditions of use, if none are set forth in the product's labeling; if the dietary supplement contains a NDI for which there is inadequate information as to whether or not it presents a significant or unreasonable risk of illness or injury; if the Secretary declares the dietary supplement or a dietary ingredient therein to pose an imminent hazard to public health or safety; or if the dietary supplement contains a dietary ingredient that renders it adulterated because it is a poisonous or deleterious substance rendering the product injurious to one's health. A dietary supplement is considered misbranded if it is inaccurately labeled or presents unapproved claims. Under current law, the burden of proof of misbranding or adulteration is on the agency, and this is specific to dietary supplements. How Does the FFDCA Define "Dietary Supplement"? Prior to DSHEA, there was no statutory definition of dietary supplements. As amended by DSHEA, the FFDCA defines a dietary supplement as a product (other than tobacco) that is not represented as a conventional food and is intended to supplement the diet; contains one or more of the following dietary ingredients: vitamins, minerals, herbs or other botanicals, amino acids, and other substances or their constituents; is intended to be taken by mouth as a pill, capsule, powder, tablet, or liquid; and is labeled on the front panel as being a dietary supplement. FDA Dietary Supplement-Specific Regulations and Guidance Dietary supplements are generally regulated as food under the FFDCA. As such, they are subject to fewer premarket regulations than other items within the FDA's regulatory purview, such as drugs and medical devices. Similar to food manufacturers, dietary supplement manufacturers must register with the FDA, follow current good manufacturing practices, and must abide by nutrition labeling and claims regulations. However, by law, some of these regulations are dietary supplement-specific. Unlike food manufacturers, dietary supplement manufacturers are required to report serious adverse events to the FDA. In contrast to drugs, dietary supplements and their ingredients are generally presumed safe; also unlike with drugs, the FDA does not have the authority to require safety and efficacy testing for dietary supplements before they enter the market. Although processors, manufacturers, and packers of dietary supplements are expected to adhere to FDA regulations when bringing a new product to market, there is no pre-market approval process for dietary supplements. However, prior to entering the market, the FDA must be notified of dietary supplements containing New Dietary Ingredients, and of dietary supplements containing certain claims. After a supplement is on the market, FDA has the authority to deem dietary supplements misbranded or adulterated if they are inaccurately labeled, contain unapproved NDI, or contain harmful ingredients, and may issue warnings or order a mandatory recall in certain circumstances. The following sections provide details on FDA's dietary supplement-specific authorities, regulations, and guidance on NDI, GMP, labeling (including packaging, inserts, and information at the point of sale), claims, and serious adverse event reporting. New Dietary Ingredients A NDI is defined as a dietary ingredient that was not marketed in the United States in a dietary supplement before October 15, 1994. Supplement ingredients sold in the United States before October 15, 1994 are presumed safe based on their history of use by humans and do not need to be reviewed for safety by the FDA. For these grandfathered dietary supplement ingredients, manufacturers are required to maintain records that document their use prior to October 15, 1994. As long as documentation of grandfathered status exists, a product may be marketed without any evidence of efficacy or safety of its ingredients. The manufacturer of a NDI marketed after that date must give 75 days' premarket notification to the FDA, and must provide a history of use or other evidence of safety when used under recommended conditions. Prior to enactment of DSHEA in 1994, manufacturers were not required by law to notify the FDA of dietary supplement ingredients. Congress created a requirement for manufacturers to notify the FDA of NDI in DSHEA. There is, however, no list of dietary supplement ingredients that were on the market prior to that date. FSMA, enacted in December 2010, contained a provision requiring the FDA to clarify the definition of a NDI and to explain the requirements for safety evaluation of a NDI within 180 days of enactment. The FDA published draft NDI guidance on July 5, 2011. The draft guidance generated controversy, with some manufacturers expressing concerns that the proposed guidance was burdensome and not in keeping with DSHEA. In response to those concerns, the FDA agreed in June 2012 to revise the guidance. FDA has not proposed a timeline for the revised guidance. For each NDI, manufacturers are required to submit notifications to the FDA, and the ingredient must either (1) have been present in the food supply as an article used for food in a form in which the food has not been chemically altered, or (2) be accompanied by evidence supporting a "reasonable expectation of safety" under the recommended conditions of use. According to FDA's draft guidance, for ingredients that are not grandfathered (or if a manufacturer is unable to produce the relevant documentation to confer grandfathered status) the manufacturer would have to re-characterize the ingredient as a NDI and follow the relevant regulatory process. Good Manufacturing Practices Dietary supplement processors, manufacturers, and packers are responsible for ensuring that a dietary supplement or dietary supplement ingredient is safe by following GMP. GMP establish the minimum standards for activities related to manufacturing, packaging, labeling, or holding dietary supplements for the purposes of ensuring the product's quality throughout the manufacturing process to minimize the risks of a potentially unsafe or otherwise illegal product from reaching the marketplace. DSHEA gave FDA the authority to establish GMP specific to dietary supplements modeled after the existing GMP for food. Dietary supplement-specific GMP were requested by industry, citing concerns that GMP developed for conventional food products did not adequately address the unique characteristics of dietary supplements. These regulations were finalized in 2007, and largely addressed the concerns raised by the industry. Dietary supplement GMPs contain sections that detail additional quality control procedures and recordkeeping requirements for each step in the manufacturing process. Following GMP should ensure that final products do not include the wrong ingredients; too much or too little of a dietary ingredient; contaminants such as natural toxins, bacteria, pesticides, glass, lead or other heavy metals; or improper packaging or labeling. FDA noted in the final rule that "the focus of GMP is on process controls to ensure that the desired outcome is consistently achieved, and not on the inherent safety of the ingredients used." GMP for dietary supplements apply to all domestic and foreign companies that manufacture, package, label, or hold a dietary supplement for import and sale in any state or territory of the United States, the District of Columbia, or Puerto Rico. This includes those involved with testing, quality control, packaging and labeling, and distribution of dietary supplements, but excludes retail establishments that are solely involved in the direct sale of dietary supplements to individual consumers. Labeling Although dietary supplements are generally considered food for purposes of FDA regulation, they have different labeling requirements set forth under the FFDCA. Dietary supplement labeling includes packaging, inserts, and information at the point of sale. The 1938 FFDCA required that foods contain labels with certain nutritional information, but it was not until the 1990s that food labeling regulations were authorized and promulgated. The Nutrition Labeling and Education Act (NLEA) of 1990 amended the FFDCA to require that all foods, with certain exceptions, bear nutritional content labels. The Dietary Supplement Act of 1992 created a one year moratorium on the implementation of NLEA with respect to dietary supplement labeling. DSHEA provided FDA the authority to promulgate labeling regulations specific to dietary supplements. While similar to the requirements for nutrition labeling of food, dietary supplement labeling requirements now differ in several specific aspects. Under the FFDCA, the FDA may deem a dietary supplement misbranded if it does not follow the relevant labeling regulations. Dietary supplements are required to have a supplement facts panel (as opposed to a nutrition facts panel for conventional foods). Dietary supplement labels may display certain claims, discussed in detail below, but they must also display a standard disclaimer, and must not link the supplement or its ingredients to the treatment of a specific medical condition. The FDA's Dietary Supplement Labeling Guide sets forth the general display (principal display panel, or PDP) and placement requirements of dietary supplement labeling. An example of a dietary supplement PDP is shown in Figure B-1 . Dietary supplement labels are required to have the following information: a statement of identity (name of the dietary supplement); the net quantity of contents statement (amount of the dietary supplement); a Supplement Facts Panel; an ingredients list, and the quantity of such ingredients in the product; with the exception of quantities for the ingredients included in "proprietary blends," which do not need to be listed; and the name and place of business of the manufacturer, packer, or distributor. Claims In addition to the required labeling, the FFDCA permits (but does not require) manufacturers to make certain types of claims about supplements' benefits. Dietary supplement manufacturers may not legally claim that their product will diagnose, cure, mitigate, treat, or prevent a specific disease, and certain claims require FDA-approved disclaimers. FDA guidance provides details on the disclaimers that must accompany certain claims on the product label. Similar to food manufacturers, dietary supplement manufacturers may make nutrient content claims and health claims. They may also make structure/function claims. These claims are explained below. Nutrient Content Claims A nutrient content claim is one that expressly or implicitly characterizes the level of a nutrient in a dietary supplement. An expressed nutrient content claim (for example, "contains 100 calories") is one that contains a direct statement about the level or range of a nutrient within the dietary supplement. An implied nutrient content claim is one that either (1) describes the nutrient in a manner that suggests that it is absent or present in a certain amount (for example, "high in oat bran") or (2) suggests that the dietary supplement, because of its nutrient content, may be useful in maintaining healthy dietary practices and is made in association with an express claim or statement about a nutrient. Health Claims Health claims describe a relationship between a food, food component, or dietary supplement ingredient, and reducing risk of a disease or health-related condition (for example, "While many factors affect heart disease, diets low in saturated fat and cholesterol may reduce the risk of this disease.") These claims can be made through written statements, symbols, or vignettes. For the FDA to authorize use of a health claim on dietary supplement labeling, it must meet certain criteria. Generally, they must meet a significant scientific agreement (SSA) standard as determined by the FDA, in order to be authorized in regulation by the FDA. The FDA authorizes health claims only when the agency "determines, based on the totality of publicly available scientific evidence (including evidence from well-designed studies conducted in a manner which is consistent with generally recognized scientific procedures and principles), that there is significant scientific agreement, among experts qualified by scientific training and experience to evaluate such claims, that the claim is supported by such evidence." Health claims may also be authorized based on authoritative statements from federal scientific bodies. The latter type of claim was authorized in the FDA Modernization Act (FDAMA). To date, the FDA has authorized sixteen health claims; twelve are explicitly authorized in regulations and four are authorized based upon authoritative statements from federal scientific bodies (for example, a statement by the National Heart, Lung, and Blood Institute). Another type of health claim, known as a qualified health claim, may also be used for dietary supplements. Qualified health claims are based on less scientific evidence than the SSA required for other health claims, but must be approved by the FDA (however, they are not required to be authorized in statute or an authorizing regulation). FDA guidance provides standardized qualifying language to use with qualified health claims. Structure/Function Claims In addition to health and nutrient content claims, dietary supplement manufacturers are allowed to make statements describing the role of their nutrients' or dietary ingredients' intended effect on the structure or function of the body. Structure/function claims describe how a product may affect the organs or systems of the body, but cannot mention any specific disease (for example, "calcium builds strong bones"). A structure/function claim describes the role of a dietary supplement in the structure and functions of the body, and must provide truthful and non-misleading claims that describe this role. Although FDA preapproval is not required for structure/function claims, manufacturers must have substantiation (evidence) for these claims, notify FDA within 30 days of a product being marketed with a structure/function claim on its label, and provide a two-part disclaimer on the supplement label. First, the label must state that the statement or claim has not been evaluated by the FDA. It must also state that the dietary supplement product is not intended to "diagnose, treat, cure, or prevent any disease." Serious Adverse Event Reporting Dietary supplements are not required to undergo premarket review for safety. In order to identify safety issues, the FDA mainly relies on information provided by manufacturers under the adverse event reporting system. The FDA created a voluntary adverse event reporting system for supplements in 1993. This system was designed to (1) detect adverse events; (2) generate and assess signals of potential public health concerns; (3) take appropriate actions based on these assessments. However, according to HHS' Office of the Inspector General (OIG), that system provided inadequate data on adverse events, due to its voluntary nature and limited scope. In 2001, an OIG report concluded that the reporting system detected relatively few adverse events, lacked adequate information to assess possible health concerns, and contained limited medical, product, and consumer information. The Dietary Supplement and Non-Prescription Drug Consumer Protection Act, enacted in 2006, required several changes to the adverse event reporting system for dietary supplements. It amended the FFDCA to require supplement manufacturers, packers, and distributors to submit reports of serious adverse events involving their products that occur in the United States, and it also required the FDA to create and maintain a system to track adverse events related to dietary supplements. The public may also submit adverse event reports to this adverse event reporting system. However, public submission of adverse event reporting is voluntary. A GAO report identified 6,307 reports of adverse events from 2008 through 2011, of which 71% came as serious adverse events from industry, as mandated by the Dietary Supplement and Non-Prescription Drug Consumer Protection Act. FDA has estimated that, due to significant underreporting, the annual number of adverse events linked to dietary supplements may be 50,000. This may be because consumers may not consistently report adverse events to the FDA, and/or they may be contacting poison control centers which generally do not send information about adverse events to the FDA. Adverse events that are linked to a dietary supplement or a dietary supplement ingredient by an adverse event report are usually not considered sufficient to warrant action against a product. However, a pattern of seemingly related events linked to a dietary supplement may cause FDA to investigate the product or take further action. Compliance and Enforcement Consistent with FDA regulation of conventional foods, the FDA is not authorized to require premarket approval or review of safety and efficacy of dietary supplement products, with the exception of NDI. This contrasts with drug regulation where the manufacturer must prove the safety and efficacy prior to marketing a product. Because the bulk of FDA's regulatory authority with regards to dietary supplements exists for products that are already on the market, this is generally where FDA concentrates its enforcement activities to determine compliance with its regulations. In addition to the serious adverse event reporting system, several other mechanisms exist to identify potential safety concerns. These include conducting inspections, screenings, recalls, and warning labels. FDA's capacity to carry out each of these tasks is determined by agency funding priorities. For more information, see CRS Report R43794, Food Recalls and Other FDA Administrative Enforcement Actions . Dietary Supplement Marketing Although the FDA has broad regulatory authority over dietary supplements, the agency shares some responsibility with the Federal Trade Commission (FTC). While the FDA regulates claims made on product labeling (including packaging, inserts, and information at the point of sale), the FTC has primary responsibility to regulate dietary supplement advertising. This includes print and broadcast advertisements, infomercials, catalogs, Internet marketing, and similar direct marketing materials. The FDA and FTC have the responsibility to ensure that both dietary supplement labeling and advertising is truthful, not misleading, and that any claims made may be substantiated. The FTC's authority derives from Section 5 of the Federal Trade Commission Act that prohibits "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce." Additionally, the FTC Act prohibits dissemination of false advertisements by any means for the purpose of inducing the purchase of food, drugs, devices, services, or cosmetics. The FTC Act defines false advertisements as "any advertisement, other than labeling, which is misleading in any material respect." Similar to the FDA, the FTC requires that supplement manufacturers' claims are adequately substantiated. The FTC has created a guide for industry which outlines its expectations, role, and enforcement efforts regarding substantiation. The FTC standard is summed up as the following: 1. Advertising must be truthful and not misleading. 2. Before disseminating an advertisement, advertisers must have adequate substantiation for all objective product claims. The FTC defines a deceptive advertisement as one that "contains a misrepresentation or an omission that is likely to mislead consumers acting reasonably under the circumstances to their detriment." The FTC's standard of substantiation for express and implied claims is one of "competent and reliable scientific evidence," which differs from FDA's requirements for health, nutrient content, and structure/function claims. The FTC generally enforces these standards through targeted law enforcement action. Over the past 10 years, the FTC has filed over 100 law enforcement actions challenging claims about the efficacy or safety of a wide variety of supplements. Issues for Congress Consumers, the health care and dietary supplement industries, Congress, and federal regulators all have a stake in supplement identification, effectiveness, and safety. Current federal policy toward regulating dietary supplements was intended to balance these competing interests. DSHEA provided FDA the authority to step in against products that were unsafe or adulterated, but "not to take any actions to impose unreasonable regulatory barriers limiting or slowing the flow of safe products and accurate information to consumers." Under current law, dietary supplements are generally regulated as food—meaning that the FDA does not take regulatory action until something goes wrong (as opposed to drug regulation, where proof of safety and efficacy are required prior to putting a product on the market). Whether this is an appropriate level of regulation has been a long-standing concern. Advocates for industry are concerned that increased regulation would stifle the dietary supplement industry. Public health advocates have ongoing concerns about the safety of the current approach, and have encouraged a regulatory scheme that is more similar to drug regulation. As the dietary supplement market has grown, regulatory and research questions have become more complex. These questions continue to reflect the fundamental balance between personal choice and safety. The following sections discuss current areas of regulatory and legislative concern, including the identification of products as dietary supplements; their role in individuals' health and health care; and recent issues regarding supplement safety. Identification of Dietary Supplements Although food, drugs, and dietary supplements are all defined in statute, the marketing of certain products raises questions about the regulatory schemes that should be applied. Both consumer and industry groups have asked the FDA for clarity on the factors that the agency considers when deciding whether a product is properly marketed as a dietary supplement, conventional food, or as a drug. Energy drinks, discussed below, are one example of this issue. As more products with added dietary ingredients are marketed, there may be a growing need for clarification of the boundary between conventional foods and dietary supplements, as well as further clarification between dietary supplement ingredients and drugs. Food and Dietary Supplements: The Case of Energy Drinks The term "energy drink" is not defined in statute or regulation. The FDA interprets the term as "a class of products in liquid form that typically contains caffeine, with or without other added ingredients." Some energy drinks are marketed as beverages while others are marketed as dietary supplements. While both beverages and dietary supplements fall under FDA's authority to regulate food products, beverages (conventional foods) and dietary supplements follow certain regulations that are different, as discussed throughout this report. Specifically, labeling, GMP, and adverse event reporting differ for dietary supplements. Additionally, conventional foods with added ingredients are required to follow FDA regulations on food additives and substances that are generally recognized as safe (GRAS) while dietary supplements are not (although some ingredients are regulated as NDI). Generally, energy drink manufacturers can choose to market a product as either a conventional food or dietary supplement, depending on its intended use. However, if it appears to be a conventional food marketed as a dietary supplement, the FDA can challenge this decision. Because the decision is made by the manufacturer, there are concerns that some energy drinks are being marketed as dietary supplements in order to circumvent the required standards for food additives and GRAS substances (such as caffeine) in conventional foods. Conversely, there may also be benefits to marketing an energy drink as a conventional food. For example, a popular energy drink manufacturer recently changed labeling on its product to market it as a beverage. When marketing it as a beverage, the manufacturer is not required to report serious adverse events associated with its product. Additionally, as a beverage the energy drink is able to be purchased with food stamps. In a 2010 report, GAO recommended the FDA issue guidance to clarify when products should be marketed as dietary supplements or as conventional foods. FDA agreed with this recommendation; to date, it has issued draft guidance on distinguishing liquid dietary supplements from beverages. Industry representatives have raised several concerns about the draft guidance and have requested clarification from the FDA. Adverse event reports recently released by the FDA have potentially associated energy drinks with a number of illnesses, including heart attacks and convulsions, as well as with several deaths. These reports do not investigate causality or prove any direct link between energy drinks and these illnesses, and manufacturers deny any link between their products and these events. Additionally, the reports may not include adverse event reports to energy drink manufacturers who market their energy drinks as beverages, because adverse event reporting is not mandatory for other food manufacturers. If the FDA were to classify all energy drinks as dietary supplements, reporting of serious adverse events would be mandatory for all energy drink manufacturers. These reports have placed the issues of energy drink classification and their ingredients, and the government's role in regulating their manufacture and marketing, into the spotlight. Some Members of Congress have expressed concern over energy drink regulation, specifically concerning caffeine, calling on the FDA to "fix regulatory loopholes." Senators Durbin and Blumenthal sent several letters to the FDA in 2012 requesting regulatory action to address the "rising health concerns around energy drinks." Until recently, FDA responded to these requests by noting that there is insufficient evidence to take action on energy drinks with added caffeine. However, in November 2012, the FDA agreed to commission an outside panel of experts to review their safety. Drugs and Dietary Supplements: The Case of Pyridoxal 5-Phosphate Concerns about identification are not limited to conventional food and dietary supplements; there has also been confusion about the boundary between drugs and dietary supplements. For example, FDA's guidance on whether to submit an Investigational New Drug application raised concerns about its application to the dietary supplement industry. According to the draft IND guidance, an article is considered a drug when, among other things, it is being investigated for the "diagnosis, cure, mitigation, treatment, or prevention of disease." However, although dietary supplement manufacturers may not make drug claims, according to DSHEA, a product can still be sold as a dietary supplement while it is being investigated for an IND if it was on the market as such prior to being approved as a new drug—unless the Secretary of HHS issues a regulation to the contrary. One example of a dietary supplement that falls into this grey area is pyridoxal 5-phosphate (P5P, a form of vitamin B6). In addition to currently being on the market as a dietary supplement, P5P is currently being investigated as an IND. The company that filed the IND has also filed a Citizen Petition with the FDA, asserting that P5P is being marketed as an unapproved NDI, because there is no indication that it was on the market prior to DSHEA, and no one has filed NDI notification for P5P. Although the company that is investigating P5P as an IND has argued that P5P as a dietary supplement is technically an NDI and was never lawfully marketed prior to the petitioner's IND application, dietary supplement manufacturers disagree. They have argued that the Citizen Petition is a tactic to push P5P off the market as a dietary supplement, thereby diminishing competition for the petitioner. The dietary supplement industry is concerned that FDA action on this Citizen Petition could make it illegal to use P5P as a dietary supplement or dietary supplement ingredient, and that this would set a precedent for other dietary supplement ingredients that could be investigated as an IND. The Citizen Petition and associated public comments are currently under review by the FDA. The Role of Dietary Supplements in Health and Health Care Experts recommend that individuals meet their nutritional needs by eating a variety of foods, as outlined in the 2010 Dietary Guidelines for Americans. Some individuals take dietary supplements in order to meet those nutritional goals. Surveys show that over half of all Americans take dietary supplements, and that number has been increasing, yet there does not appear to be a wide body of research on dietary supplements' role in the health care system and potential effects on health care costs. Consensus has not been reached on the effectiveness of most dietary supplements, but privately and publicly funded research is ongoing. Specific supplements, such as folic acid, have been shown to greatly reduce the incidence of neural tube defects in infants; as a result of scientific consensus, folic acid supplementation is now considered a vital component of prenatal care. Calcium supplementation is also often recommended by physicians for bone health, although some studies find the evidence of benefits is inconclusive. Yet there is a dearth of peer-reviewed research on the effectiveness of many other supplements. As the FDA implements the NDI rule, there may be greater availability of research on newer additions to the dietary supplement market, due to the rule's requirements for substantiation. Many physicians and their patients are reported to have a limited understanding of dietary supplement regulation, safety, and efficacy, which may be compounded by the limited availability of peer-reviewed medical research on the effects of dietary supplements. A 2010 report by the GAO found that consumers and medical professionals may be faced with a lack of objective information on the safety and efficacy of certain types of dietary supplements, dietary supplement ingredients, and potential side-effects or interactions with other medications. While prescription medications can be accounted for in their medical record, patients may or may not share information about their supplement intake with physicians. Additionally, some consumers may have limited understanding of the information provided on dietary supplement marketing materials. However, some physicians recommend dietary supplements to their patients based on the available literature, and still more patients take supplements based on their own research and concerns. The federal government and the dietary supplement industry have taken steps to address consumer and health care provider understanding of dietary supplements through investment in research and the promotion of industry standards. The NIH and Department of Defense (DOD) have created websites and mobile applications to provide consumers with dietary supplement information. Some physicians' associations, such as the American Association of Endocrinologists, have published guidelines for the clinical use of dietary supplements, grading the quality and availability of evidence for each supplement reviewed. Industry groups have also initiated development of guidelines for use. Past Congresses have introduced legislation that would allow dietary supplement manufacturers to make claims that would be considered drug-like. Some research has shown that, if dietary supplements could be proven to be safe and effective in the prevention and/or treatment of specific health conditions through scientific research, and those benefits were accurately conveyed to consumers, use of those supplements could possibly yield cost savings for consumers. Conversely, the cost of conducting and documenting the research required to prove health related claims to the FDA (such as randomized, controlled trials) in addition to proving safety for each product could affect the cost of the supplement to consumers. Industry has noted this in comments to the FDA. Currently, whether or not certain supplements are effective, they may still have an effect on the health care system if they keep a patient out of a doctor's office (although this could have either a positive or negative outcome, in terms of both cost and health). As the popularity of dietary supplements continues to grow, some patients and industry advocates are pushing for certain supplements to be treated as medical care for the purposes of health savings account eligibility. Advocates of this approach argue that supplements are being used to enhance the health and well-being of individuals, and in theory maintain consumers' health, and thus should be eligible for purchase with funds from health care savings accounts. Some employer-sponsored health care savings accounts currently allow dietary supplements as an eligible expense in certain circumstances. Dietary Supplement Safety Regardless of the form or the reasons for which they are consumed, there is consensus that dietary supplements consumed by Americans should be safe and effective. However, there remains disagreement on how to achieve the goals of safety and efficacy. According to public opinion polls, the American public overwhelmingly assumes that FDA reviews the safety and effectiveness of dietary supplements before they are marketed. While this is the case for drugs and some medical devices, it is not the case for dietary supplements. As noted earlier in this report, the FDA has the authority to regulate dietary supplements once they are on the market, and can inspect facilities to ensure compliance with GMP; ensure proper labeling and use of claims; and monitor adverse event reports. Additionally, the FTC monitors dietary supplement advertising for compliance with its guidelines. The dietary supplement industry has also taken steps toward self-regulation, by developing industry standards of quality and safety and creating third-party certification programs. FDA's interpretation of its authorities through the rulemaking process is a source of disagreement between FDA and the dietary supplement industry. For example, industry advocates have argued that FDA's draft NDI regulations undermine DSHEA because the FDA is now holding dietary supplements to the same safety standards as food additives, which was not Congress' intent. They have also expressed concerns about duplicative submissions, the level of safety data required, and the definition of grandfathered ingredients. Public health advocates argue that scientific evidence is necessary to demonstrate product safety, as these products continue to grow in popularity and usage. However, industry advocates believe the cost of proving NDI safety will be too burdensome, and will cause some manufacturers to drop production of certain supplements. Some Members of Congress concur, and have written the FDA urging the agency to rewrite the NDI guidance in a manner that would not increase barriers to market entry for new dietary supplement companies and products. Some argue that FDA's ability to identify safety concerns associated with dietary supplements is undermined by a lack of scientific information that is available for other regulated products, such as drugs. Industry representatives argue that most dietary supplement ingredients have a history of safe use in humans, and therefore should not be held to the same standard as drugs, and that newer additions to the supplement market will be required to go through the NDI notification process. For adulterated and some misbranded products, the FDA now has mandatory recall authority (as of FSMA), although the burden of proof remains on the FDA. In the past, the process for FDA to prove a significant or unreasonable risk was lengthy. For example, it took the FDA 10 years to amass enough data to meet the statutory burden of proof for banning Ephedra from the market. Some have claimed that FDA's current enforcement policies overstep the agency's authority and violate the First Amendment, while others have deemed the agency's enforcement policies "anemic." Past inspections by the FDA have found dietary supplements that contain undeclared or deceptively labeled ingredients. These products are often promoted for weight loss, sexual enhancement, and bodybuilding. FSMA provided FDA the authority to notify the Drug Enforcement Administration (DEA) when it determines that an NDI may contain an anabolic steroid or its analogue. In response to recent findings, the FDA wrote a letter to industry communicating its legal obligation and responsibility to prevent tainted products from reaching the U.S. market, highlighting a new rapid public notification system to warn consumers about those products and a mechanism for manufacturers to notify FDA about potentially tainted products. FDA has publicly warned consumers about these products and had provided consumer information bulletins on how to consider whether a supplement is safe or not. Despite new FDA post-market authorities and industry standard and certification programs, the public is still faced with examples of inconsistent potency and quality (including that of compounded dietary supplements, which are currently not subject to GMP) , unsubstantiated claims made by manufacturers, and illegal or unapproved ingredients that render supplements adulterated. For example, the FDA recently issued a number of warning letters to manufacturers who may not be following the NDI guidelines. In April 2012, the agency issued warning letters to 10 dietary supplement manufacturers for marketing products containing dimethylamylamine (DMAA) without submitting an NDI notification. Plaintiffs have used these warning letters to bring lawsuits against those companies. FDA has taken steps in recent years to address oversight of dietary supplement safety. Enforcement of existing laws and regulations is generally restricted by funding, and the agency's discretionary budget authority has remained relatively flat in recent years. The agency also has increased regulatory responsibilities under FSMA. Despite these potential constraints, the increased awareness of issues due to mandatory serious adverse event reporting has led the FDA to increase dietary supplement facility inspections and other enforcement actions since 2008. Industry groups and other advocates have historically challenged regulations that are perceived to overstep FDA's authority under the FFDCA. Legislative action often moves forward once industry, Congress, and the FDA achieve consensus. For example, adverse event reporting was strengthened once Congress, scientific advisory committees, industry, and consumers established consensus on the issue, and the mandatory recall authority proffered by FSMA was also supported by industry representatives. Concluding Comments Consumers, the health care and dietary supplement industries, Congress, and federal regulators all have a stake in supplement identification, effectiveness, and safety. Research into the effectiveness and safety of supplements, industry compliance, surveillance and effective reporting strategies, and enforcement of current authorities are perennial concerns in this area. With each legislative and regulatory action over the years, Congress and FDA have tried to balance often conflicting goals: safety and effectiveness; access to up-to-date, complete, and unbiased information on dietary supplements; accurate reporting of adverse events; and consumer choice. Congress has demonstrated a sustained interest in dietary supplement related issues. It is uncertain if the 114 th Congress will consider any new dietary supplement related legislation. Such issues may arise in the broader context of congressional interest in nutrition and food safety. Appendix A. Selected Laws Regulating Dietary Supplements Federal Food, Drug, and Cosmetic Act (P.L. 75-717) The FFDCA provides FDA with the authority to oversee the safety of food, drugs, and cosmetics. Nutrition Labeling and Education Act of 1990 ( P.L. 101-535 ) The Nutrition Labeling and Education Act (NLEA) amended the FFDCA to require most foods, including dietary supplements, to bear nutrition labeling. It provided required information for labels and required the FDA to promulgate regulations regarding nutrition labeling and health claim requirements for foods and dietary supplements. Prescription Drug User Fee Act of 1992 ( P.L. 102-571 ) Title II of the Prescription Drug User Fee Act is referred to as the "Dietary Supplement Act of 1992" and required a one-year moratorium on FDA's implementation of dietary supplement labeling under NLEA. Dietary Supplement Health and Education Act of 1994 ( P.L. 103-417 ) The Dietary Supplement Health and Education Act (DSHEA) amended the FFDCA to create new manufacturing and labeling requirements for dietary supplements, and established the Office of Dietary Supplements within the National Institutes of Health. Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ( P.L. 107-188 ) This law mandates a chain of possession identification (manufacturer, processor, packer, distributor, and other possessors) for those firms that seek to import components of drugs, devices, food additives, color additives, or dietary supplements for further processing and export. Dietary Supplement and Nonprescription Drug Consumer Protection Act ( P.L. 109-462 ) This law mandates the reporting of any dietary supplement related serious adverse event to the FDA within 15 days of the event. Serious adverse event reporting is mandatory for manufacturers, packers, or distributors whose name appears on the dietary supplement label. FDA Food Safety Modernization Act ( P.L. 111-353 ) FSMA provides FDA with mandatory recall authority for food, including dietary supplements. This law also requires FDA to issue NDI guidance no later than 180 after its enactment. Appendix B. Principal Display Panel, Dietary Supplements Appendix C. Acronyms Used in This Report Government Agencies CDC— Centers for Disease Control and Prevention CFSAN —Center for Food Safety and Applied Nutrition, Office of Foods, FDA DEA —Drug Enforcement Administration DOD —Department of Defense FDA —U.S. Food and Drug Administration FTC —Federal Trade Commission GAO— U.S. Government Accountability Office HHS —U.S. Department of Health and Human Services NIH —National Institutes of Health OIG —Office of the Inspector General, U.S. Department of Health and Human Services Legislation DSHEA —Dietary Supplement Health and Education Act of 1994 FDAMA — FDA Modernization Act FFDCA —Federal Food, Drug, and Cosmetics Act FSMA —FDA Food Safety Modernization Act of 2011 NLEA —Nutrition Labeling and Education Act of 1990 Miscellaneous CFR— Code of Federal Regulations FAERS— FDA Adverse Event Reporting System GMP —Good Manufacturing Practices GRAS —Generally Recognized as Safe NDI— New Dietary Ingredient SSA— FDA's Significant Scientific Agreement Standard for approved health claims IND —Investigational New Drug

Many Americans take dietary supplements (e.g., vitamins, herbs, sports nutrition supplements) with the intention of meeting their nutritional needs, as well as to improve or maintain their overall health. These consumers want accurate information on the effectiveness and proper use of dietary supplements and access to the dietary supplements of their choice. The federal government has an interest in ensuring that the supplements Americans consume are high quality, free from contaminants, and accurately labeled. Because dietary supplements are intended to supplement the diet, their processing and manufacture are regulated by the U.S. Food and Drug Administration (FDA) in a manner similar to food, with some differences that will be outlined in this report. The Federal Trade Commission (FTC), in coordination with the FDA, regulates dietary supplement advertising. In contrast with the authority under which drugs and medical devices are regulated, dietary supplements are regulated as food under the 1938 Federal Food, Drug, and Cosmetic Act (FFDCA), and the FDA does not take regulatory action on food or dietary supplements until something goes wrong with a product that is on the market. The FDA has the authority to take action regarding supplements that are labeled incorrectly (misbranded) or contain unsafe ingredients (adulterated). The FDA is made aware of potential misbranding or adulteration through inspections, adverse event reports, and citizen petitions. According to public opinion polls, the American public overwhelmingly assumes that FDA reviews the safety and effectiveness of dietary supplements before they are marketed. While this is the case for drugs and medical devices, it is not the case for dietary supplements. The Dietary Supplement Health and Education Act of 1994 (DSHEA, P.L. 103-417) authorized the FDA to promulgate regulations for dietary supplement-specific good manufacturing practices (GMP), and established requirements for new dietary ingredients (NDI), labeling, and certain health claims for dietary supplements. Under the Dietary Supplement and Non-Prescription Drug Consumer Protection Act (P.L. 109-462), Congress added requirements for mandatory reporting of adverse events, and the Public Health Security and Bioterrorism Preparedness and Response Act (P.L. 107-188) required registration of food (including dietary supplement) manufacturers, processors, and packers with the FDA. The Food Safety Modernization Act (FSMA, P.L. 111-353) provided the FDA with mandatory recall authority for adulterated food (including dietary supplements) and food containing undisclosed allergens. Consumers, the health care and dietary supplement industries, Congress, and federal regulators all have a stake in supplement identification, effectiveness, and safety. Current federal policy toward regulating dietary supplements was intended to balance these competing interests. DSHEA provided FDA the authority to take action against products that were unsafe or adulterated, but emphasized that FDA should not take actions that would impose unreasonable regulatory barriers limiting or slowing the flow of safe products and accurate information to consumers. As the supplement market has grown and diversified, the regulatory and research questions have become more complex. This report discusses current areas of regulatory and legislative concern, including the identification of products as dietary supplements, their role in individuals' health and health care, and recent issues regarding supplement safety.

Introduction Under the North American Free Trade Agreement (NAFTA), which took effect in January 1994, motor vehicle and vehicle parts manufacturers have integrated their production operations in the United States, Canada, and Mexico. President Donald Trump has criticized the agreement, and on May 18, 2017, the Trump Administration notified Congress of its intent to renegotiate the agreement, as required by the 2015 Trade Promotion Authority (TPA). The 115 th Congress may consider legislation for a "modernization" of NAFTA under TPA, a process by which Congress agrees to expeditiously consider implementing legislation for a trade agreement negotiated by the President, provided he meets certain statutory negotiating objectives and congressional notification and consultation requirements. On July 17, 2017, the Administration announced its objectives in forthcoming negotiations. This report discusses the development of U.S. motor vehicle production under NAFTA and analyzes the North American motor vehicle market, including production, plant locations, and continental trade patterns. It summarizes the motor vehicle rules of origin in NAFTA and compares them with similar requirements in other trade agreements, and examines how the potential changes in NAFTA might affect the motor vehicle and motor vehicle parts industries in the United States. U.S. Motor Vehicle Industry U.S. motor vehicle manufacturing has changed significantly since NAFTA took effect. While U.S. domestic production of finished vehicles has fluctuated somewhat, Mexico has become a major center of parts and motor vehicle manufacturing, fully integrated into the U.S. and Canadian supply chains. The number of European, Japanese, and South Korean automakers with U.S. vehicle production has also grown during this time ( Figure 1 ). There were nearly 800,000 jobs in U.S. motor vehicle and parts manufacturing in 2016 ( Figure 2 ), with the largest share of employment in parts manufacturing (580,000 in 2016). Since 1996, both vehicle assembly and parts manufacturing employment have decreased by 27%. There are many reasons for changing employment levels, including economic conditions, trade patterns, and technological change. Domestic sales of motor vehicles have recovered from their major decline during the recent recession, and the bankruptcies and restructurings of GM and Chrysler. Sales in 2016 reached 17.5 million units, the highest annual figure on record. Imported vehicles—those manufactured outside of North America—have maintained a relatively constant share of total sales ( Figure 3 ). Integration Across North America Integration of the U.S., Canadian, and Mexican automotive industries began decades before NAFTA. Nevertheless, tariffs and nontariff barriers added additional cost and complicated the flow of components and finished vehicles among the three countries. In some cases, this led manufacturers to produce similar engines, transmissions, or other products in each country, even when it might have been more efficient to manufacture them in a single location. A series of trade agreements and domestic policy changes in each country enabled much closer integration of North American motor vehicle manufacturing. U.S.-Canada Agreements Before NAFTA The Canada-U.S. Auto Pact of 1965 was the first step in opening automotive markets in North America. Previously, the United States and Canada each imposed tariffs on imported assembled motor vehicles and parts. Although several manufacturers had assembly plants in both countries, if a manufacturer wished to produce an engine in one country and install it in a vehicle assembled in the other country, the engine would be subject to tariffs. The Auto Pact eliminated tariffs on vehicles and parts for "designated" manufacturers that agreed to maintain minimum production levels in Canada. The pact also required that vehicles and parts have at least 50% U.S. or Canadian content in order to benefit from the tariff exemption. No Japanese or European auto manufacturers produced vehicles in the United States or Canada at the time, and when they later opened plants, they did not benefit from tariff-free movement of parts and vehicles across the border. The effect of the Auto Pact was to create an integrated U.S. and Canadian market for motor vehicles and parts, while ensuring that a specified share of vehicle manufacturing remained in Canada. As a result of the Auto Pact, U.S. and Canadian motor vehicle industries were generally integrated by the 1980s. The agreement did not lead to major changes affecting automotive trade, although it adjusted the system of tariffs applied to imports from Europe, Japan, and other sources outside North America. The Auto Pact was incorporated into the Canada-U.S. Free Trade Agreement (CUFTA) that went into force in January 1989. Mexico's Manufacturing and NAFTA Although Mexico was not a party to the 1965 Auto Pact or the 1989 Canada-U.S. Free Trade Agreement, the Mexican government took steps during the same time period to encourage the development and growth of manufacturing in Mexico. Mexico's export-oriented industries began in 1965 with the establishment of the maquiladora program, which allowed foreign-owned businesses to set up assembly plants in Mexico to produce for export, as part of the Border Industrialization Program created under President Gustavo Díaz Ordaz. The Border Industrialization Program was a response to the 1964 termination of the U.S. Bracero Program, which had allowed Mexican workers to cross into the United States for seasonal employment. Under the industrialization program, maquiladoras could import intermediate materials duty-free with the condition that a certain percentage of the final product be exported. Maquiladoras were originally restricted to the U.S.-Mexico border region and normally participated in production sharing with their U.S. facilities. Manufacturers in other regions of Mexico faced much more restrictive trade and investment barriers, which were eventually eliminated after NAFTA. Under Mexico's Border Investment Program, maquiladoras operated under the following special rules: lower trade and foreign investment restrictions than other sectors in Mexico; access to duty-free imports of intermediate materials with the condition that a percentage of the final production was exported; duty-free import of manufacturing equipment with the condition that it would be exported if the company ceased to operate under the program; and exemption from Mexican laws requiring majority Mexican ownership and from prohibitions on foreign ownership of real estate near borders and coastlines. Maquiladora operations increased rapidly during the 1970s and 1980s. As Mexican labor costs were very low compared with those in the United States, U.S.-based automotive manufacturers initially used maquiladoras to make labor-intensive products such as wire harnesses, assemblies of wires that carry electricity to lights, dashboard indicators, and other components. Over time, manufacturers began producing more sophisticated components, such as brakes and suspensions, in maquiladoras. Maquiladora production of auto parts was intended to supply auto assembly plants in the United States and Canada, and it was not integrated with domestic assembly of automobiles in Mexico. At the time, companies such as General Motors, Ford, Chrysler, and Volkswagen, which were assembling vehicles in Mexico, were subject to trade and investment restrictions under a series of Mexican auto decrees that also required a minimum proportion of Mexican content. (See box below on Mexico's Auto Decrees.) Automobiles produced in Mexico were generally not exported to the United States and Canada and in some cases did not meet U.S. or Canadian safety and emissions standards. Imports of new vehicles from the United States and Canada into Mexico were not allowed prior to 1989. After NAFTA took effect, Mexico merged the maquiladora operations and Mexican domestic assembly-for-export plants into one program called Maquiladora Manufacturing Industry and Export Services (IMMEX). NAFTA regulations continued to allow maquiladoras to import products duty-free into Mexico, regardless of the country of origin of the products. This phase also allowed maquiladora operations to increase sales to the Mexican domestic market. However, in 2001, rules of origin established in NAFTA replaced the previous special tariff provisions that applied only to maquiladora operations, so that any products that qualified as North American origin could be imported duty-free into Mexico for any purpose. At the same time, some inputs imported by maquiladoras from non-NAFTA countries became subject to Mexican tariffs, raising costs for maquiladoras that imported from countries such as Japan or China. NAFTA Provisions and the Auto Sector The market-opening provisions of NAFTA gradually eliminated all tariffs and most nontariff barriers on goods produced and traded within North America over a period of 15 years starting in 1994. Most of the market-opening measures of NAFTA resulted in the removal of tariffs and quotas applied by Mexico on imports from the United States and Canada. Mexican tariffs were substantially higher than those of the United States at the time NAFTA was negotiated. Moreover, many Mexican products entered the United States duty-free under the U.S. Generalized System of Preferences. Prior to NAFTA, the United States assessed the following tariffs on imports from Mexico: 2.5% on automobiles, 25% on light-duty trucks, and a trade-weighted average of 3.1% for automotive parts. In comparison, Mexico's more restrictive tariffs on U.S. and Canadian automotive products were 20% on automobiles and light trucks and 10%-20% on auto parts. NAFTA helped lock in Mexico's automotive-industry reforms by phasing out the restrictive auto decrees. It also included the gradual removal of many nontariff barriers to trade, provided for uniform country-of-origin provisions, enhanced protection of intellectual property rights, required less restrictive procurement practices by the Mexican government, and eliminated performance requirements on investors from other NAFTA countries. North American Integration Since NAFTA, North American motor vehicle manufacturing has become highly integrated, with major Asia- and Europe-based automakers constructing their own supply chains within the region. The major recent growth in the North American market occurred largely in Mexico, which now accounts for about 20% of total continental vehicle production ( Figure 4 ). In general, recent investments in U.S. and Canadian assembly plants have involved modernization or expansion of existing facilities, while Mexico has seen new assembly plants. In addition, many parts manufacturers have opened plants in Mexico to be close to the growing number of vehicle assembly plants. Parts plants in all three countries supply manufacturers of automotive systems (such as brake and seating systems) and motor vehicle assembly plants in the other NAFTA countries. Estimates show that some motor vehicle parts and components cross the U.S. border more than eight times in the production and assembly process. Parts trade has grown more rapidly than trade in assembled vehicles. Mexico's exports of parts to the United States have increased by 85% since 2010; U.S. exports of parts to Mexico have grown by 64% over the same period ( Figure 5 ). At least three factors have spurred Mexico's rise as a motor vehicle manufacturing center, in addition to the removal of trade barriers in NAFTA. These include Mexico's lower labor costs, the Mexican government's investment in its educational system to graduate engineers and technicians to operate and manage vehicle and parts plants, and Mexico's growing network of free trade agreements with many countries outside the NAFTA region. In some cases, Mexico's vehicle exports have tariff-free access to countries that impose tariffs on vehicles made in the United States or Canada. The impact of these factors on U.S. and Mexican motor vehicle manufacturing exports is reflected in Table 1 . In the absence of NAFTA, it is possible that vehicles assembled in North America would potentially use more Asian- and European-produced parts. For example, of the vehicle engines imported into the United States in 2015, about 60% originated in Mexico or Canada, but engines were also imported from Japan (11%), Germany (nearly 6%), and South Korea (more than 5%). Similar competition exists for transmissions, power trains, electric and electronic equipment, steering and suspension parts, brake systems, and vehicle lighting equipment. U.S. tariffs on auto parts imports from most countries with large automotive industries are about 1.7%, compared to zero in NAFTA, so favorable tariff treatment alone does not generally provide a large incentive to produce parts in Mexico for the U.S. market. Motor vehicle assembly plants are found in 14 U.S. states; Canada's province of Ontario; and in 11 Mexican states ( Figure 6 ), showing the concentrated north-south corridor in the United States from Mississippi and Alabama north to Michigan that is often called "automobile alley." Motor vehicle parts manufacturing plants, not included in the map, are located in nearly every state. Motor Vehicle and Parts Trade Motor vehicle and parts trade accounted for more than 20% of U.S. merchandise trade with other NAFTA signatories in 2016, slightly more than the shares in 2006 and 2007 before the recession ( Figure 7 ). The United States exports more than 2 million motor vehicles a year; Canada and Mexico are the two largest markets for those vehicles ( Figure 8 ). The United States has trade deficits in assembled vehicles with both Canada and Mexico ( Figure 9 ). In 2016, the United States trade balance on vehicle trade with Canada was -$20.4 billion, and with Mexico, -$45.3 billion. Similarly, the United States imported more vehicle parts from Mexico than it exported, resulting in a $26 billion deficit in 2016. Only in U.S. motor vehicle parts trade with Canada did the United States record a surplus ($7 billion) in 2016. The vehicle parts exported from the United States to Canada (and Mexico) often come back to the United States in finished motor vehicles. Official trade statistics such as those showing the motor vehicle and parts trade balance include both intermediate inputs and final products. In effect, gross exports double count the value of intermediate goods that cross international borders more than once. This is of special relevance in the motor vehicle industry: a vehicle assembled in the United States has more than 10,000 parts that come from multiple producers in different countries and may travel back and forth across borders several times. One company producing seats for motor vehicles, for example, incorporates components from four different U.S. states and four Mexican locations into its products, with final assembly in the Midwest. Because of the complexities of modern supply chains, economists studying manufacturing tend to examine value added rather than trade flows. An industry's value added is an estimation of the difference between its sales and its purchases of components and other inputs. Mexico uses relatively more foreign content in its automotive industry than Canada and the United States: 55% of the value added of Mexican automotive exports came from foreign sources in 2014 ( Figure 10 ). In contrast, the United States had an import intensity of 36%, while Canada was an intermediate 47%. This indicates that U.S. motor vehicle manufacturing retains a large base of U.S. component and assembly operations that has not been displaced by imports. Foreign value added in U.S. motor vehicle manufacturing rose significantly between 2002 and 2008, due in part to increasing flows of parts and components from Mexico and China, but the share of foreign content has stabilized since 2008. In Mexico, however, the share of foreign value added rose through at least 2011. This may be due to new investments in assembly plants that are using imported engines and other components. Rules of Origin An important objective of any trade agreement is to ensure that preferential treatment confers primarily to products of signatory countries. A second goal is to limit the negative impact of the agreement on import-sensitive domestic industries. Thus, agreements such as NAFTA include rules of origin to make certain that transshipment and light processing of goods largely produced in non-NAFTA countries—such as simple assembly or repackaging—are not used to circumvent higher duties. Determining the country of origin is fairly straightforward when a product is "wholly obtained" from, or manufactured in, only one country. However, when a finished product's component parts are manufactured in many countries, determining origin can be a complex process. Rules-of-origin requirements differ in each trade agreement because they are individually negotiated among the parties to the agreement. For importers to benefit from a trade agreement, they must demonstrate that their imports meet the respective rules-of-origin criteria. In NAFTA, the rules of origin affecting motor vehicles and parts are established by a method intended to ensure that a certain percentage of the value of a manufactured product (as determined by the cost of inputs, labor, and other direct costs of processing operations) originates in the NAFTA region. This regional value content (RVC) test involves specific equations to determine the value of originating materials, the adjusted value of the product, the value of non-originating materials, and other costs, such as processing operations and shipping ( Figure 11 ). In U.S. trade agreements, including NAFTA, three alternative methods are often used to calculate RVC in automotive products. Trade agreements often give manufacturers and importers more than one option for calculating the RVC, because one method of calculation may be more beneficial than the other for particular companies or industries. The three types of RVC calculations are the following: "Build- D own" Method: determines the regional value content by subtracting the value of the non-originating merchandise from the adjusted value of the finished product. The adjusted value includes all costs, profit, general expenses, parts and materials, labor, shipping, marketing, and packing. Since the build-down method allows manufacturers to count all the costs involved in building and marketing the final automobile or the component, a higher percentage (55%) is associated with this calculation in comparison to the other two allowable methods of calculating regional value content. "Build- U p" Method : starts with the value of originating materials. The value of NAFTA inputs is added together, and if their total value exceeds 35% of the adjusted value of the vehicle or the component, the product would qualify for the benefits of the agreement. The build-up method is included in trade agreements principally to benefit manufacturers of exports other than automobiles. " Net Cost" Method : captures only the costs involved in manufacturing, including factory labor, materials, and direct overhead. Other costs, such as sales promotion, marketing, royalties, and profit, are excluded from the calculation. The use of a small, easily identifiable set of input costs is thought to make the net cost method easier to use in calculating RVC. As the net cost method excludes selling, general, and administrative (SG&A) costs, profits, expenses, royalties, and promotional costs, its 35% RVC requirement is approximately equivalent to the 55% RVC requirement under the build-down method described above. NAFTA Motor Vehicle Rules of Origin Requirements The use of an RVC test to determine the origin of motor vehicles and parts under NAFTA was intended to accommodate the global sourcing strategies of vehicle manufacturers by creating incentives for them to source from within the NAFTA region. However, it is possible that the savings on tariffs from sourcing within the NAFTA region may not provide sufficient inducement to alter an already established supply chain. The U.S. tariff rate for imports of passenger cars from most countries is 2.5% of the value of the import, and avoiding this relatively low tariff alone would be unlikely to prompt manufacturers to build cars in the NAFTA region. The substantially higher U.S. light truck tariff at 25%, however, results in significant savings for manufacturers that build trucks in the NAFTA region to serve the U.S. market. This high tariff on imported trucks is possibly one reason why nearly all pick-up trucks sold in the United States are manufactured in North America. U.S. free trade agreements have had a range of rules of origin ( Table 2 ). NAFTA has the highest RVC requirement for automotive products, at 62.5% (meaning that the majority of the parts in the vehicle have to originate in the NAFTA region to receive the tariff benefit). This reflects the fact that the North American auto market was already highly integrated at the time of the negotiation of NAFTA. RVC rules in other trade agreements vary by percentage from 30% to 50%. The 1989 Canada-U.S. Free Trade Agreement considered a vehicle to be domestic if it had at least 50% U.S. or Canadian content. Since tariff rates on motor vehicles tend to be higher in the markets of U.S. trade partners than in the United States, tariff savings in the foreign market could provide an incentive for vehicle manufacturers in the United States to meet preferential rules-of-origin requirements. For example, tariffs for automobiles in Dominican Republic-Central America-United States Free Trade Agreement trading partners can be as high as 20%. This underscores the asymmetrical benefits that can accrue to manufacturers in the United States if tariffs are eliminated through a free trade agreement. NAFTA Renegotiation Process A renegotiation of NAFTA is likely to be considered by Congress under Trade Promotion Authority. On May 18, 2017, the Trump Administration sent a 90-day notification to Congress of its intent to begin talks with Mexico and Canada to renegotiate or modernize the free trade agreement as required by TPA. NAFTA provides, "The Parties may agree on any modification of or addition to this Agreement. When so agreed, and approved in accordance with the applicable legal procedures of each party, a modification or addition shall constitute an integral part of the agreement." Under TPA, the President must consult with Congress before giving the required 90-day notice of his intention to start negotiations. The Trump Administration's consultations included meetings between U.S. Trade Representative Robert Lighthizer and members of the House Ways and Means Committee and Senate Finance Committee and with members of the House and Senate Advisory Groups on Negotiations. USTR received more than 12,000 public comments on NAFTA renegotiation. On July 17, 2017, USTR published a summary of the Trump Administration's specific objectives with respect to the negotiations, and later announced that negotiations with Mexico and Canada would start on August 16, 2017. In order to use the expedited procedures of TPA, the President must notify and consult with Congress before initiating and during negotiations, and adhere to several reporting requirements following the conclusion of any negotiations resulting in an agreement. The President must conduct the negotiations based on the negotiating objectives set forth by Congress in the 2015 TPA authority. If the President adheres to these and other requirements, then implementing legislation from the resulting agreement can be considered under expedited procedures, including guaranteed time-limited consideration, no amendments, and an up-or-down vote. Implementation of a renegotiated agreement in domestic law would likely take one of two forms: (1) a renegotiated agreement that would require changes to U.S. law or (2) changes to the agreement that could be made effective by presidential proclamation. If renegotiation is expected to require changes to U.S. law, the President likely would seek expedited treatment of the implementing legislation under TPA. On the other hand, the President could proclaim (i.e., declare) some modifications to NAFTA pursuant to existing statutory authority. These could include certain tariff modifications, or changes to basic and specific rules of origin, and some customs provisions. Certain consultation and layover requirements are applicable to proclamations concerning rules of origin changes for autos and auto parts: modifications to specific tariff-shift rules of origin (Annex 401); automotive tracing requirements for specific parts (Annexes 403.1, 403.2); regional value-content provisions for certain Canadian autos (Annex 403.3); and modification of rules of origin definitions. Renegotiation of other provisions of NAFTA requiring changes to U.S. law likely would need implementing legislation. Such legislation could be considered under TPA. TPA currently is in effect until July 1, 2021, provided that Congress does not pass an extension disapproval resolution in the 60 days prior to July 1, 2018. NAFTA Motor Vehicle Policy Recommendations The federal government's senior trade advisory panel, the Advisory Committee for Trade Policy and Negotiations (ACTPN), issued its report and recommendations for modernizing NAFTA on June 28, 2017, stating that "it is time to bring NAFTA into the 21 st Century and to turn it into a high standards agreement in accordance with the negotiating objectives of the 2015 Trade Promotion Authority (TPA)." ACTPN did not make specific recommendations with regard to motor vehicle trade, but its report does address some of the specific issues raised by motor vehicle industry and union organizations. For example, with regard to rules of origin, the majority of ACTPN members—but not its labor union members— urge caution in making changes to the rules of origin to ensure that they do not disrupt efficient supply chains and raise production costs, undercut U.S. competitiveness, and potentially backfire and lead to job losses in the U.S. and less sourcing because companies will import components and pay the Most Favored Nation (MFN) tariff. The ACTPN report also discusses general recommendations for other policy issues of interest to the motor vehicle industry and unions, including government procurement, customs procedures, environmental and labor standards, worker rights, currency manipulation, and investor state dispute settlement. Each of these issues was raised when the USTR held a series of public hearings seeking recommendations on NAFTA negotiating objectives from June 27 to June 29, 2017, taking testimony from a broad range of witnesses. The USTR hearings were conducted by the NAFTA Modernization panel and included officials who sit on the Trade Policy Staff Committee, including representatives from USTR and the Departments of Commerce, Treasury, State, and Agriculture. The industry representatives—Alliance of Automobile Manufacturers, the Association of Global Automakers, Motor and Equipment Manufacturers Association (MEMA), the Auto Care Association, and the American Automotive Policy Council (AAPC)—spoke about the evolution of the current supply chain and the benefits they see it has brought to the North American vehicle market. They advocate changes to enhance the agreement and support the current NAFTA rules of origin, which they say strike the right supply chain balance, promote exports from North America, and reduce costs. The motor vehicle associations argued for NAFTA modernization, including changes that would update customs procedures, including e-commerce, to reduce border delays; expand intellectual property protection; remove technical barriers to trade by improving regulatory cooperation on future vehicle standards and recognize current U.S. Federal Motor Vehicle Safety Standards so U.S.-certified vehicles will be accepted across the region; align data protection and privacy laws so data can be exchanged across borders more easily; and update labor and environmental provisions consistent with more recent free trade agreements. In addition, AAPC called for inclusion of enforceable provisions to deter currency manipulation and elimination of investor-state dispute settlement provisions. The United Auto Workers union (UAW), testifying separately on June 29, argued that a new agreement is needed to provide more benefits to workers in all three signatory countries. The UAW called NAFTA a "failure" and said it supports renegotiation in order to reverse the U.S. deficit in motor vehicle trade and raise worker wages. The UAW also supports new provisions that would curb currency manipulation; add labor and environmental standards with enforcement mechanisms; bar investor-state dispute settlement provisions; eliminate the federal procurement chapter of NAFTA; ensure that Buy America provisions are retained; and strengthen the rules of origin to prevent non-NAFTA countries from benefiting from the agreement. The UAW also supports retention of the current documentation and product tracing requirements that establish the origin of motor vehicle parts. Links to statements submitted by the industry and labor union representatives to USTR in June 2017 are provided in Table 3 . Trump Administration's NAFTA Renegotiation Objectives The Trump Administration's announced objectives do not include specific motor vehicle industry goals, unlike some of the specific objectives for agricultural goods and textiles and apparel. However, its broad objectives are consistent with a number of recommendations cited by speakers at USTR's late June 2017 hearings, including maintaining existing duty-free market access for industrial goods and removing nontariff barriers; promoting greater regulatory compatibility and cooperation and removing technical barriers to trade; updating customs procedures; strengthening the rules of origin to "ensure that the benefits of NAFTA go to products genuinely made in the United States and North America" and ensuring that such rules "incentivize the sourcing of goods and materials from the United States and North America"; preventing the establishment of restrictions on cross-border data flows; improving intellectual property protection; bringing labor and environmental provisions into the main NAFTA agreement, instead of in side agreements, while expanding their scope; and developing a mechanism "to ensure that the NAFTA countries avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage."

Motor vehicles and vehicle parts accounted for more than 20% of the total value of U.S. merchandise trade with Canada and Mexico in 2016, making them the largest category of manufactured products traded among the United States, Mexico, and Canada. Since the North American Free Trade Agreement (NAFTA) took effect in January 1994, the vehicle supply chain has become fully integrated, with parts manufacturing and assembly in all three countries. On May 18, 2017, the Trump Administration notified Congress of its intent to renegotiate NAFTA. In consequence, the 115th Congress will likely address numerous issues related to NAFTA and the North American motor vehicle industry. NAFTA has contributed to a large increase in trade in vehicles and auto parts within North America. Since 1994, Mexico has grown to become a major location for vehicle and parts manufacturing, while production in the United States and Canada has remained fairly steady, except during recessions. In addition to NAFTA trade liberalization commitments, growth of the Mexican vehicle industry was assisted by unilateral Mexican measures that removed restrictive trade and investment barriers, as well as Mexico's lower labor costs, the government's investment in training engineers and technicians to operate and manage motor vehicle plants, and numerous free trade agreements that give Mexican vehicles and parts tariff-free access to countries where U.S. exports face a tariff. In 2016, the United States had a motor vehicle trade deficit with both NAFTA partners, a deficit in vehicle parts trade with Mexico, and a surplus in vehicle parts trade with Canada. A topic in the renegotiation of NAFTA may be rules of origin, which determine which products qualify for the benefits of the agreement. NAFTA requires that 62.5% of a vehicle's net cost and 60% of the cost of parts originate in the NAFTA region in order for those products to have duty-free access to the United States. This is the highest such requirement for motor vehicles of any U.S. trade agreement. In general, vehicle and parts manufacturers support retaining the current rules of origin, whereas the United Auto Workers union seeks to require a higher percentage of regional content, which it believes would reduce the share of parts produced in non-NAFTA countries. The Trump Administration announced its negotiating objectives for NAFTA renegotiation on July 17, 2017, but it has not enumerated negotiating objectives specific to the automotive industry. However, some of its stated goals are consistent with recommendations of auto industry and union representatives, including updating customs procedures, promoting greater regulatory compatibility within the NAFTA region, improving intellectual property protection, improving labor and environmental provisions, and deterring currency manipulation.

Introduction The Emergency Food and Shelter (EFS) program, the oldest federal program serving the homeless, was established in March 1983. The program was first funded through an emergency jobs appropriation bill ( P.L. 98-8 ) in which Congress allocated $50 million to the Federal Emergency Management Agency (FEMA) to provide emergency food and shelter to needy individuals. The program funds soup kitchens, food banks, and shelters, and also provides homeless prevention services. Local communities largely determine how funds will be used. The EFS program was not initially authorized, but continued to exist due to annual appropriations until 1987, when the Stewart B. McKinney Homeless Assistance Act ( P.L. 100-77 ) authorized it through FY1988. Congress has since reauthorized the program three times, first in 1988 for FY1989-FY1990 ( P.L. 100-628 ), again in 1990, for FY1991-FY1992 ( P.L. 101-645 ), and then in 1992 for FY1993-FY1994 ( P.L. 102-550 ). The program has not been reauthorized since 1994, but Congress has continued to fund it each year in annual appropriations bills. In FY2006, Congress funded the EFS program at $151.5 million ( P.L. 109-90 ). The National Board Although funds for the EFS program are appropriated to FEMA, a National Board was established to carry out the program, including the distribution of funds to local jurisdictions. The Board consists of designees from six charitable organizations—United Way of America, Salvation Army, National Council of Churches of Christ in the U.S.A., Catholic Charities USA, United Jewish Communities, and the American Red Cross—and is chaired by a representative from FEMA. The EFS program's authorizing statute gives the National Board a great deal of discretion, and itself contains only minimal requirements. In addition to establishing the National Board, the statute requires the Board to be audited annually, release an annual report to Congress, disburse funds within three months of receipt, and establish its own written guidelines. The statute states that the written guidelines must include methods to identify local jurisdictions with the highest need, methods to determine the amount of funding to give to each local jurisdiction, and eligible program costs, reporting requirements, and a requirement that homeless individuals be members of local boards. These guidelines are published in the Federal Register. Identifying Eligible Local Jurisdictions The National Board distributes funds directly to eligible local jurisdictions, which then determine how to allocate the funds among local service providers. Local jurisdictions must fulfill two requirements to be considered eligible. First, they must either be cities of 50,000 or more or counties (typically local jurisdictions are counties). Second, they must have the highest need for emergency food and shelter as determined by unemployment and poverty rates. Specifically, the National Board uses three measures to determine which local jurisdictions have the highest need: those with 13,000 or more residents unemployed and an unemployment rate of at least 4.7%; those with between 300 and 12,999 residents unemployed and an unemployment rate of at least 6.7%; or those with 300 or more unemployed and a poverty rate of at least 11%. Once the National Board determines which local jurisdictions are eligible to receive funds, it calculates the amount of funds each will receive by dividing the amount of available funds by the number of unemployed within all eligible local jurisdictions combined to arrive at a per capita rate of funding per unemployed person. It then distributes the funds by multiplying the per capita rate by the number of unemployed persons in each eligible local jurisdiction. Local jurisdictions that do not qualify for funding under one of the three measures of unemployment and poverty (sometimes referred to as direct funding) may still receive funds through a state set-aside process. The National Board reserves a portion of appropriated funds so that states may either fund local jurisdictions that otherwise do not qualify for funds, or provide additional funds to jurisdictions that have already qualified. In determining the portion of state set-aside funds to allocate from the total, the National Board uses its discretion, although it attempts to minimize fluctuations in funding from year to year and maintain a constant ratio of per capita state set-aside funding to per capita direct funding. The state set-aside allows states to address pockets of homelessness or poverty, help areas that undergo economic changes like plant closings, or assist communities where levels of unemployment or poverty do not quite rise to the required threshold. Each state has a set-aside committee that develops its own criteria to determine which local jurisdictions will receive set-aside funds, however the committees must give priority to those jurisdictions that did not receive funding based on unemployment and poverty measures. The National Board allocates the state set-aside funds based on a ratio of each state's average number of unemployed individuals in unfunded jurisdictions to the average number of unemployed in unfunded jurisdictions nationwide. In FY2006, Congress appropriated $151.5 million to the EFS program. Of this, just over $138 million was distributed to eligible local jurisdictions according to measures of unemployment and poverty, and approximately $11.8 million was distributed as state set-aside funding. All 50 states, the District of Columbia, Puerto Rico, and four territories received funds totaling $150,040,072. (See Table 1 .) Very little EFS program funding is used for administrative expenses. By statute, no more than 5% of the total appropriation may be used for administrative purposes. Local jurisdictions may use up to 2% of their funds, and state set-aside committees 0.5% of state set-aside funds toward the 5% total. The National Board uses no more than 1% of funds for administrative expenses. In the FY2006 appropriation for the program ( P.L. 109-90 ), Congress directed that no more than 3.5% of the total award go to pay administrative expenses. On average, no more than 2.5% of the total award is used for these expenses. Local Boards and Distribution of Funds Local boards determine which organizations within each jurisdiction will receive funds. Once the National Board identifies local jurisdictions that qualify for funds, it directs the United Way in each jurisdiction to convene a local board if one does not already exist. Local boards are comprised of representatives from the same six charitable organizations that make up the National Board. Instead of a FEMA representative, however, the head of the local government entity, or a designee, serves at the local level, and the chairperson of the board is elected. In addition, each local board must include a member who is homeless or formerly homeless, and if the jurisdiction is located within an Indian reservation, the board must invite a Native American to serve. Boards are encouraged to expand membership with representatives from minority populations, private non-profits, or government organizations. When local boards receive their share of funds from the National Board, they invite local service providers—nonprofits and government agencies—to apply for funds. The local boards select grantees, called local recipient organizations (LROs), based on the "demonstrated ability of an organization to provide food, shelter assistance or both." Funds are distributed twice per year, the first payment is automatic, and the second occurs after LROs clear an audit procedure. The local boards are responsible for monitoring LROs, establishing an appeals process for applicants denied funding, and reporting to the National Board on allocations and expenditures. Eligible expenses for which LROs may use funds include items for food pantries like groceries, food vouchers, and transportation expenses related to the delivery of food; items for mass shelters like hot meals, transportation of clients to shelters or food service providers, and toiletries; payments to prevent homelessness like utility assistance, hotel or motel lodging, rental or mortgage assistance and first month's rent; and LRO program expenses like building maintenance or repair, and equipment purchases up to $300. LROs may apply to local boards for variances in their budgets or waivers to use funds in a way not addressed in the guidelines, but which is in line with the program's intent. If a local board determines that the way it has allocated funds in its local jurisdiction is not meeting the actual need for services, or if any LRO is not using its grant effectively, the local board may reprocess and reallocate funds among other LROs. Recent Issues The EFS Program and Presidentially-Declared Disasters According to the National Board's guidelines, although EFS program funds are targeted to special emergency needs, the term applies to "economic, not disaster related, emergencies." When Congress created the program in 1983, the country was in the midst of a recession and high unemployment, so it gave jurisdiction to FEMA, the nation's emergency response agency, so that funds would be delivered quickly and efficiently. EFS funds are not distributed in a manner that is responsive to Presidentially-declared disasters, and LROs may not use funds to purchase supplies in anticipation of a natural disaster. However, there is no prohibition on using funds to provide services to those displaced by disaster as long as the services fall within the parameters of the program. In fact, there is past precedent for focusing EFS program funds on those individuals affected by disaster. After the Los Angeles riots in 1992, the Los Angeles area's local board issued special instructions to its LROs to provide help to those who needed it as a result of the riots. The National Board also fast tracked the Los Angeles board's second annual payment. Finally, local boards, supported by the National Board, issued to Congress and the White House "an urgent appeal to supplement this current year's allocation of the Emergency Food and Shelter Program in light of the increasing need both before and following the riots." Congress did not supplement the EFS Program funds, however. Location of the EFS Program Beginning in FY2003 and continuing through FY2005, the President's budget request proposed moving the EFS program from FEMA to the Department of Housing and Urban Development (HUD) in order to consolidate homeless programs. Both the House and Senate Appropriations Committees specifically chose to keep the program within FEMA. In its FY2004 report for the Veterans Affairs, HUD and Independent Agencies Appropriations Bill ( S.Rept. 108-143 ), the Senate Appropriations Committee explicitly stated that it was not including the President's proposal to transfer the program to HUD in its bill. And Senator Robert Byrd, in a hearing before the Senate Appropriations Committee on Homeland Security appropriations for FY2004, noted that the EFS program had been "well run" and "well managed by FEMA." In its report for FY2005 ( S.Rept. 108-280 ), the Senate Appropriations Committee stated that the program is appropriately run within FEMA, and that it would not move it to HUD as the President requested. The President's FY2006 budget request left the EFS program within the Department of Homeland Security's Office of Emergency Preparedness and Response, also known as FEMA.

The Emergency Food and Shelter (EFS) Program allocates funds to local communities to fund homeless programs including soup kitchens, food banks, shelters, and homeless prevention services. The EFS program is part of the Federal Emergency Management Agency (FEMA), and after Hurricane Katrina struck, some questions arose about the use of EFS program funds for Presidentially-declared disasters. This report describes how the EFS program operates through its National Board, local boards, and local recipient organizations. It further discusses the use of EFS program funds during disasters, and recent attempts to move the program from FEMA to the Department of Housing and Urban Development (HUD).

Patents and Innovation Policy The Mechanics of the Patent System The U.S. Constitution grants Congress the power "To promote the Progress of Science and useful Arts, by securing for limited Times to ... Inventors the exclusive Right to their ... Discoveries...." The Patent Act of 1952 allows inventors to request the grant of a patent by preparing and submitting an application to the USPTO. USPTO officials known as examiners then determine whether the invention disclosed in the application merits the award of a patent. In deciding whether to approve a patent application, a USPTO examiner will consider whether the submitted application fully discloses and distinctly claims the invention. In particular, the application must enable persons skilled in the art to make and use the invention without undue experimentation. In addition, the application must disclose the "best mode," or preferred way, that the applicant knows to practice the invention. The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must meet four primary requirements. First, the invention must fall within at least one category of patentable subject matter. An invention that qualifies as a "process, machine, manufacture, or composition of matter" is eligible for patenting. Second, the invention must be useful, a requirement that is satisfied if the invention is operable and provides a tangible benefit. Third, the invention must be new, or different, from subject matter disclosed by an earlier patent, publication, or other state-of-the-art knowledge. Finally, an invention is not patentable if "the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." This requirement of "nonobviousness" prevents the issuance of patents claiming subject matter that a skilled artisan would have been able to implement in view of the knowledge of the state of the art. If the USPTO allows the patent to issue, its owner obtains the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention. Those who engage in those acts without the permission of the patentee during the term of the patent can be held liable for infringement. The maximum term of patent protection is ordinarily set at 20 years from the date the application is filed. At the end of that period, others may employ that invention without regard to the expired patent. Patent proprietors who wish to compel others to respect their rights must commence enforcement proceedings, which most commonly consist of litigation in the federal courts. Adjudicated infringers may be enjoined from further infringing acts. The patent statute also provides for an award of damages "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." Although issued patents are presumed to be valid, accused infringers may assert that a patent is invalid or unenforceable on a number of grounds. If the court agrees that the patented invention would have been obvious in view of the state of the art, for example, then it will declare the patent invalid. Several empirical studies have attempted to track the percentage of litigated patents that the courts conclude the USPTO improvidently granted. One study conducted by John R. Allison, a member of the University of Texas business school faculty, and Mark A. Lemley, a member of the Stanford Law School faculty, concluded that courts hold 46% of patents litigated to a final judgment to be invalid. Other studies have reported results broadly consistent with the Allison & Lemley research. The Court of Appeals for the Federal Circuit (Federal Circuit) possesses nationwide jurisdiction over most patent appeals from the district courts. The Supreme Court enjoys discretionary authority to review cases decided by the Federal Circuit. Policy Goals The patent system is intended to promote innovation, which in turn leads to industry advancement and economic growth. The patent system in particular attempts to address "public goods problems" that may discourage individuals from innovating. Innovation commonly results in information that may be deemed a "public good," in that it is both non-rivalrous and non-excludable. Stated differently, consumption of a public good by one individual does not limit the amount of the good available for use by others, and no one can be prevented from using that good. The lack of excludability in particular is believed to result in an environment where too little innovation would occur. Absent a patent system, "free riders" could easily duplicate and exploit the inventions of others. Further, because they incurred no cost to develop and perfect the technology involved, copyists could undersell the original inventor. Aware that they would be unable to capitalize upon their inventions, individuals might be discouraged from innovating in the first instance. The patent system corrects this market failure problem by providing innovators with an exclusive interest in their inventions for a period of time, thereby allowing them to capture their marketplace value. The patent system potentially serves other goals as well. The patent law may promote the disclosure of new products and processes, as each issued patent must include a description sufficient to enable skilled artisans to practice the patented invention. At the close of the patent's 20-year term, others may employ the claimed invention without regard to the expired patent. In this manner the patent system ultimately contributes to the growth of information in the public domain. Issued patents may encourage others to "invent around" the patentee's proprietary interest. A patent proprietor may point the way to new products, markets, economies of production, and even entire industries. Others can build upon the disclosure of a patent instrument to produce their own technologies that fall outside the exclusive rights associated with the patent. The patent system also has been identified as a facilitator of markets. If inventors lack patent rights, they may have scant assets to sell or license. In addition, an inventor might otherwise be unable to police the conduct of a contracting party. Any technology or know-how that has been disclosed to a prospective licensee might be appropriated without compensation to the inventor. The availability of patent protection decreases the ability of contracting parties to engage in opportunistic behavior. By lowering such transaction costs, the patent system may make transactions concerning information goods more feasible. Through these mechanisms, the patent system may act in a more socially desirable way than its chief legal alternative, trade secret protection. Trade secrecy guards against the improper appropriation of valuable, commercially useful, and secret information. In contrast to patenting, trade secret protection does not result in the disclosure of publicly available information. That is because an enterprise must take reasonable measures to keep secret the information for which trade secret protection is sought. Taking the steps necessary to maintain secrecy, such as implementing physical security measures, also imposes costs that may ultimately be unproductive for society. The patent system has long been subject to criticism, however. Some observers have asserted that the patent system is unnecessary due to market forces that already suffice to create an optimal level of innovation. The desire to obtain a lead time advantage over competitors may itself provide sufficient inducement to invent without the need for further incentives. Other commentators believe that the patent system encourages industry concentration and presents a barrier to entry in some markets. Each of these arguments for and against the patent system has some measure of intuitive appeal. However, they remain difficult to analyze on an empirical level. We lack rigorous analytical methods for studying the impact of the patent system upon the economy as a whole. As a result, current economic and policy tools do not allow us to calibrate the patent system precisely in order to produce an optimal level of investment in innovation. An Introduction to Patent Revocation Proceedings Once the USPTO formally issues a patent, the agency's involvement with that legal instrument ordinarily comes to a close. However, the USPTO may be called upon to reconsider its initial decision to approve a patent application through several "post-grant proceedings" that apply to issued patents. Two of these proceedings, ex parte reexamination and inter partes reexamination, are revocation proceedings—that is to say, they are primarily used by individuals who wish to challenge the validity of an issued patent. Both types of reexamination proceedings address a perceived shortcoming in the patent system. Absent such proceedings, interested individuals would be unable to challenge the validity of a patent unless they became involved in a "substantial controversy" with the patent's proprietor. This requirement that an immediate, concrete dispute between the patent owner and another individual arises because the Constitution vests the federal courts with jurisdiction only where a "case or controversy" exists. A charge of patent infringement typically satisfies the "case or controversy" requirement. The "case or controversy" requirement significantly limits the ability of members of the public to challenge the USPTO's decision to grant a patent. Unless the patent proprietor becomes involved in an actual, continuing controversy with another person, that person cannot successfully request that a court determine whether the patent is valid or not. Reticent patent proprietors may therefore potentially create uncertainty in the marketplace. Manufacturers, researchers, investors, and others who question the validity of a patent, but possess no forum to address their concerns, may be unable to make informed decisions regarding the subject matter of that patent. Patent revocation proceedings address this perceived gap by allowing any interested person to challenge any U.S. patent at the USPTO. Because these proceedings are administrative in nature, the constitutional "case or controversy" requirement does not apply to them. As a result, the USPTO may be called upon to review the validity of an issued patent at any time during its term. Ex Parte Reexamination Congress introduced reexamination proceedings into the patent law in 1980. The American Inventors Protection Act of 1999 renamed the traditional sort of reexamination as an " ex parte reexamination" and also provided for the possibility of an " inter partes reexamination." Under the ex parte reexamination regime, any individual, including the patentee, a licensee, and even the USPTO Director himself, may cite a patent or printed publication to the USPTO and request that a reexamination occur. The reexamination request must be in writing and explain the relevance of the cited reference to every claim for which reexamination is requested. The request must also be accompanied by the appropriate fee, which as of January 1, 2010, was $2,520. Although the USPTO does not maintain the identity of the requester in confidence, individuals desiring anonymity may authorize a patent agent or attorney to file the request in the agent's own name. A USPTO examiner then must determine whether the patents or printed publications cited in the request raise "a substantial new question of patentability." This standard is met when there is a significant likelihood that a reasonable examiner would consider the reference important in deciding whether the claim is patentable. If the USPTO determines that the cited reference does not raise "a substantial new question of patentability," then it will refund a large portion of the requestor's fee. The USPTO's denial of a reexamination request may not be appealed. On the other hand, if the USPTO determines that the cited reference does present a substantial new patentability question, then it will issue an order for reexamination. The patentee is then afforded the opportunity to file a preliminary statement for consideration in the reexamination. If the patentee does so, then the requestor may then file a reply to the patentee's statements. As a practical matter, because most patentees do not wish to encourage further participation by the requestor, few preliminary statements are filed. Following this preliminary period, the USPTO will essentially reinitiate examination of the patent. Prosecution then continues following the usual rules for examination of applications. However, several special rules apply to reexaminations. First, the USPTO conducts reexaminations with special dispatch. Examiners must give priority to patents under reexamination, and will set aside their work on other patent applications in favor of the reexamination proceeding. To further ensure their timely resolution, patentees may not file a continuation application in connection with a reexamination. Second, the patent owner may not update the patent with additional information not originally found within the patent during reexamination. If the reexamined claims are upheld in original or amended form, the USPTO will issue a reexamination certificate. Once this certificate has issued, the reexamined patent once more enjoys the statutory presumption of validity. If the USPTO finds the claims to be unpatentable over the cited reference, then it will issue a certificate of cancellation. Patentees adversely affected by a reexamination may appeal the USPTO's decisions to the Federal Circuit. Frequently, a defendant accused of infringement before a court files a reexamination request at the USPTO. If the USPTO accepts the request, the USPTO and a court will find themselves in the awkward situation of simultaneously considering the validity of the same patent. In Ethicon, Inc. v. Quigg , the Federal Circuit concluded that because the Patent Act required reexaminations to be conducted with "special dispatch," the USPTO may not stay reexamination proceedings due to ongoing litigation. Whether a court will stay litigation in favor of the reexamination lies within the discretion of the judge. Such factors as the technical complexity of the invention, the overall workload of the court, and whether the reexamination request was filed early or late in the litigation typically influence this determination. Congress recognized that third parties may have made commercial decisions based upon the precise wording of the claims of an issued patent. If that patent is reexamined and survives with different claims, this reliance interest could be frustrated. In order to protect individuals who may have relied upon the scope of the claims of the original patent, the Patent Act allows for so-called intervening rights. Intervening rights allow third parties to sell off existing inventory free of the patent right. In addition, courts may allow continued practice of an invention claimed in a reexamined patent to the extent they deem equitable "for the protection of investments made or business commenced" before the grant of the reexamination certificate. Inter Partes Reexamination As the title " ex parte reexamination" suggests, the role of the reexamination requestor is very limited in these proceedings. Only the patentee may participate in the dialogue with the examiner, and only the patentee may appeal the matter to the courts if the USPTO reaches an unsatisfactory conclusion. Some potential patent challengers did not believe the limited role provided for them offered a viable alternative to validity challenges in court. As a result, some observers believed that the ability of ex parte reexamination to provide an expert forum as a faster, less expensive alternative to litigation of patent validity was compromised. In particular, far fewer ex parte reexaminations were requested than some observers had originally anticipated. The Optional Inter Partes Reexamination Procedure Act of 1999 responded to these concerns by providing patent challengers with an additional option. They may employ the traditional reexamination system, which was renamed an ex parte reexamination. Or, they may opt for a considerable degree of participation in a new procedure known as inter partes reexamination. Under this legislation, third party requesters may choose to submit written comments to accompany patentee responses to the USPTO. The requester also may appeal USPTO determinations that a reexamined patent is not invalid to the courts. The filing fee for inter partes reexaminations is $8,800 as of January 1, 2010. Congress was concerned that competitors of the patent proprietor might attempt to litigate a patent validity issue in the courts following an unsuccessful inter partes reexamination at the USPTO, or the reverse, requesting inter partes  reexamination based upon the same validity issue they had unsuccessfully raised in court. The potential need for repetitive defensive efforts was deemed to be abusive to patent proprietors. As a result, the inter partes  reexamination statute provides that third party participants may not raise issues that they raised or could have raised during the inter partes reexamination during subsequent litigation. Similarly, an individual who loses a validity challenge in federal court may not later initiate an inter partes  reexamination proceeding on any grounds it raised or could have raised in federal court. These provisions are termed "estoppel" provisions because they stop, or bar, individuals from making repetitive arguments in later proceedings. The Current State of Post-Grant Review The USPTO regularly releases to the public current data concerning both sorts of reexamination proceedings. This data supplies considerable information concerning the practical workings of these proceedings. With respect to ex parte  reexamination, a total of 10,066 requests had been filed from the July 1, 1981, conception date of these proceedings through June 30, 2009. Approximately 36% of these requests were filed by the patent owner, 2% by the USPTO Director, with the remaining 62% filed by third parties. The USPTO granted 9,675, or approximately 92%, of these requests. Ex parte reexamination proceedings had an average pendency of 25.1 months and a median pendency of 19.5 months. Ex parte  reexamination proceedings resulted in a certificate cancelling all the claims 11% of the time, a certificate confirming all the claims 25% of the time, and a certificate amending at least one claim 64% of the time. A total of 671 inter partes  reexamination requests had been filed from the November 29, 1999, conception date of the proceedings through June 30, 2009. The USPTO granted 583, or approximately 95%, of these requests. Inter partes reexamination proceedings had an average pendency of 36.1 months and a median pendency of 33.0 months. Inter partes  reexamination proceedings resulted in a certificate cancelling all the claims 60% of the time, a certificate confirming all the claims 5% of the time, and a certificate amending at least one claim 35% of the time. In combination with commentary from members of the patent community, this data supports a number of observations. First, the number of both types of reexamination requests is fewer than some observers had anticipated. Although some commentators expected that thousands of reexamination requests would be filed each year, the actual number has been considerably less. Both forms of reexamination appear to be growing in popularity in recent years, however. In 2007, for example, 643 ex parte reexamination requests were filed, as compared to 375 in 1997 and 240 in 1987. The small but growing number of inter partes  reexamination requests may in part be explained because this proceeding is only available to challenge patents that issued from applications filed after November 29, 1999. As a result, no inter partes reexamination requests were filed at all in 1999, and only one such request was made in 2001. In 2007, 126 inter partes requests were filed, and 128 requests were filed between January 1, 2008, and June 30, 2008. Second, ex parte reexamination requests result in the cancellation of all of a patent's claims only 11% of the time. This data supports the view of some observers that ex parte reexamination requests favor the patent proprietor in practice. One explanation for this perceived tendency is that ex parte  reexamination proceedings are seen as restrictive in nature, with limited grounds for challenging a patent and minimal participation by the patent challenger. On the other hand, 64% of reexamination certificates result in amendments to the claims of the challenged patents. These amendments may narrow the scope of patent protection in such a way to allow competitors more readily to design around the patent, thereby providing a satisfactory result to the reexamination requestor. Indeed, another way to perceive these statistics is that 75% of the time, the USPTO finds the patent subject to ex parte  reexamination at least partially invalid. These critiques also do not apply to inter partes reexamination proceedings, where all the claims of the patent are cancelled 60% of the time. Third, both sorts of reexamination requests take over two years on average to complete. The length of this proceeding is explained in part by the demands of the workload of the USPTO and complexity of some of the technologies involved. Some commentators believe that these proceedings take too much time to complete. During the pendency of the reexamination, litigation or licensing of the patent may prove difficult due to the pending USPTO decision. Other concerns have arisen with respect to reexamination. The estoppel provisions associated with inter partes reexaminations are among those that have attracted criticism. The inter partes  reexamination statute provides that third party participants may not raise during subsequent litigation issues that they raised or could have raised during the inter partes reexamination. Similarly, an individual who loses a validity challenge in federal court may not later provoke an inter partes reexamination proceeding on any grounds it raised or could have raised in federal court. Some experts believe that these provisions weigh too heavily against patent challengers and therefore discourage use of inter partes  reexaminations. However, other commentators observe that an infringer who fails to convince a court that the asserted patent is invalid stands in the same position as the party that loses in an inter partes reexamination—in either setting, the law provides a single opportunity to argue that the patent was invalid. Further, Congress intended that these provisions would limit possibilities for harassing patent owners through repetitive litigation and reexaminations proceedings. Other observers have criticized a tactic sometimes employed once a court concludes that an individual infringes a patent. The adjudicated infringer may employ reexamination proceedings in an effort to convince the USPTO to invalidate a patent that a court had previously upheld. Some observers believe that it is inappropriate for the USPTO to strike down a patent that a court had recently confirmed. These tactics may also raise concerns over separation of powers between the executive and judicial branches. On the other hand, differences between judicial and USPTO proceedings may contribute to divergent outcomes between these fora. For example, although patents enjoy a presumption of validity in the courts, they are not entitled to this presumption during reexamination proceedings. In sum, divergent views exist with respect to ex parte and inter partes  reexamination proceedings. Although individual commentators vary in their assessments of the effectiveness and fairness of these patent revocation proceedings, persistent discussion has occurred within the patent community concerning their potential modification. In addition, many observers have proposed the creation of additional mechanisms for allowing members of the public to challenge the USPTO's patentability determination without subjecting patent proprietors to harassment. As this report next discusses, some features of these proposals have become the subject of congressional legislative proposals. Proposals for Reform in the 111th Congress Legislative interest in improving upon current patent revocation proceedings in part motivated the introduction of three bills in the 111 th Congress. These bills were H.R. 1260 (introduced by Congressman Conyers on March 3, 2009), S. 515 (introduced by Senator Leahy on March 3, 2009, and reported by Senator Leahy with amendments on April 2, 2009), and S. 610 (introduced by Senator Kyl on March 17, 2009). Each of these bills was styled as the "Patent Reform Act of 2009." With respect to existing patent revocation proceedings, S. 610 would entirely eliminate inter partes  reeexamination. In contrast, H.R. 1260 and S. 515 would retain these proceedings. Each of the three bills would retain ex parte reexamination proceedings. Each of the bills would also introduce a new administrative procedure termed a "post-grant review proceeding" or "post-grant review procedures." The post-grant proceeding proposed by the three bills shares certain common features. First, the maximum length of the proceeding was set to one year, with an extension by six months possible for good cause shown. Second, each post-grant proceeding would be administered by a newly established "Patent Trial and Appeal Board." Third, any participant dissatisfied with the outcome would be able to bring an appeal to the Federal Circuit. Finally, with the exception of confidential material that has been sealed by the USPTO, the file of this procedure would be made available to the public. The following table identifies selected features with respect to each of these bills. As this table demonstrates, patent revocation proceedings involve a number of parameters. The particular choices made in selecting these parameters may reflect the following policy goals: Timely Challenges Many observers believe that interested members of the public should be encouraged to bring patent challenges as soon as possible after the patent issues. Balanced against this goal was the desire to provide members of the public access to USPTO review throughout the term of the patent. The three bills endeavor to balance these goals by setting varying time limits for commencing a post-grant proceeding. S. 610 also appears to encourage timely challenges by augmenting the presumption of validity and limiting the scope of the challenge for proceedings not brought within nine months of the date the patent issues. Timely USPTO Decision-Making The three bills each would require the USPTO to complete the post-grant proceeding within one year, with the possibility of a single extension of up to six months. In addition, the bills would provide the USPTO with the ability to merge different proceedings that involve the same or similar issues. These features may increase the possibility that the USPTO will expeditiously administer post-grant proceedings. However, these time limits may be difficult for the USPTO to meet and may require the USPTO to devote considerable resources to post-grant proceedings. Predictable Decisions Each of the three bills would create a Patent Trial and Appeal Board with exclusive responsibility for administering the post-grant proceeding. Such concentrated authority may potentially increase the uniformity of decisions reached by the USPTO in post-grant proceedings. Effective Decisions In comparison with existing reexamination proceedings, the proposed post-grant proceedings would provide for a broader range of patentability issues that the USPTO must consider. Unlike reexaminations, the post-grant proceedings also would allow the participants to engage in discovery. Discovery potentially allows one party to the proceeding to obtain information about the case from the other party in order to assist in trial preparation. These substantive and procedural rules potentially allow the USPTO to resolve a broad range of patentability issues in a lower-cost, more expedient procedure than federal litigation. The breadth of potential patentability issues may make post-grant proceedings more difficult for the USPTO to resolve, however. Transparent Decisions Each of the bills calls for the record of the proceedings to be made available to the public. Minimizing Repetitive Charges Against the Patent Owner The bills also incorporate features that may decrease the possibility that post-grant proceedings may be used against a patent owner in an arguably abusive manner. Among them is the requirement that the USPTO must assess whether the petitioner has raised legitimate patentability arguments prior to commencing the post-grant proceeding. The patent owner is also afforded at least one opportunity to amend the claims in view of prior art references that are cited by the petitioner. Finally, each of the bills would bar an unsuccessful petitioner in a post-grant proceeding from raising the same issues in other proceedings. Although these provisions were intended to shield the patent owner from repetitive arguments, they may also make the proceedings less attractive to potential challengers. Patent Revocation Proceedings and Innovation Policy Patents derive their value from the rights they confer to exploit proprietary technologies. The increased focus on intellectual property in our information-based, knowledge-driven economy has arguably caused industry to raise its expectations with respect to the quality, timeliness, and efficiency of the granting of patents. As the USPTO currently employs approximately 6,000 patent examiners with varying degrees of experience, legal training, and technical education, maintaining consistency in patent grant determinations presents a challenging task for USPTO management. By recruiting members of the public to act as "private patent examiners," post-grant proceedings allow the USPTO to confirm its earlier determinations regarding that subset of patents that prove to be of marketplace significance. In this respect, it should be appreciated that the validity of only a small subset of issued patents is ever called into question. For example, one commentator estimated that only about five percent of issued patents are litigated or licensed. Post-grant proceedings may therefore direct the attention of the USPTO to those patents that industry believes to be of particular significance and arguable validity. In addition, an administrative process for reassessing patentability determinations in a reliable, cost-effective, and timely manner could potentially allow members of the public to make commercial decisions with more certainty over the impact of patent rights. By reducing costs to patent owners, it could also channel resources that innovative firms currently spend on defending their patent rights in the courts into further research and development. The designers of a patent revocation proceeding may need to take into account a number of potentially conflicting policy goals. A sufficiently robust, efficient, and predictable proceeding may attract individuals with a valid adverse interest to a patent. In this respect, it should be recognized that patent validity adjudications potentially benefit the public even though they take place between the patent owner and the petitioner. Because such determinations may either confirm that the award of a patent was appropriate, or dedicate the previously patented subject matter to the public domain, members of the public may benefit when the validity of a patent is upheld or denied. On the other hand, baseless or repetitive challenges potentially reduce the value of intellectual property ownership. They may ultimately reduce the value of the innovation that results from the grant of the patent as well. Unmeritorious challenges may also strain USPTO capabilities and divert administrative resources from more worthwhile tasks. In view of these and other innovation policy concerns, Congress possesses a range of options with respect to patent revocation proceedings. If the current ex parte and inter partes  reexamination proceedings are deemed satisfactory, then no action need be taken. If reform is believed to be desirable, making limited changes to the existing reexamination proceedings presents another option. Legislation might, for example, alter the estoppel provisions associated with inter partes  reexamination, expand the range of substantive patent law issues that could form the basis for the patent challenge, or provide for some form of discovery in these proceedings. A third option, taken in part by H.R. 1260, S. 515, and S. 610 , is to establish a new revocation proceeding more robust than the two types of reexamination available under current law. Such a proceeding is adversarial in nature and may include discovery, estoppel effects, a broad range of patentability issues subject to review, and other features found in litigation in the federal courts. This sort of proceeding may potentially form a more desired substitute for litigation in the federal courts. However, as more litigation features are incorporated into patent revocation proceedings, they potentially grow more costly for the participants and more difficult for the USPTO to administer. As discussed earlier in this report, patent revocation proceedings are defined through a number of parameters. In the event that reform is considered desirable, these features may be adjusted in view of particular policy goals. For example, to avoid prolonged uncertainty over a patent's validity, H.R. 1260 , S. 515 , and S. 610 each establish a one-year time period, potentially extendable to 18 months, for the USPTO to complete the proceeding. Other legislative strategies for achieving this goal exist. Legislation might set no fixed time limit upon the proceeding, for example, but rather provide for extension of the term of any patent involved in a revocation proceeding that exceed a certain time limit on a day-per-day basis. Arguably one of the more controversial features of the various patent revocation proceeding proposals is the determination of when such a proceeding could be brought. Some observers believe that revocation proceedings should be conducted as soon as possible during a patent's term. They observe that patent owners commonly expend greater resources in developing and marketing an invention as the term of a patent progresses. Earlier resolution of validity challenges may decrease uncertainty and allow for better investment decisions. Prompt determinations may also benefit the public by increasing clarity over the precise scope of the patent right. Uncertainty over patent title may adversely affect the ability of start-up firms, as well as other enterprises that rely significantly upon their intellectual property rights, to obtain funding from investors. These observers support a brief time limit on bringing a revocation proceeding. On the other hand, some commentators believe that the value of many patents is not realized until later in their terms. In particular, the developers of new pharmaceuticals, medical devices, and other regulated products often do not receive government permission to market these products until several years after they have procured a patent. Because many products fail to achieve government marketing approval, discerning which patents will be of marketplace significance in the future may be a difficult inquiry. Significant temporal restrictions may in effect remove certain patents on regulated products from post-grant proceedings altogether. These observers further note that post-grant proceedings at the USPTO have traditionally been available at any time during the term of the patent. In addition, the validity of a patent may be challenged any time the patent is asserted during litigation. These commentators do not favor any sort of time limit on bringing a patent revocation proceeding. By establishing different time frames for initiating a patent revocation proceeding, the three bills in the 111 th Congress balance these competing views in distinct ways. Patent revocation proceedings were among the notable intellectual property issues discussed in recent hearings before Congress. Much of this discussion focused upon the experience of innovative industry with existing reexamination proceedings. Legislation proposing more expansive patent revocation proceedings may be viewed as attempting to achieve the goals of the earlier reexamination statutes: The creation of a predictable, cost-effective, and timely mechanism for resolving patent validity disputes while limiting harassment of the patent owner.

Congressional recognition of the role patents play in promoting innovation and economic growth has resulted in the introduction of legislation proposing changes to the patent system. Among other goals, these changes would potentially decrease the cost of resolving disputes concerning patents, increase commercial certainty regarding the validity of particular patents, address potential abuses committed by speculators, and account for the particular needs of individual inventors, universities, and small firms with respect to the patent system. In pursuit of these goals, several bills introduced in the 111th Congress would alter the current system of "patent revocation proceedings" administered by the U.S. Patent and Trademark Office (USPTO). The term "patent revocation proceeding" commonly refers to a legal procedure through which members of the public may challenge the validity of an issued patent. Current law provides for two types of patent revocation proceedings: an ex parte reexamination and inter partes reexamination. Any individual may cite a patent or printed publication to the USPTO and request that an ex parte reexamination occur. If the USPTO determines that the request raises "a substantial new question of patentability," then it will commence the ex parte reexamination. The USPTO will then review the patent with special dispatch. The proceeding results in either a certificate upholding the claims in original or amended form, or a certificate of cancellation rejecting all of the claims of the patent. Inter partes reexamination operates similarly to an ex parte reexamination, but allows more significant participation by the individual requesting the proceeding. Some observers believe that both types of reexamination have not been widely used and could be improved. As a result, previous legislative proposals have called for their elimination or modification. These bills would have also created a new, more expansive "post-grant review proceeding." This proposed procedure was intended to provide a predictable, cost-effective, and timely mechanism for resolving patent validity disputes and limit repetitive claims against the patent owner. Patent revocation proceedings involve a number of design parameters that may be adjusted in order to meet certain policy goals. Among these parameters are the time at which the proceeding may begin, the patentability issues that may be addressed, the availability of discovery, and the extent to which participants may reassert unsuccessful arguments in subsequent administrative or judicial proceedings. These parameters may be modified in order to encourage certain policy goals, including timely use and resolution of the proceedings, limiting the possibility of harassment of the patent owner, and providing predictable, effective, and transparent decisions.

Introduction This report provides a concise, chart- and table-based introduction to China's political institutions and current leaders. The report is intended to assist Members and their staffs seeking to understand where political institutions or individuals fit within the broader Chinese political system and to identify which Chinese officials are responsible for specific portfolios. The information may be useful for Members and staff visiting China, hosting visitors from China, preparing for China-related hearings, or drafting China-related legislation. For a detailed discussion of the Chinese political system, see CRS Report R41007, Understanding China's Political System , by [author name scrubbed] and [author name scrubbed]. China's Communist Party, which dominates the Chinese political system, convened its 18 th National Congress in November 2012. At the Congress and a meeting immediately following it, the Party elected a new leadership to five-year terms ending in 2017. Xi Jinping became General Secretary of the Communist Party and Chairman of the Party's Central Military Commission, making him China's top leader for what is expected to be the next decade. The first session of the 12 th National People's Congress in March 2013 produced new leaders for the legislature, the State, the judiciary, the prosecutor's office, the State military commission, and other bodies. All such leaders were appointed to five-year terms ending in 2018. On this occasion, Xi Jinping assumed an additional post, as State President. A parallel meeting produced a new leadership for a high-profile political advisory body. The charts included in this report reflect the structure of the Chinese leadership that emerged from those Party, legislature, and advisory body meetings. All charts in this report were created by CRS. All personal names are listed in Chinese style, with family names preceding given names. China's Political Power Structure China's current state constitution was adopted in 1982 and subsequently amended four times. Its third chapter, entitled "Structure of the State," describes China's unicameral legislature, the National People's Congress (NPC) , as "the highest organ of state power." According to the state constitution, the NPC's role includes "supervising" the work of four other political bodies. They are listed below. The State Council . The state constitution describes it as "the highest organ of state administration"; it oversees the state bureaucracy and manages day-to-day administration of the country. The State Central Military Commission . The state constitution says it "directs the armed forces of the country." The Supreme People's Court . The state constitution calls it "the highest judicial organ." The Supreme People's Procuratorate . It is China's top prosecutor's office. This political power structure is illustrated in Figure 1 . The Communist Party of China is not mentioned in Chapter 3 of the state constitution, although Communist Party leadership is mentioned in passing five times in the state constitution's preamble. The Communist Party's own constitution provides more detail about Party leadership of the political system, the economy, and society at large, stating that "the Party commands the overall situation and coordinates the efforts of all quarters, and the Party must play the role as the core of leadership among all other organizations at corresponding levels." The Party constitution explicitly states that the Communist Party "persists in its leadership over the People's Liberation Army and other armed forces of the people." The Party exercises that leadership through a Party Central Military Commission . It, rather than the State Central Military Commission, commands China's armed forces; the State Military Commission, which has identical membership to the Party Central Military Commission, is believed to exist in name only. In the Party constitution, Party leadership of the legislature, the State Council, the courts, and the prosecutor's office is not explicitly stated, but is implied. In practice, the Party nominates the leaders of all four bodies and operates Party committees within each of them. The courts and prosecutors' offices, the police, and some ministries report directly to Party Central Committee commissions and departments. Figure 2 provides an approximate illustration of China's power structure as currently implemented, with the Communist Party in charge. The Communist Party of China (CPC) With 85 million dues-paying members, just over 6% of China's population of 1.35 billion, the Communist Party of China (CPC) is the largest political party in the world. As noted above, it is China's dominant political institution, exercising leadership over the entire political system. The Communist Party constitution requires the Party to hold a national congress every five years. The most recent congress, the 18th, was held in November 2012. At each Congress, delegates elect a new Central Committee in a modestly competitive process: the Party leadership nominates approximately 10% more candidates than available positions. The current Central Committee is composed of 205 full members and 171 alternate members. They include 33 women (8.8% of the full 376-member Central Committee) and 39 ethnic minorities (10.4%). Each meeting of the Central Committee is known as a plenum. At its first plenum following a Party Congress, the Central Committee elects from among its members a 25-person Politburo , a more elite Politburo Standing Committee , which currently has seven members, and a General Secretary , who serves as China's top leader and who is required to be a member of the Politburo Standing Committee. These elections are believed to be non-competitive, with the outgoing Party leadership nominating only as many candidates as positions available. According to the Party constitution, the Standing Committee then nominates members of the Party Secretariat , which manages the daily operations of the Politburo and its Standing Committee and oversees Party Central Committee departments and commissions. Members of the Secretariat are subject to endorsement by the Central Committee. The Members of all the Party leadership bodies are elected or endorsed for five-year-long terms, until the next Party Congress. The top officials in all non-Party institutions routinely hold concurrent Party posts, although they often do not publicize them. Party committees are embedded in the State Council, ministries under the State Council, the legislature, the courts, prosecutors' offices, state-owned enterprises, and all other public institutions, such as universities and hospitals, as well as in most private companies and many non-governmental organizations. At the sub-national level, provinces, counties, and townships all have a Party committee and a parallel people's government, with the Party Secretary of the Party committee serving as the geographic unit's top leader. The Communist Party Politburo Standing Committee The Communist Party's Politburo Standing Committee (PSC) serves as China's most senior decision-making body. The Party constitution requires that Party committees at all levels of the Chinese political system operate according to "the principle of combining collective leadership with individual responsibility based on division of work." Accordingly, each of the seven members of the PSC shoulders primary responsibility for a specific portfolio. The Party General Secretary serves concurrently as Chairman of the Party and State Central Military Commissions, which have identical memberships, and as State President. He also oversees foreign policy and, according to the Party constitution, has responsibility for convening Standing Committee and larger Politburo meetings and "presiding over" the work of the Party Secretariat. The second-ranked PSC member serves as Premier of the State Council, which manages the state bureaucracy. He is effectively China's top economic official. The third-ranked PSC member serves as Chairman of the Standing Committee of the National People's Congress (NPC), China's unicameral legislature. The fourth-ranked PSC member serves as chairman of a political advisory body, the Chinese People's Political Consultative Conference (CPPCC) National Committee. He is responsible for outreach to non-Communist groups, such as China's eight minor political parties, all of which pledge loyalty to the Communist Party, and state-sanctioned religious associations. The fifth-ranked PSC member heads the Party Secretariat, which oversees the Party bureaucracy. He also has responsibility for ideology and propaganda. The sixth-ranked PSC member heads the Party's Central Disciplinary Inspection Commission (CDIC), which polices the Party's ranks for corruption and other forms of malfeasance. The seventh-ranked PSC member serves as the top-ranked State Council vice premier and assists the Premier with his duties. The collective leadership principle is generally understood to mean that the General Secretary must win consensus from his Standing Committee colleagues for major decisions. Since 1997, China has evolved a set of age limits for top Party offices, although it is unclear if these are norms or rules. At the last three Party Congresses, in 2002, 2007, and 2012, no one older than 67 was appointed to a new term on the Politburo Standing Committee or the broader Politburo. Five of the seven Politburo Standing Committee members (all except Xi Jinping and Li Keqiang) and 6 of the 18 regular Politburo members will be over the age of 67 by the time the 19 th Party Congress is scheduled to be held in 2017, and thus are expected to retire then. Barring unforeseen developments, Xi and Li are expected to be elected to new terms in 2017, retiring in 2022. Party and state leaders are limited to two five-year terms in the same position. The Communist Party Politburo The full 25-member Politburo (or "Political Bureau") includes the seven members of the Politburo Standing Committee plus 18 regular members. Members whose primary area of responsibility is the Communist Party are the greatest in number, followed by members whose primary area of responsibility is the State, then the provinces, the military, the National People's Congress, and the political advisory body, the Chinese People's Political Consultative Conference. Among the members whose primary area of responsibility is the Party, three preside over particularly sensitive portfolios, each considered by the Party to be crucial to maintaining Party rule. They are listed below. The head of the Organization Department , responsible for the recruitment of Party members and their assignment to jobs across the party and state, the legislatures, state-owned corporations, universities, and other public institutions. The head of the Propaganda Department (also known as the Publicity Department), responsible for the Party's messaging and for control of the media and ideology. In coordination with the Organization Department, the Propaganda Department manages the leaders of the Ministry of Culture; the General Administration of Press and Publication, Radio, Film, and Television; the Chinese Academy of Social Sciences; the People's Daily; the Xinhua News Agency; and other media organizations. The head of the Central Commission of Politics and Law , who oversees the security apparatus, including the courts, the prosecutors' offices, the internal and external state security bureaucracy, the police, and, in conjunction with the Central Military Commission and the State Council, the paramilitary forces. The seven State positions that confer Politburo membership are the State President and Vice President, the Premier of the State Council, and the four State Council Vice Premiers. The six geographic units represented on the Politburo include four municipalities with the same bureaucratic status as provinces: Beijing, Chongqing, Shanghai, and Tianjin. Also represented are the prosperous coastal province of Guangdong, next to Hong Kong, and the ethnic minority region of Xinjiang, in China's northwest. Two of the provincial leaders with seats on the Politburo, Guangdong Province Party Secretary Hu Chunhua and Chongqing Municipality Party Secretary Sun Zhengcai, are the youngest members of the Politburo. Because they have achieved high office at a young age, they are considered leading candidates for eventual promotion to Politburo Standing Committee membership. The Politburo includes two women. They are Vice Premier Liu Yandong and Tianjin Municipality Party Secretary Sun Chunlan. The Communist Party's Military The Party's Central Military Commission (CMC) exercises unified command over China's armed forces, consisting of the active and reserve forces of China's military, the People's Liberation Army (PLA); a paramilitary force, the People's Armed Police Force (PAP); and a militia. The PLA, with approximately 2.3 million active personnel and 510,000 reserves, is not a national army belonging to the state. Rather, it serves as the Party's armed wing. The civilian General Secretary of the Communist Party serves as the CMC's chairman. The rest of the CMC is currently comprised of uniformed officers. They are two vice chairmen (who serve concurrently on the Party's Politburo), the State Councilor for military affairs (who serves concurrently as Minister of Defense), the directors of the PLA's four general departments, and the commanders of the Navy, the Air Force, and the strategic and conventional missile forces, known as the Second Artillery Corps. The Party and State CMCs have identical memberships and are effectively a single body. The institution of the Party CMC is the locus of authority. The responsibilities of the PLA's four general departments are listed below. General Staff Department : operations, cyber and electronic warfare, communications/informatization, intelligence, training, force structure, mobilization, and foreign affairs; General Political Department : Communist Party affairs, personnel, military media and cultural troupes, and security; General Logistics Department : financial affairs and audits; housing, food, uniforms, and other supplies; military healthcare; military transportation; and capital construction; and General Armament Department : weapons and equipment needs, research and development, electronics and information infrastructure, and the manned space program. The four general departments direct the service branches and serve as the national headquarters for the Army. They also direct China's military regions (MRs), also known as military area commands or theaters of war. The seven military regions are the Shenyang MR, Beijing MR, Lanzhou MR, Jinan MR, Nanjing MR, Guangzhou MR, and Chengdu MR. The Navy, the Air Force, and the Second Artillery Corps each has its own separate national headquarters. The Ministry of National Defense is not in the chain of command. The State Presidency The State President serves as China's head of state. The position, held by Communist Party General Secretary Xi Jinping, is the highest State office, but is largely ceremonial and involves few duties. Since 1993, every Communist Party General Secretary has served concurrently as State President, largely to facilitate his meetings with other heads of state. As Communist Party General Secretary alone, he would have few counterparts. Candidates for the positions of President and Vice President are nominated by the Communist Party and elected by deputies to the National People's Congress. So far, such elections have always been non-competitive. The Chinese government's official website states, however, that, "As the political democratization process continues, the single-candidate practice will gradually be replaced by multi-candidate election." According to China's state constitution, the President is subordinate to the National People's Congress (NPC). The actual power dynamic is reversed, because the position of the President is filled by the Communist Party General Secretary. The General Secretary/State President is the Party's top official, while the NPC Standing Committee Chairman is ranked third in the Party hierarchy for protocol purposes. According to the constitution, the President promulgates laws that are passed by the NPC and ratifies treaties that are agreed to by the NPC. He nominates the Premier to the NPC, and appoints the Premier following NPC review. Following decisions by the NPC, the President is also responsible for officially proclaiming a state of emergency or a state of war and issuing mobilization orders. Other than appointing and, if need be, removing its top officials, the President officially has no role in the operations of the State Council, a separate political institution that oversees China's state bureaucracy. The constitution decrees somewhat vaguely that the State Vice President "assists the president in his work" and "may exercise such functions and powers of the president as the president may entrust to him." The current Vice President, Li Yuanchao, is a regular member of the 25-person Politburo, but not a member of the elite seven-person Politburo Standing Committee. His Party protocol rank is lower than that of the State Council Premier and the top-ranked Vice Premier, who are both Politburo Standing Committee members. His rank is also marginally lower than that of the second-ranked Vice Premier. President Xi is believed to have entrusted Vice President Li with a portfolio that includes substantial involvement in foreign affairs. The State Council China's state constitution describes the State Council, also known as the Central People's Government, as "the highest organ of State administration." The State Council is officially responsible for implementing policies formulated by the Communist Party and laws passed by the National People's Congress, and for overseeing the day-to-day work of the State bureaucracy. China generally conducts its external relations through the State Council. The State Council is headed by a Premier, who serves concurrently as the Communist Party's no. 2-ranked official. He is appointed to his post by the State President, a position held by the Communist Party's top-ranked official. The Premier is assisted by four Vice Premiers, one of whom sits with him on the Party's Politburo Standing Committee, and the remaining three of whom are regular members of the Party's 25-person Politburo. Just below the Vice Premiers in rank are five State Councilors. State Councilors are full members of the Party's Central Committee, but do not hold seats on the more elite Politburo. The portfolios of all the Vice Premiers and State Councilors are described in Table 1 . The full State Council is akin to a cabinet. In addition to the Premier, the Vice Premiers, the State Councilors, and a Secretary General, it also includes the ministers of China's 20 ministries, the chairmen of three ministerial-level commissions, the governor of the central bank, known as the People's Bank of China, and the head of the National Audit Office. Under the State Council are a wide array of organizations and administrative offices. They include such entities as the State-owned Assets Supervision and Administrative Commission of the State Council, which oversees national-level state-owned enterprises, and the State Administration of Taxation. They also include such entities as China's state news agency, Xinhua, and regulatory commissions for banking, securities, insurance, and electricity. The State Council has the power to pass its own regulations and to draft legislation or authorize ministries to draft legislation, which it forwards to the National People's Congress for passage into law. The State Council Executive Committee The State Council's most senior officials are members of an Executive Committee composed of the Premier, four Vice Premiers, five State Councilors, and a Secretary General. The Vice Premiers are all members of the elite 25-person Communist Party Politburo, while the State Councilors are not. Because the current Secretary General serves concurrently as a State Councilor, the Executive Committee now has 10 members. Current Executive Committee members were appointed in March 2013 for a five-year term. They are listed below, along with their reported portfolios. The National People's Congress The National People's Congress is China's unicameral legislature. China's 1982 state constitution describes the NPC as "the highest organ of state power." The state constitution gives the NPC the power to amend the state constitution; supervise its enforcement; enact and amend laws; ratify and abrogate treaties; approve the state budget and plans for national economic and social development; and elect and impeach top officials of the state and judiciary. It also authorizes the NPC to supervise the work of the State Council, the State Central Military Commission, the Supreme People's Court, and the chief prosecutor's office, known as the Supreme People's Procuratorate. In reality, the NPC is controlled by the Communist Party and exercises many of its constitutionally conferred powers in name only. Each Congress lasts five years. The current Congress, the 12 th NPC, began in March 2013. The full Congress is composed of approximately 3,000 delegates. They are nominated by the Communist Party and elected by 35 electoral units: the people's congresses of 22 provinces, 5 autonomous regions, and 4 provincial-level cities, plus election councils for the People's Liberation Army, the Hong Kong and Macao Special Administrative Regions, and "Taiwan compatriots." The full Congress meets for a single annual session of about 10 days every March. Because the full Congress's annual session is so brief, much of the NPC's work is undertaken by its Standing Committee , which currently has 161 members and convenes every two months. The NPC's highest-ranking official is the Chairman of the Standing Committee, who serves concurrently as the Communist Party's no. 3-ranked official. Many of the NPC's top officials are retired senior officials from other parts of the political system who are able to extend their political careers by up to 10 years by serving in the Congress. Nine NPC specialized committees , composed of deputies, meet throughout the year, usually once a month. They do not have the power to amend legislation assigned to them for review, or to approve personnel for other constitutional branches of government. They do have a formal role, however, in offering advice on legislation to the Standing Committee and the full Congress and performing oversight. Because the NPC does not have a specialized committee specifically focused on military affairs, the Foreign Affairs Committee is responsible for advising on legislation on both foreign affairs and defense matters. The Foreign Affairs Committee also has responsibility for international parliamentary exchanges. Five institutions composed of staff and outside experts support the Standing Committee. A sixth institution supporting the Standing Committee, the Deputy Credential Examination Committee, is composed of NPC delegates. Officials Whose Portfolios Include Foreign Affairs Several members of the 25-person Party Politburo have portfolios that include foreign affairs. The most prominent are President Xi Jinping and Vice President Li Yuanchao, who are believed to serve as the head and deputy head of the Party's coordinating body for foreign affairs, the Central Committee Foreign Affairs Leading Small Group. (The group's membership is not publicly disclosed.) No Politburo member focuses full-time on foreign policy. China's top diplomat, State Councilor Yang Jiechi, is one of 205 full members of the Party Central Committee, but is not a member of the Politburo. China's Foreign Minister, Wang Yi, also a Central Committee member, is subordinate to State Councilor Yang. In managing China's foreign policy, the State Councilor for Foreign Affairs and the Foreign Minister must contend with other foreign policy players from the military, the propaganda apparatus, the security organs, the Ministry of Commerce, and the bureaucracies responsible for Taiwan, Hong Kong, Macao, and "overseas Chinese" affairs. Leading Officials of the Ministry of Foreign Affairs As Table 2 shows, the Foreign Minister is one of many senior foreign policy players in China. He is outranked by the State Councilor for foreign affairs and frequently outmaneuvered by more powerful bureaucracies, such as those of the military and the security apparatus. Within the Foreign Ministry, the minister effectively shares power with the Executive Vice Minister, who holds the protocol rank of a full minister, and who heads the ministry's Communist Party Committee. The Executive Vice Minister is an alternate member of the Party Central Committee, while the minister is a full member.

This report provides a snapshot of China's leading political institutions and current leaders in the form of nine organization charts and three tables. The report is a companion to CRS Report R41007, Understanding China's Political System, by [author name scrubbed] and [author name scrubbed], which provides a detailed explanation of China's political system. This chart-based report is intended to assist Members and their staffs seeking to understand where political institutions and individuals fit within the broader Chinese political system and to identify which Chinese officials are responsible for specific portfolios. The information may be useful for Members and staff visiting China, hosting visitors from China, preparing for China-related hearings, or drafting China-related legislation. Figures 1 and 2 depict China's political power structure as it was envisioned in Chapter 3 of the 1982 state constitution, and as actually implemented. The key difference is that while Chapter 3 of the state constitution identifies the National People's Congress as the highest organ of state power, the Communist Party of China exercises leadership over the entire political system. Figures 3, 4, and 5 provide information about the Communist Party's leadership. Figure 3 presents the Party's hierarchy. Figure 4 lists the members of the Party's most senior decision-making body, the Politburo Standing Committee, and their portfolios. Figure 5 lists all 25 members of the full Politburo and their principal areas of responsibility. Figure 6 lists the members of the Central Military Commission, a Party body that exercises unified command over the armed forces, known collectively as the People's Liberation Army. Figure 7 shows where the largely honorary office of the State President sits within the state hierarchy, according to the state constitution. The president's authority actually derives from his concurrent post as General Secretary of the Communist Party. Figure 8 presents the hierarchy of the State Council, a cabinet-like entity which is tasked with implementing Party policies and managing the state bureaucracy. China conducts its relations with most of the world through the State Council. Table 1 introduces the 10 members of the State Council Executive Committee, listed by rank, with information about each official's portfolio. Figure 9 depicts the organizational structure of China's unicameral legislature, the National People's Congress. Table 2 lists leading Party, military, and State officials with portfolios that include foreign affairs. Table 3 lists the top officials of China's Foreign Ministry, with information about each official's portfolio.

Judicial History Roe v. Wade and Doe v. Bolton In 1973, the Supreme Court issued its landmark abortion rulings in Roe v. Wade and Doe v. Bolton . In those cases, the Court found that Texas and Georgia statutes regulating abortion interfered to an unconstitutional extent with a woman's right to decide whether to terminate her pregnancy. The Texas statute forbade all abortions not necessary "for the purpose of saving the life of the mother." The Georgia enactment permitted abortions only when continued pregnancy seriously threatened the woman's life or health, when the fetus was very likely to have severe birth defects, or when the pregnancy resulted from rape. The Georgia statute also required that abortions be performed only at accredited hospitals and only after approval by a hospital committee and two consulting physicians. The Court's decisions were delivered by Justice Blackmun for himself and six other Justices. Justices White and Rehnquist dissented. The Court ruled that states may not categorically proscribe abortions by making their performance a crime, and that states may not make abortions unnecessarily difficult to obtain by prescribing elaborate procedural guidelines. The constitutional basis for the decisions rested upon the conclusion that the Fourteenth Amendment right of personal privacy embraced a woman's decision whether to carry a pregnancy to term. With regard to the scope of that privacy right, the Court stated that it includes "only personal rights that can be deemed 'fundamental' or 'implicit in the concept of ordered liberty'" and bears some extension to activities related to marriage, procreation, contraception, family relationships, child rearing, and education. Such a right, the Court concluded, "is broad enough to encompass a woman's decision whether or not to terminate her pregnancy." With respect to protecting that right against state interference, the Court held that because the right of personal privacy is a fundamental right, only a "compelling State interest" could justify its limitation by a state. Thus, while it recognized the legitimacy of the state interest in protecting maternal health and the preservation of the fetus's potential life, as well as the existence of a rational connection between these two interests and a state's anti-abortion law, the Court held these interests insufficient to justify an absolute ban on abortions. Instead, the Court emphasized the durational nature of pregnancy and found the state's interests to be sufficiently compelling to permit the curtailment or prohibition of abortion only during specified stages of pregnancy. The High Court concluded that until the end of the first trimester, an abortion is no more dangerous to maternal health than childbirth itself, and found that "[with] respect to the State's important and legitimate interest in the health of the mother, the 'compelling' point, in light of present medical knowledge, is at approximately the end of the first trimester." Only after the first trimester did the state's interest in protecting maternal health provide a sufficient basis to justify state regulation of abortion, and then only to protect this interest. The "compelling" point with respect to the state's interest in the potential life of the fetus "is at viability." Following viability, the state's interest permitted it to regulate and even proscribe an abortion except when necessary, in appropriate medical judgment, for the preservation of the life or health of the woman. In summary, the Court's holding was grounded in this trimester framework analysis and the concept of fetal viability. In Doe v. Bolton , the Court extended Roe by warning that just as states may not prevent abortion by making its performance a crime, they may not make abortions unreasonably difficult to obtain by prescribing elaborate procedural barriers. In Doe , the Court struck down Georgia's requirements that abortions be performed in licensed hospitals; that abortions be approved beforehand by a hospital committee; and that two physicians concur in the abortion decision. The Court appeared to note, however, that this would not apply to a statute that protected the religious or moral beliefs of denominational hospitals and their employees. In Roe , the Court also dealt with the question of whether a fetus is a person under the Fourteenth Amendment and other provisions of the Constitution. The Court indicated that the Constitution never specifically defines the term "person," but added that in nearly all the sections where the word "person" appears, "the use of the word is such that it has application only postnatally. None indicates, with any assurance, that it has any possible pre-natal application." The Court emphasized that, given the fact that in the major part of the 19 th century prevailing legal abortion practices were far freer than today, it was persuaded "that the word 'person', as used in the Fourteenth Amendment, does not include the unborn." The Court did not, however, resolve the question of when life actually begins. While noting the divergence of thinking on this issue, it instead articulated the legal concept of "viability," defined as the point at which the fetus is potentially able to live outside the womb, with or without artificial assistance. Many other questions were also not addressed in Roe and Doe , but instead led to a wealth of post- Roe litigation. Supreme Court Decisions After Roe and Doe Following Roe , the Court examined a variety of federal and state requirements that addressed different concerns related to abortion: informed consent and mandatory waiting periods; spousal and parental consent; parental notice; reporting requirements; advertisement of abortion services; abortions by nonphysicians; locus of abortions; viability, fetal testing, and disposal of fetal remains; and "partial-birth" abortions. In Rust v. Sullivan , the Court upheld on both statutory and constitutional grounds the Department of Health and Human Services' Title X regulations restricting recipients of federal family planning funding from using federal funds to counsel women about abortion. While Rust is probably better understood as a case involving First Amendment free speech rights rather than a challenge to the constitutionally guaranteed substantive right to abortion, the Court, following its earlier public funding cases ( Maher v. Roe and Harris v. McRae ) , did conclude that a woman's right to an abortion was not burdened by the Title X regulations. The Court reasoned that there was no constitutional violation because the government has no duty to subsidize an activity simply because it is constitutionally protected and because a woman is "in no worse position than if Congress had never enacted Title X." In addition to Rust , the Court decided several other noteworthy cases involving abortion following Roe . Webster v. Reproductive Health Services and Planned Parenthood of Southeastern Pennsylvania v. Casey illustrate the Court's shift from the type of constitutional analysis it articulated in Roe . These cases and other more recent cases, such as Stenberg v. Carhart and Ayotte v. Planned Parenthood of Northern New England have implications for future legislative action and how enactments will be judged by the courts in the years to come. Webster , Casey , and Ayotte are discussed in the subsequent sections of this report. A discussion of Stenberg is included in the " Partial-Birth Abortion " section of this report. Webster In Webster v. Reproductive Health Services , the Court upheld Missouri's restrictions on the use of public employees and facilities for the performance of abortions. Although the Court did not overrule Roe , a plurality of Justices indicated that it was willing to apply a less stringent standard of review to state abortion regulations. The plurality criticized the trimester framework established by Roe , noting that it "is hardly consistent with the notion of a Constitution cast in general terms[.]" The plurality also questioned Roe 's identification of viability as the point at which a state could regulate abortion to protect potential life: [W]e do not see why the State's interest in protecting potential human life should come into existence only at the point of viability, and that there should therefore be a rigid line allowing state regulation after viability but prohibiting it before viability. Webster recognized that state legislatures retain considerable discretion to pass abortion regulations, and acknowledged the likelihood that such regulations would probably pass constitutional muster in the future. However, because Webster did not affect private doctors' offices or clinics, the ruling was arguably narrow in scope. Nevertheless, Webster set the stage for the Court's 1992 decision in Casey , where a real shift in direction was pronounced. Casey Webster and Rust energized legislative activity at the federal and state levels. Some of the state legislative proposals that became law were later challenged in the courts. The constitutionality of Pennsylvania's Abortion Control Act was examined by the Court in Planned Parenthood of Southeastern Pennsylvania v. Casey . In Casey , a plurality of the Court rejected the trimester framework established in Roe , explaining that "in its formulation [the framework] misconceives the pregnant woman's interest ... and in practice it undervalues the State's interest in potential life[.]" In its place, the plurality adopted a new "undue burden" standard, maintaining that this standard recognized the need to reconcile the government's interest in potential life with a woman's right to decide to terminate her pregnancy. While Roe generally restricted the regulation of abortion during the first trimester, Casey emphasized that not all of the burdens imposed by an abortion regulation were likely to be undue. Under Casey , an undue burden exists if the purpose or effect of an abortion regulation is "to place a substantial obstacle in the path of a woman seeking an abortion before the fetus attains viability." In adopting the new undue burden standard, Casey nonetheless reaffirmed the essential holding of Roe , which the plurality described as having three parts. First, a woman has a right to choose to have an abortion prior to viability without undue interference from the state. Second, the state has a right to restrict abortions after viability so long as the regulation provides an exception for pregnancies that endanger a woman's life or health. Third, the state has legitimate interests from the outset of the pregnancy in protecting the health of the woman and the life of the fetus. After applying the undue burden standard in Casey , four provisions of the Pennsylvania law were upheld. The law's 24-hour waiting period requirement, its informed consent provision, its parental consent provision, and its recordkeeping and reporting requirements were found to not impose an undue burden. While the plurality acknowledged that these requirements, notably the 24-hour waiting period, could delay the procedure or make an abortion more expensive, it nevertheless concluded that they did not impose an undue burden. Moreover, the plurality emphasized that "under the undue burden standard a State is permitted to enact persuasive measures which favor childbirth over abortion even if those measures do not further a health interest." The law's spousal notification provision, which required a married woman to tell her husband of her intention to have an abortion, did not survive the undue burden analysis. A majority of the Court maintained that the requirement imposed an undue burden because it could result in spousal abuse and discourage a woman from seeking an abortion: "The spousal notification requirement is thus likely to prevent a significant number of women from obtaining an abortion. It does not merely make abortions a little more difficult or expensive to obtain; for many women, it will impose a substantial obstacle." The plurality's decision in Casey was significant because the new standard of review appeared to allow more state restrictions to pass constitutional muster. In addition, the plurality maintained that the state's interest in protecting the potentiality of human life extended throughout the course of the pregnancy. Thus, the state could regulate, even to the point of favoring childbirth over abortion, from the outset. Under Roe , which utilized the trimester framework, a woman's decision to terminate her pregnancy was reached in consultation with her doctor with virtually no state involvement during the first trimester of pregnancy. In addition, under Roe , abortion was a "fundamental right" that could not be restricted by the state except to serve a "compelling" state interest. Roe 's strict scrutiny standard of review resulted in most state regulations being invalidated during the first two trimesters of pregnancy. The "undue burden" standard allowed greater regulation during that period. This is evident from the fact that the Casey Court overruled, in part, two of its earlier decisions which had followed Roe : City of Akron v. Akron Center for Reproductive Health and Thornburgh v. American College of Obstetricians and Gynecologists . In these cases, the Court, applying strict scrutiny, struck down 24-hour waiting periods and informed consent provisions; whereas in Casey , applying the undue burden standard, the Court upheld similar provisions. Casey had its greatest immediate effect on women in the state of Pennsylvania; however, its reasoning prompted other states to pass similar restrictions that would withstand challenge under the "undue burden" standard. Partial-Birth Abortion On June 28, 2000, the Court decided Stenberg v. Carhart , its first substantive abortion case since Casey . In Stenberg , the Court determined that a Nebraska statute that prohibited the performance of so-called "partial-birth" abortions was unconstitutional because it failed to include an exception to protect the health of the mother and because the language defining the prohibited procedure was too vague. In affirming the decision of the U.S. Court of Appeals for the Eighth Circuit, the Court agreed that the language of the Nebraska statute could be interpreted to prohibit not just the dilation and extraction (D&X) procedure that prolife advocates oppose, but the standard dilation and evacuation (D&E) procedure that is the most common abortion procedure during the second trimester of pregnancy. The Court maintained that the statute was likely to prompt those who perform the D&E procedure to stop because of fear of prosecution and conviction. The result would be the imposition of an "undue burden" on a woman's ability to have an abortion. After several attempts to pass federal legislation that would prohibit the performance of partial-birth abortions, Congress passed the Partial-Birth Abortion Ban Act of 2003 during the 108 th Congress. The measure was signed by President George W. Bush on November 5, 2003. In general, the act prohibits physicians from performing a partial-birth abortion except when it is necessary to save the life of a mother whose life is endangered by a physical disorder, physical illness, or physical injury, including a life-endangering physical condition caused by or arising from the pregnancy itself. Physicians who violate the act are subject to a fine, imprisonment for not more than two years, or both. Despite the Court's holding in Stenberg and past decisions concluding that restrictions on abortion must allow for the performance of the procedure when it is necessary to protect the health of the mother, the Partial-Birth Abortion Ban Act of 2003 does not include such an exception. In his introductory statement for the act, Senator Rick Santorum discussed the measure's lack of a health exception. He maintained that an exception is not necessary because of the risks associated with partial-birth abortions. Senator Santorum insisted that congressional hearings and expert testimony demonstrate "that a partial birth abortion is never necessary to preserve the health of the mother, poses significant health risks to the woman, and is outside the standard of medical care." Within two days of the act's signing, federal courts in Nebraska, California, and New York blocked its enforcement. On April 18, 2007, the Court upheld the Partial-Birth Abortion Ban Act of 2003, finding that, as a facial matter, it is not unconstitutionally vague and does not impose an undue burden on a woman's right to terminate her pregnancy. In Gonzales v. Carhart , the Court distinguished the federal statute from the Nebraska law at issue in Stenberg . According to the Court, the federal statute is not unconstitutionally vague because it provides doctors with a reasonable opportunity to know what conduct is prohibited. Unlike the Nebraska law, which prohibited the delivery of a "substantial portion" of the fetus, the federal statute includes "anatomical landmarks" that identify when an abortion procedure will be subject to the act's prohibitions. The Court noted: "[I]f an abortion procedure does not involve the delivery of a living fetus to one of these 'anatomical landmarks'—where, depending on the presentation, either the fetal head or the fetal trunk past the navel is outside the body of the mother—the prohibitions of the Act do not apply." The Court also maintained that the inclusion of a scienter or knowledge requirement in the federal statute alleviates any vagueness concerns. Because the act applies only when a doctor "deliberately and intentionally" delivers the fetus to an anatomical landmark, the Court concluded that a doctor performing the D&E procedure would not face criminal liability if a fetus is delivered beyond the prohibited points by mistake. The Court observed: "The scienter requirements narrow the scope of the Act's prohibition and limit prosecutorial discretion." In reaching its conclusion that the Partial-Birth Abortion Ban Act of 2003 does not impose an undue burden on a woman's right to terminate her pregnancy, the Court considered whether the federal statute is overbroad, prohibiting both the D&X and D&E procedures. The Court also considered the statute's lack of a health exception. Relying on the plain language of the act, the Court determined that the federal statute could not be interpreted to encompass the D&E procedure. The Court maintained that the D&E procedure involves the removal of the fetus in pieces. In contrast, the federal statute uses the phrase "delivers a living fetus." The Court stated: "D&E does not involve the delivery of a fetus because it requires the removal of fetal parts that are ripped from the fetus as they are pulled through the cervix." The Court also identified the act's specific requirement of an "overt act" that kills the fetus as evidence of its inapplicability to the D&E procedure. The Court indicated: "This distinction matters because, unlike [D&X], standard D&E does not involve a delivery followed by a fatal act." Because the act was found not to prohibit the D&E procedure, the Court concluded that it is not overbroad and does not impose an undue burden a woman's ability to terminate her pregnancy. According to the Court, the absence of a health exception also did not result in an undue burden. Citing Ayotte v. Planned Parenthood of Northern New England , its 2006 decision involving New Hampshire's parental notification law (discussed below), the Court noted that a health exception would be required if the act subjected women to significant health risks. However, acknowledging medical disagreement about the act's requirements ever imposing significant health risks on women, the Court maintained that "the question becomes whether the Act can stand when this medical uncertainty persists." Reviewing its past decisions, the Court indicated that it has given state and federal legislatures wide discretion to pass legislation in areas where there is medical and scientific uncertainty. The Court concluded that this medical uncertainty provides a sufficient basis to conclude in a facial challenge of the statute that it does not impose an undue burden. Although the Court upheld the Partial-Birth Abortion Ban Act of 2003 without a health exception, it acknowledged that there may be "discrete and well-defined instances" where the prohibited procedure "must be used." However, the Court indicated that exceptions to the act should be considered in as-applied challenges brought by individual plaintiffs: "In an as-applied challenge the nature of the medical risk can be better quantified and balanced than in a facial attack." Justice Ginsburg authored the dissent in Gonzales . She was joined by Justices Stevens, Souter, and Breyer. Describing the Court's decision as "alarming," Justice Ginsburg questioned upholding the federal statute when the relevant procedure has been found to be appropriate in certain cases. Citing expert testimony that had been introduced, Justice Ginsburg maintained that the prohibited procedure has safety advantages for women with certain medical conditions, including bleeding disorders and heart disease. Justice Ginsburg also criticized the Court's decision to uphold the statute without a health exception. Justice Ginsburg declared: "Not only does it defy the Court's longstanding precedent affirming the necessity of a health exception, with no carve-out for circumstances of medical uncertainty ... it gives short shrift to the records before us, carefully canvassed by the District Courts." Moreover, according to Justice Ginsburg, the refusal to invalidate the Partial-Birth Abortion Ban Act of 2003 on facial grounds was "perplexing" in light of the Court's decision in Stenberg . Justice Ginsburg noted: "[I]n materially identical circumstances we held that a statute lacking a health exception was unconstitutional on its face." Ayotte In Ayotte v. Planned Parenthood of Northern New England , the Court concluded that a wholesale invalidation of New Hampshire's Parental Notification Prior to Abortion Act was inappropriate. Finding that only a few applications of the act raised constitutional concerns, the Court remanded the case to the lower courts to render narrower declaratory and injunctive relief. The New Hampshire law at issue in Ayotte prohibited physicians from performing an abortion on a pregnant minor or a woman for whom a guardian or conservator was appointed until 48 hours after written notice was delivered to at least one parent or guardian. The notification requirement could be waived under certain specified circumstances. For example, notification was not required if the attending abortion provider certified that an abortion was necessary to prevent the woman's death and there was insufficient time to provide the required notice. Planned Parenthood of Northern New England and several other abortion providers challenged the New Hampshire statute on the grounds that it did not include an explicit waiver that would allow an abortion to be performed to protect the health of the woman. The U.S. Court of Appeals for the First Circuit invalidated the statute in its entirety on that basis. The First Circuit also maintained that the act's life exception was impermissibly vague and forced physicians to gamble with their patients' lives by preventing them from performing an abortion without notification until they were certain that death was imminent. Declining to revisit its prior abortion decisions, the Court insisted that Ayotte presented a question of remedy. Maintaining that the act would be unconstitutional only in medical emergencies, the Court determined that a more narrow remedy, rather than the wholesale invalidation of the act, was appropriate: Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem. We prefer, for example, to enjoin only the unconstitutional applications of a statute while leaving other applications in force ... or to sever its problematic portions while leaving the remainder intact. The Court identified three interrelated principles that inform its approach to remedies. First, the Court tries not to nullify more of a legislature's work than is necessary because a ruling of unconstitutionality frustrates the intent of the elected representatives of the people. Second, the Court restrains itself from rewriting a state law to conform to constitutional requirements, even as it attempts to salvage the law. The Court explained that its constitutional mandate and institutional competence are limited, noting that "making distinctions in a murky constitutional context" may involve a far more serious invasion of the legislative domain than the Court ought to take. Third, the touchstone for any decision about remedy is legislative intent; that is, a court cannot use its remedial powers to circumvent the intent of the legislature. The Court observed that "[a]fter finding an application or portion of a statute unconstitutional, we must next ask: Would the legislature have preferred what is left of its statute to no statute at all?" On remand, the lower courts were expected to determine the intent of the New Hampshire legislature when it enacted the parental notification statute. Although the state argued that the measure's severability clause illustrated the legislature's understanding that the act should continue in force even if certain provisions were invalidated, the respondents insisted that New Hampshire legislators actually preferred no statute rather than one that would be enjoined in the manner described by the Court. On February 1, 2007, a federal district court in New Hampshire entered a procedural order that stayed consideration of the case while a bill to repeal the Parental Notification Prior to Abortion Act was pending in the state legislature. The act was subsequently repealed by the legislature, effective June 29, 2007. Ayotte illustrated the Court's willingness to invalidate an abortion regulation only as applied in certain circumstances. While it is not uncommon for federal courts to save a statute from invalidation by severing unconstitutional provisions, they have generally limited this practice to federal statutes. Observers noted that the Court's opinion represented an expansion of federal judicial power over the states. Whole Woman's Health In Whole Woman 's Health v. Hellerstedt , the Court invalidated two Texas requirements that applied to abortion providers and physicians who perform abortions. Under a Texas law enacted in 2013, a physician who performs or induces an abortion was required to have admitting privileges at a hospital within 30 miles from the location where the abortion was performed or induced. In general, admitting privileges allow a physician to transfer a patient to a hospital if complications arise in the course of providing treatment. The Texas law also required an abortion facility to satisfy the same standards as an ambulatory surgical center (ASC). These standards address architectural and other structural matters, as well as operational concerns, such as staffing and medical records systems. Supporters of the Texas law maintained that the requirements would guarantee a higher level of care for women seeking abortions. Opponents, however, characterized the requirements as unnecessary and costly, and argued that they would make it more difficult for abortion facilities to operate. In a 5-3 decision, the Court rejected the procedural and constitutional grounds that were articulated by the U.S. Court of Appeals for the Fifth Circuit to uphold the requirements. Writing for the majority in Whole Woman's Health , Justice Breyer concluded that res judicata did not bar facial challenges to either the admitting privileges requirement or the ASC requirement. In applying the undue burden standard, Justice Breyer maintained that courts should place considerable weight on the evidence and arguments presented in judicial proceedings when they consider the constitutionality of abortion regulations. Justice Breyer also noted that the undue burden standard requires courts to consider "the burdens a law imposes on abortion access together with the benefits those laws confer." The Whole Woman's Health Court referred heavily to the evidence collected by the district court in its examination of the admitting privileges and ASC requirements. With regard to the admitting privileges requirement, the Court cited the low complication rates for first- and second-trimester abortions, and expert testimony that complications during the abortion procedure rarely require hospital admission. Based on this and similar evidence, the Court disputed the state's assertion that the purpose of the admitting privileges requirement was to ensure easy access to a hospital should complications arise. The Court emphasized that "there was no significant health-related problem that the new law helped to cure." Citing other evidence concerning the closure of abortion facilities as a result of the admitting privileges requirement and the increased driving distances experienced by women of reproductive age because of the closures, the Court maintained: "[T]he record evidence indicates that the admitting-privileges requirement places a 'substantial obstacle in the path of a woman's choice.'" The Court again referred to the record evidence to conclude that the ASC requirement imposed an undue burden on the availability of abortion. Noting that the record supports the conclusion that the ASC requirement "does not benefit patients and is not necessary," the Court also cited the closure of facilities and the cost to comply with the requirement as evidence that the requirement posed a substantial obstacle for women seeking abortions. While Texas argued that the clinics remaining after implementation of the ASC requirement could expand to accommodate all of the women seeking an abortion, the Court indicated that "requiring seven or eight clinics to serve five times their usual number of patients does indeed represent an undue burden on abortion access." The majority's focus on the record evidence, and a court's consideration of that evidence in balancing the burdens imposed by an abortion regulation against its benefits, is noteworthy for providing clarification of the undue burden standard. Although the Casey Court did examine the evidence collected by the district court with respect to Pennsylvania's spousal notification requirement, and was persuaded by it, the Fifth Circuit discounted similar evidence collected by the district court in its consideration of the two requirements. In Whole Woman's Health , the Court maintained that the Fifth Circuit's approach did "not match the standard that this Court laid out in Casey ..." Public Funding of Abortions After the Supreme Court's decisions in Roe and Doe , some of the first federal legislative responses involved restrictions on the use of federal money to pay for abortions. In 1976, Representative Henry J. Hyde offered an amendment to the Departments of Labor and Health, Education, and Welfare, Appropriation Act, 1977, that restricted the use of appropriated funds to pay for abortions provided through the Medicaid program. Almost immediately, the so-called Hyde Amendment and similar restrictions were challenged in the courts. Two categories of public funding cases have been heard and decided by the Supreme Court: those involving (1) funding restrictions for nontherapeutic (elective) abortions; and (2) funding limitations for therapeutic (medically necessary) abortions. The 1977 Trilogy—Restrictions on Public Funding of Nontherapeutic or Elective Abortions The Supreme Court, in three related decisions, ruled that the states have neither a statutory nor a constitutional obligation to fund elective abortions or provide access to public facilities for such abortions. In Beal v. Doe , the Court held that nothing in the language or legislative history of Title XIX of the Social Security Act (Medicaid) requires a participating state to fund every medical procedure falling within the delineated categories of medical care. The Court ruled that it was not inconsistent with the act's goals to refuse to fund unnecessary medical services. However, the Court also indicated that Title XIX left a state free to include coverage for nontherapeutic abortions should it choose to do so. Similarly, in Maher v. Roe , the Court held that the Equal Protection Clause does not require a state participating in the Medicaid program to pay expenses incident to nontherapeutic abortions simply because the state has made a policy choice to pay expenses incident to childbirth. More particularly, Connecticut's policy of favoring childbirth over abortion was held not to impinge upon the fundamental right of privacy recognized in Roe , which protects a woman from undue interference in her decision to terminate a pregnancy. Finally, in Poelker v. Doe , the Court upheld a municipal regulation that denied indigent pregnant women nontherapeutic abortions at public hospitals. The Court also held that staffing those hospitals with personnel opposed to the performance of abortions did not violate the Equal Protection Clause of the Constitution. Poelker , however, did not deal with the question of private hospitals and their authority to prohibit abortion services. Public Funding of Therapeutic or Medically Necessary Abortions The 1977 Supreme Court decisions left open the question of whether the Hyde Amendment and similar state laws could validly prohibit the governmental funding of therapeutic abortions. In Harris v. McRae , the Court ruled 5-4 that the Hyde Amendment's abortion funding restrictions were constitutional. The majority found that the Hyde Amendment did not violate the due process or equal protection guarantees of the Fifth Amendment or the Establishment Clause of the First Amendment. The Court also upheld the right of a state participating in the Medicaid program to fund only those medically necessary abortions for which it received federal reimbursement. In Williams v. Zbaraz , a companion case raising similar issues, the Court held that an Illinois statutory funding restriction that was comparable to the Hyde Amendment also did not contravene the constitutional restrictions of the Equal Protection Clause of the Fourteenth Amendment. The Court's rulings in McRae and Zbaraz indicate that there is no statutory or constitutional obligation of the federal government or the states to fund medically necessary abortions. Legislative History Rather than settle the issue, the Court's decisions in Roe and Doe prompted debate and a variety of governmental actions at the national, state, and local levels to limit their effect. Congress continues to be a forum for proposed legislation and constitutional amendments aimed at limiting or prohibiting the practice of abortion. This section examines the history of the federal legislative response to the abortion issue. Prior to the Court's decision in Roe , relatively few bills involving abortion were introduced in either the House or the Senate. Since 1973, however, more than 1,000 separate legislative proposals have been introduced. The wide disparity in these statistics illustrates the impetus that the Court's 1973 decisions gave to congressional action. Most of these proposals have sought to restrict the availability of abortions. Some measures, however, have been introduced to better secure the right to terminate a pregnancy. The Freedom of Choice Act, for example, attempted to codify Roe and was introduced in several Congresses. The Freedom of Access to Clinic Entrances Act of 1994 made it a federal crime to use force, or the threat of force, to intimidate abortion clinic workers or women seeking abortions. Constitutional Amendments Proponents of more restrictive abortion legislation have employed a variety of legislative initiatives to achieve this end, with varying degrees of success. Initially, legislators focused their efforts on the passage of a constitutional amendment that would overrule the Supreme Court's decision in Roe . This course, however, proved to be problematic. Following Roe , a series of constitutional amendments were introduced in an attempt to overrule the Court's decision. To date, however, no constitutional amendment has been passed in either the House or the Senate. Moreover, for several years, proponents of a constitutional amendment had difficulty getting the measures reported out of committee. Interest in the constitutional approach peaked in the 94 th Congress, when nearly 80 amendments were introduced. By the 98 th Congress, the number had significantly declined. It was during this time that the Senate brought to the floor the only constitutional amendment on abortion that has ever been debated and voted on in either chamber. S.J.Res. 3 was introduced during the 98 th Congress. Subcommittee hearings were held, and the full Judiciary Committee voted (9-9) to send the amendment to the Senate floor without recommendation. As reported, S.J.Res. 3 included a subcommittee amendment that eliminated the enforcement language and declared simply, "A right to abortion is not secured by this Constitution." By adopting this proposal, the subcommittee established its intent to remove federal institutions from the policymaking process with respect to abortion and reinstate state authorities as the ultimate decisionmakers. S.J.Res. 3 was considered in the Senate on June 27 and 28, 1983. On June 28, 1983, S.J.Res. 3 was defeated (50-49), not having obtained the two-thirds vote necessary for a constitutional amendment. Statutory Provisions Bills That Seek to Prohibit the Right to Abortion by Statute As an alternative to a constitutional amendment to prohibit or limit the practice of abortion, opponents of the procedure have introduced a variety of bills designed to accomplish the same objective without resorting to the complex process of amending the Constitution. Authority for such action is said to emanate from Section 5 of the Fourteenth Amendment, which empowers Congress to enforce the due process and equal protection guarantees of the amendment "by appropriate legislation." For example, S. 158 , introduced during the 97 th Congress, would have declared as a congressional finding of fact that human life begins at conception, and would, it was contended by its sponsors, allow states to enact laws protecting human life, including fetuses. Hearings on the bill were marked by controversy over the constitutionality of the declaration that human life begins at conception and over the withdrawal of lower federal court jurisdiction over suits challenging state laws enacted pursuant to federal legislation. A modified version of S. 158 was approved in subcommittee, but that bill, S. 1741 , was not further considered in the 97 th Congress. Hyde-Type Amendments to Appropriations Measures As an alternative to the unsuccessful attempts to prohibit abortion outright, opponents of abortion sought to ban the use of federal funds to pay for the performance of the procedure. Because most federally funded abortions were reimbursed under Medicaid, they focused their efforts primarily on that program. The Medicaid program was established in 1965 to fund medical care for indigent persons through a federal-state cost-sharing arrangement. Abortions were not initially covered under the program. During the Nixon Administration, however, the Department of Health, Education, and Welfare decided to reimburse states for the funds used to provide abortions to poor women. This policy decision was influenced by the Supreme Court's decision in Roe , which, in addition to decriminalizing abortion, was seen as legitimizing the status of abortion as a medical procedure for the purposes of the Medicaid program. Since Roe , Congress has attached abortion funding restrictions to several other appropriations bills. Although the Foreign Assistance Act of 1973 included the first of such restrictions, the greatest focus has arguably been on the Hyde Amendment, which generally restricts Medicaid abortions under the annual appropriations for the Department of Health and Human Services (HHS). Since its initial introduction in 1976, the Hyde Amendment has sometimes been reworded to include exceptions for pregnancies that are the result of rape or incest, or abortions that are sought to prevent long-lasting physical health damage to the mother. Until the early 1990s, however, the language was generally identical to the original enactment, allowing only an exception to preserve the life of the mother. In 1993, during the first year of the Clinton Administration, coverage under the Hyde Amendment was expanded to again include cases of rape and incest. Efforts to restore the original language (providing only for the life of the woman exception) failed in the 104 th Congress. Beginning in 1978, Hyde-type abortion limitations were added to the Department of Defense appropriations measures. This recurring prohibition was eventually codified and made permanent by the Department of Defense Authorization Act, 1985. In 1983, the Hyde Amendment process was extended to the Department of the Treasury and Postal Service Appropriations Act, prohibiting the use of funds for the Federal Employees Health Benefits Program (FEHBP) to pay for abortions, except when the life of the woman was in danger. Prior to this restriction, federal government health insurance plans provided coverage for both therapeutic and nontherapeutic abortions. The restriction on FEHBP funds followed an administrative attempt by the Office of Personnel Management (OPM) to eliminate nonlife-saving abortion coverage. OPM's actions were challenged by federal employee unions, and a federal district court later concluded that the agency acted outside the scope of its authority. In American Federation of Government Employees v. AFL-CIO , the court found that absent a specific congressional statutory directive, there was no basis for OPM's actions. The restriction on FEHBP funds was removed briefly in 1993, before being reinstated by the 104 th Congress. That Congress passed language prohibiting the use of FEHBP funds for abortions, except in cases where the life of the mother would be endangered or in cases of rape or incest. Under Department of Justice appropriations, funding of abortions in prisons is prohibited, except where the life of the mother is endangered, or in cases of rape or incest. First enacted as part of the FY1987 continuing appropriations measure, this provision has been reenacted as part of the annual spending bill in each subsequent fiscal year. Finally, since 1979, restrictive abortion provisions have been included in appropriations measures for the District of Columbia (DC). The passage of the District of Columbia Appropriations Act, 1989, marked the first successful attempt to extend such restrictions to the use of DC funds, as well as federal funds. Under the so-called "Dornan Amendment," DC was prohibited from using both appropriated funds and local funds to pay for abortions. In 2009, Congress lifted the restriction on the use of DC funds to pay for abortions. Under the Consolidated Appropriations Act, 2010, only federal funds were restricted. The Dornan Amendment has since been reimposed. Other Legislation In addition to the temporary funding limitations included in appropriations bills, abortion restrictions of a more permanent nature have been enacted in a variety of contexts since 1970. For example, the Family Planning Services and Population Research Act of 1970 bars the use of funds for programs in which abortion is a method of family planning. The Legal Services Corporation Act of 1974 prohibits lawyers in federally funded legal aid programs from providing legal assistance for procuring nontherapeutic abortions and prohibits legal aid in proceedings to compel an individual or an institution to perform an abortion, assist in an abortion, or provide facilities for an abortion. The Pregnancy Discrimination Act provides that employers are not required to pay health insurance benefits for abortion except to save the life of the mother, but does not preclude employers from providing abortion benefits if they choose to do so. The Civil Rights Restoration Act of 1988 states that nothing in the measure either prohibits or requires any person or entity from providing or paying for services related to abortion. The Civil Rights Commission Amendments Act of 1994 prohibits the commission from studying or collecting information about U.S. laws and policies concerning abortion. Health Reform The Patient Protection and Affordable Care Act (ACA) was enacted on March 23, 2010, to reduce the number of uninsured individuals and restructure the private health insurance market. The ACA includes provisions that address the coverage of abortion services by qualified health plans that are available through health benefit exchanges (exchanges). The ACA's abortion provisions have been controversial, particularly with regard to the use of premium tax credits or cost-sharing subsidies to obtain health coverage that includes coverage for elective or nontherapeutic abortion services. In addressing the coverage of abortion services by qualified health plans offered through an exchange, the ACA refers to the Hyde Amendment to distinguish between two types of abortions: abortions for which federal funds appropriated for HHS may be used, and abortions for which such funds may not be used (elective abortions). Under the ACA, individuals who receive a premium tax credit or cost-sharing subsidy are permitted to select a qualified health plan that includes coverage for elective abortions. However, to ensure that funds attributable to such a credit or subsidy are not used to pay for elective abortion services, the ACA prescribes payment and accounting requirements for plan issuers and enrollees. Under the ACA, the issuer of a qualified health plan must determine whether to provide coverage for either elective abortions or abortions for which federal funds appropriated for HHS are permitted. It appears that a plan issuer could also decide not to cover either type of abortion. The ACA also permits a state to prohibit abortion coverage in exchange plans by enacting a law with such a prohibition. The ACA indicates that an issuer of a qualified health plan that provides coverage for elective abortions cannot use any funds attributable to a premium tax credit or cost-sharing subsidy to pay for such services. The issuer of a qualified health plan that provides coverage for elective abortions is required to collect two separate payments from each enrollee in the plan: one payment that reflects an amount equal to the portion of the premium for coverage of health services other than elective abortions; and another payment that reflects an amount equal to the actuarial value of the coverage for elective abortions. The plan issuer is required to deposit the separate payments into separate allocation accounts that consist solely of each type of payment and that are used exclusively to pay for the specified services. State health insurance commissioners ensure compliance with the segregation requirements in accordance with applicable provisions of generally accepted accounting requirements, Office of Management and Budget circulars on funds management, and Government Accountability Office guidance on accounting. To determine the actuarial value of the coverage for elective abortions, the plan issuer estimates the basic per enrollee, per month cost, determined on an average actuarial basis, for including such coverage. The estimate may take into account the impact on overall costs of including coverage for elective abortions, but cannot take into account any cost reduction estimated to result from such services, such as prenatal care, delivery, or postnatal care. The per month cost has to be estimated as if coverage were included for the entire population covered, but cannot be less than $1 per enrollee, per month. Under the ACA, a qualified health plan that provides coverage for elective abortions is also required to provide notice of such coverage to enrollees as part of a summary of benefits and coverage explanation at the time of enrollment. The notice, any plan advertising used by the issuer, any information provided by the exchange, and any other information specified by the Secretary provides information only with respect to the total amount of the combined payments for elective abortion services and other services covered by the plan. The ACA also provides for conscience protection and the preservation of certain state and federal abortion-related laws. The ACA prohibits exchange plans from discriminating against any individual health care provider or health care facility because of its unwillingness to provide, pay for, provide coverage of, or refer for abortions. State laws concerning the prohibition or requirement of coverage or funding for abortions, and state laws involving abortion-related procedural requirements are not preempted. Federal conscience protection and abortion-related antidiscrimination laws, as well as Title VII of the Civil Rights Act of 1964, are also not affected. Legislation in the 115th Congress FY2017 Appropriations On May 5, 2017, President Donald J. Trump signed H.R. 244 , the Consolidated Appropriations Act, 2017. The measure provided FY2017 funds for foreign operations, the District of Columbia, HHS, and other federal agencies. Long-standing funding restrictions on abortion and abortion-related services, including restrictions on the use of federal and local DC funds to pay for abortions, were retained. With regard to foreign operations, none of the appropriated funds could be made available to an organization or program that supported or participated in the management of a program of coercive abortion or involuntary sterilization. In addition, appropriated funds were not available for the performance of abortions as a method of family planning, or to motivate or coerce any person to practice abortions. Appropriated funds were also not available to lobby for or against abortion. To reduce reliance on abortions in developing nations, funds were available only for voluntary family planning projects that offered a broad range of family planning methods and services. Such voluntary family planning projects were required to meet specified requirements. Contributions to the United Nations Population Fund (UNFPA) were conditioned on the entity not funding abortions. In addition, amounts appropriated to the UNFPA were required to be kept in an account that was separate from the UNFPA's other accounts. The UNFPA could not commingle funds provided under H.R. 244 with the entity's other funds. The omnibus measure prohibited the use of appropriated funds to pay for an abortion or for any administrative expenses related to a health plan in the Federal Employees Health Benefits Program that provided benefits or coverage for abortions. This prohibition, however, did not apply when the life of the mother would be endangered if the fetus were carried to term, or in the case of rape or incest. Funds provided to the Department of Justice could also not be used to pay for an abortion, except when the life of the mother would be endangered if the fetus were carried to term, or in the case of rape or incest. Finally, funds appropriated for HHS, as well as funds derived from any trust fund that received appropriations, could not be used to pay for abortions except in cases of rape or incest, or when a woman who suffered from a physical disorder, injury, or illness would have her life jeopardized if an abortion was not performed. Additional Legislation On January 24, 2017, the House passed H.R. 7 , the No Taxpayer Funding for Abortion and Abortion Insurance Full Disclosure Act of 2017, by a vote of 238-183. Introduced by Representative Christopher H. Smith, the bill would amend Title 1 of the U.S. Code to add new sections that would permanently prohibit the use of federal funds for abortion. Unlike the Hyde Amendment and the other Hyde-type restrictions that have been included annually in various appropriations measures, the proposed sections would not have to be renewed each year. Moreover, these funding limitations would apply to all federal funds and not just those specifically appropriated for HHS and other federal agencies. H.R. 7 would impose additional restrictions on the availability of abortion. The measure would amend the Internal Revenue Code to indicate that a health plan that includes coverage for elective abortions is not a "qualified health plan" for purposes of the availability of a premium tax credit. Under the ACA, recipients of a premium tax credit are permitted to select a qualified health plan that includes elective abortion coverage, so long as the plan enrollee and plan issuer comply with specified payment and accounting requirements. Thus, if enacted, H.R. 7 would likely affect a recipient's decision to select a health plan that covers elective abortions. Finally, H.R. 7 would make permanent the Dornan Amendment, which restricts the use of local DC funds to pay for abortions, and would amend the ACA to require plans to disclose abortion services coverage in marketing or advertising materials, comparison tools, and benefit summaries. H.R. 7 was received in the Senate on January 30, 2017, but no further action on the measure has been taken. A companion bill, S. 184, has also not been considered in the Senate. On October 3, 2017, the House passed H.R. 36 , the Pain-Capable Unborn Child Protection Act, by a vote of 237-189. Introduced by Representative Trent Franks, the bill would prohibit the performance or attempted performance of an abortion if the probable postfertilization age of the "unborn child" is 20 weeks or greater. The prohibition would not apply to abortions that are necessary to save the life of a pregnant woman whose life is endangered by a physical disorder, physical illness, or physical injury. The bill's prohibition would also not apply when a pregnancy is the result of rape and certain specified conditions are satisfied. Individuals who violate H.R. 36 would be subject to a fine under Title 18, U.S. Code, imprisonment for not more than five years, or both. H.R. 36 was received in the Senate on October 4, 2017, but no further action on the measure has been taken. A cloture vote on S. 2311 , a companion measure, was taken in the Senate on January 29, 2017. Cloture on the motion to proceed to consideration of S. 2311 was rejected by a vote of 51-46. On January 19, 2018, the House passed H.R. 4712 , the Born-Alive Abortion Survivors Protection Act, by a vote of 241-183. Introduced by Representative Marsha Blackburn, the bill would require care to be provided to a fetus "born alive" following an abortion or attempted abortion. Under the measure, any health care practitioner who is present at the time the fetus is "born alive" would be required to exercise the same degree of skill, care, and diligence necessary to preserve the life and health of the fetus as a "reasonably diligent and conscientious health care practitioner would render to any other child born alive at the same gestational age." A health care practitioner who fails to exercise the specified level of care would be subject to a fine, imprisonment for not more than five years, or both. H.R. 4712 was received in the Senate on January 20, 2018, but no further action on the measure has been taken. A companion measure, S. 220 , has also not been considered in the Senate. On May 4, 2017, the House passed H.R. 1628 , the American Health Care Act of 2017, by a vote of 217-213. Introduced by Representative Diane Black, the reconciliation bill would make two notable changes related to the ACA. First, it would amend Section 36B(c)(3)(A) of the Internal Revenue Code to provide that a health plan that includes coverage for elective abortions would not be considered a "qualified health plan." Because the tax credit provided under Section 36B is available only to enrollees in a qualified health plan, the change could affect an individual's choice of health coverage. Second, the bill would define the term "qualified health plan" to exclude any plan that includes coverage of elective abortions for purposes of Section 45R of the Internal Revenue Code, which provides a small employer health insurance credit based on employee enrollment in a qualified health plan. The bill would also restrict the availability of federal funds for certain nonprofit organizations that provide elective abortions. H.R. 1628 was considered by the Senate in July 2017 and remains on the Senate calendar. Notably, two discussion drafts prepared by the Senate Committee on the Budget—the Better Care Reconciliation Act (BCRA) and the Obamacare Repeal Reconciliation Act (ORRA) —included similar provisions with regard to abortion. The drafts were written as amendments in the nature of a substitute, intended to replace the House-passed provisions of H.R. 1628, if adopted. However, neither the BCRA nor the ORRA was adopted. Several abortion-related bills that were passed by the House during the 114 th Congress were reintroduced, but have not been considered, in the 115 th Congress. Representative Diane Black introduced H.R. 354 , the Defund Planned Parenthood Act of 2017, on January 6, 2017. The bill would restrict the availability of federal funds for Planned Parenthood Federation of America and any of its affiliates or clinics for one year, unless these entities certify that they will not perform abortions or provide any funds to another entity that performs abortions during that period. The restriction would not apply to an abortion involving a pregnancy that is the result of an act of rape or incest, or if a woman's life would be endangered if an abortion is not performed. Representative Black also introduced H.R. 644 , the Conscience Protection Act of 2017, on January 24, 2017. The bill would establish a private right of action for health care providers who suffer retaliation or discrimination for not performing or otherwise participating in an abortion. Under the measure, a prevailing plaintiff could receive all necessary equitable and legal relief, including compensatory damages, as well as reasonable attorneys' fees. A companion measure, S. 301 , was introduced in the Senate on February 3, 2017. Neither H.R. 644 nor S. 301 has received further consideration. Representative Sean P. Duffy introduced H.R. 656 , the Women's Public Health and Safety Act, on January 24, 2017. The bill would allow a state to establish criteria for entities and individuals who perform abortions or participate in the performance of abortions for purposes of providing services in the Medicaid program. FY2018 Appropriations On March 23, 2018, President Trump signed H.R. 1625, the Consolidated Appropriations Act, 2018. The measure retains the same long-standing funding restrictions on abortion and abortion-related services that appear in the Consolidated Appropriations Act, 2017.

In 1973, the U.S. Supreme Court concluded in Roe v. Wade that the U.S. Constitution protects a woman's decision to terminate her pregnancy. In a companion decision, Doe v. Bolton, the Court found that a state may not unduly burden the exercise of that fundamental right with regulations that prohibit or substantially limit access to the procedure. Rather than settle the issue, the Court's rulings since Roe and Doe have continued to generate debate and have precipitated a variety of governmental actions at the national, state, and local levels designed either to nullify the rulings or limit their effect. These governmental regulations have, in turn, spawned further litigation in which resulting judicial refinements in the law have been no more successful in dampening the controversy. Following Roe, the right identified in that case was affected by decisions such as Webster v. Reproductive Health Services, which gave greater leeway to the states to restrict abortion, and Rust v. Sullivan, which narrowed the scope of permissible abortion-related activities that are linked to federal funding. The Court's decision in Planned Parenthood of Southeastern Pennsylvania v. Casey, which established the "undue burden" standard for determining whether abortion restrictions are permissible, gave Congress additional impetus to move on statutory responses to the abortion issue, such as the Freedom of Choice Act. Legislation to prohibit a specific abortion procedure, the so-called "partial-birth" abortion procedure, was passed in the 108th Congress. The Partial-Birth Abortion Ban Act appears to be one of the only examples of Congress restricting the performance of a medical procedure. Legislation that would prohibit the performance of an abortion once the fetus reaches a specified gestational age has also been introduced in numerous Congresses. Since Roe, Congress has attached abortion funding restrictions to various appropriations measures. The greatest focus has arguably been on restricting Medicaid abortions under the annual appropriations for the Department of Health and Human Services. This restriction is commonly referred to as the "Hyde Amendment" because of its original sponsor. Similar restrictions affect the appropriations for other federal agencies, including the Department of Justice, where federal funds may not be used to perform abortions in the federal prison system, except in cases of rape or if the life of the mother would be endangered. Hyde-type amendments also have an impact in the District of Columbia, where federal and local funds may not be used to perform abortions except in cases of rape or incest, or where the life of the mother would be endangered, and affect international organizations like the United Nations Population Fund, which receives funds through the annual Foreign Operations appropriations measure. The debate over abortion also continued in the context of health reform. The Patient Protection and Affordable Care Act (ACA), enacted on March 23, 2010, includes provisions that address the coverage of abortion services by qualified health plans that are available through health benefit exchanges. The ACA's abortion provisions have been controversial, particularly with regard to the use of premium tax credits or cost-sharing subsidies to obtain health coverage that includes coverage for elective or nontherapeutic abortion services. Under the ACA, individuals who receive a premium tax credit or cost-sharing subsidy are permitted to select a qualified health plan that includes coverage for elective abortions, subject to funding segregation requirements that are imposed on both the plan issuer and the enrollees in such a plan.

Introduction The American Recovery and Reinvestment Act (Recovery Act; P.L. 111-5 , enacted February 17, 2009) provided $3.4 billion for carbon capture and sequestration (CCS) projects and activities at the U.S. Department of Energy (DOE). The large and rapid influx of funding for industrial-scale CCS projects was intended to accelerate development and demonstration of CCS in the United States. Recovery Act funding represented the lion's share of CCS support at DOE in the six-year period from FY2010 through FY2015. By comparison, DOE separately allotted a total of approximately $2.3 billion over the same time period to CCS-related activities from annual appropriations—not Recovery Act funding—under its coal program activities within the Office of Fossil Energy. Authority to spend Recovery Act funds expired on September 30, 2015. Of the $3.4 billion allocated for CCS activities, approximately $1.4 billion went unspent as of the 2015 spending deadline. The largest portion of the unspent funds, $795 million, was intended for DOE's flagship CCS project, FutureGen, which DOE suspended in February 2015. However, several other large CCS demonstration projects were canceled, suspended, or failed to spend all of their Recovery Act funding before the deadline. This report provides a preliminary assessment of Recovery Act-funded CCS projects and discusses possible factors that led to project delay, suspension, or cancellation within the context of DOE's broader CCS effort. Recovery Act funding was intended, in part, to help DOE achieve its research, development, and demonstration (RD&D) goals as outlined in the department's 2010 Carbon Dioxide Capture and Storage RD&D Roadmap . DOE states that the mission for the DOE Office of Fossil Energy is "to ensure the availability of ultra-clean (near-zero emissions), abundant, low-cost domestic energy from coal to fuel economic prosperity, strengthen energy security, and enhance environmental quality." Over the past several years, the DOE Fossil Energy Research and Development Program increasingly shifted activities performed under its coal program toward emphasizing CCS as the main focus. For example, the coal program represented between 60% and 70% of total Fossil Energy Research and Development appropriations from FY2010 to FY2015—even without Recovery Act funding—indicating that CCS has come to dominate coal RD&D at DOE. This development reflects DOE's view that "there is a growing consensus that steps must be taken to significantly reduce [greenhouse gas] emissions from energy use throughout the world at a pace consistent to stabilize atmospheric concentrations of [carbon dioxide], and that CCS is a promising option for addressing this challenge." Congress has long been interested in the future of CCS as a mitigation strategy for lowering global emissions of carbon dioxide (CO 2 ). Since FY2008, it has appropriated more than $7 billion for CCS activities at DOE. Several bills introduced in the 114 th Congress address CCS directly or indirectly (e.g., S. 601 , S. 1283 , H.R. 3392 , and others). The Obama Administration has promulgated rules on CO 2 emissions from current and future fossil fuel-burning power plants and entered into a global agreement to limit CO 2 emissions. Congress remains divided over those executive branch decisions. DOE, however, has continued to embrace CCS as part of the Administration's strategy to reduce CO 2 emissions from power plants: Roughly one-third of U.S. carbon emissions come from power plants and other large point sources. DOE is committed to enabling the safe and permanent storage and utilization of CO 2 captured from these sources. Building on available first generation technologies, next generation carbon capture and storage (CCS) technologies or carbon dioxide utilization technologies, expected to become commercially available in the mid-2020s, will help put us on a path to a clean energy option for a world currently dependent on fossil fuels for 80% of its energy. The Recovery Act provided a de facto doubling of appropriations for CCS RD&D from enactment until the end of FY2015. A preliminary assessment of Recovery Act-funded CCS projects might help to inform lawmakers about factors that affect the rate of progress of developing and demonstrating CCS technology. Understanding these factors also might help to clarify the potential for CCS as a greenhouse-gas (GHG) mitigation strategy as Congress debates whether and how to reduce CO 2 emissions from large, stationary sources. CCS and the Clean Power Plan The U.S. Environmental Protection Agency's (EPA's) final rule for reducing CO 2 emissions from new fossil fuel power plants, part of the Administration's Clean Power Plan (CPP), found newly constructed power plants incorporating partial CCS to be the Best System of Emission Reduction (BSER). EPA determined that the BSER is technically feasible and available at reasonable cost. EPA based its claim, in part, on an example of demonstrated, full-scale operations in the electricity-generating industry, as well as on other smaller projects that are reasonably predictive of results at full scale. In a separate rule, also part of the CPP, EPA found that CCS was not the BSER for existing power plants. Several of the projects cited by EPA in the final rule received Recovery Act funding and are discussed below. The project cited in most detail to support EPA's final rule, however, was Boundary Dam, a Canadian venture that is the world's only full-scale, fully integrated, and currently operating power plant with CCS. The Boundary Dam project received about $240 million from the Canadian federal government; the overall cost was about $1.3 billion, according to one source. None of the Recovery Act-supported power plant demonstration projects discussed in this report are currently operating; however, EPA asserts in its final rule that the projects support the conclusion that CCS is technically feasible. Technical feasibility is just one factor of many that determine whether a CCS demonstration project successfully reaches its goal of producing electricity and capturing CO 2 at commercial scale. Some of the Recovery Act-supported projects cited in the final rule did not meet their original schedules and were not able to expend their full Recovery Act awards prior to the spending deadline, although they still may become operational. One project cited in the final rule, the AEP Mountaineer project, was canceled in 2011, well before the scheduled operation date of 2015. FutureGen, arguably DOE's flagship CCS demonstration project, was not cited in EPA's final rule as an example demonstrating technical feasibility for CCS. FutureGen was canceled in 2015 after spending only 20% of a nearly $1 billion Recovery Act award. In its final rule, EPA states that implementing partial CCS as the BSER is likely to boost future research and development in CCS technologies. Further, the boost would make CCS implementation even more efficacious and cost-effective. That may be the case; however, this report touches on some of the other issues that affected a number of large, Recovery Act-supported CCS demonstration projects. These issues, as well as the outcomes from promulgation of EPA's final rule, will likely continue to shape the outlook for CCS commercialization and deployment. DOE Carbon Capture and Sequestration Funding Since FY2010 Table 1 shows the DOE Office of Fossil Energy spending from FY2010 through FY2016, including the amounts provided by the Recovery Act. In the table, Recovery Act programs are organized under the CCS Demonstrations category. CCS-related programs funded by annual appropriations apart from the Recovery Act are organized under the Coal CCS and Power Systems category. The remainder of Fossil Energy spending is organized under Other Fossil Energy R&D. DOE changed the program structure for coal after FY2010, renaming and consolidating program areas. In Table 1 , the Coal CCS and Power Systems bottom line total is provided for FY2010, but the amounts for individual programs are not provided for that year because of the reorganization. Recovery Act funding supported four main categories of activities: (1) FutureGen; (2) the Clean Coal Power Initiative (CCPI); (3) Industrial Carbon Capture and Storage (ICCS); and (4) Site Characterization, Training, and Program Direction. FutureGen, CCPI, and ICCS garnered the bulk of Recovery Act funds for CCS ($3.32 billion, or 98%). Funding was made available as a one-time appropriation, but DOE had authority to spend Recovery Act funds through FY2015. Accordingly, Table 1 shows the Recovery Act funding amounts in one column for 2009, but those funds were available through FY2015. Zeroes in the columns for FY2010 through FY2015 indicate that no new Recovery Act funds were made available during those years. However, DOE continued to fund other CCS programs and activities with regular appropriations in each of those years, as shown by the rows in the table below Recovery Act programs. Under the 2010 DOE CCS Roadmap , and with the large infusion of funding from the Recovery Act, DOE's goal has been to develop the technologies that will allow for commercial-scale demonstration in both new and retrofitted power plants and industrial facilities by 2020. The DOE 2011 strategic plan set a more specific target: to bring at least five commercial-scale CCS demonstration projects online by 2016. The DOE 2014-2018 strategic plan is less specific, stating that next-generation CCS technologies, available sometime in the 2020s, would put the United States on a path toward a clean-energy option for the world. In its FY2016 budget justification, DOE stated that the CCS and Power Systems research and development (R&D) program "supports secure, affordable, and environmentally acceptable near-zero emissions fossil energy technologies through research, development, and demonstration (RD&D) to improve the performance of advanced CCS technologies." Some programs are directly focused on one or more of the three steps of CCS: capture, transportation, and storage. For example, the Carbon Capture program supports R&D on post-combustion, pre-combustion, and natural gas capture. The Carbon Storage program supports the regional carbon sequestration partnerships, geological storage technologies, and other aspects of permanently sequestering CO 2 underground. Also shown in Table 1 are funding levels under Other Fossil Energy R&D. Activities in this category include programs pursuing fossil energy R&D and support activities. The largest activity is Program Direction ($114.2 million in FY2016), which provides DOE headquarters support and federal field and contractor support of the overall fossil energy R&D programs. These activities support CCS-related activities directly and indirectly. The next-largest activities are Natural Gas Technologies ($43 million in FY2016) and Unconventional Fossil ($20.3 million in FY2016), which support collaborative research to foster safe and prudent development of shale gas resources, the reduction of methane emissions from natural gas infrastructure, and research on gas hydrates. The other activities listed in Table 1 —Plant and Capital, Environmental Restoration, and Special Recruitment—total approximately $24.5 million for FY2016. The FY2016 appropriated amount for coal R&D is a 7.5% increase over the previous year's enacted amount. The total fossil energy FY2016 appropriation is about 10% higher than the FY2015 appropriation (in unadjusted dollars). FY2016 marks the first year since FY2009, however, in which Recovery Act funds are not available for CCS-related projects in addition to regular appropriations. The following section reviews where DOE allocated Recovery Act funds for CCS-related activities, the status of those endeavors, and which projects left portions of their Recovery Act awards unspent at the September 30, 2015 deadline. Recovery Act-Funded Projects Nine individual projects garnered approximately $2.65 billion of the $3.4 billion—about 78%—made available under the Recovery Act for CCS projects and activities. Five of the nine projects are large-scale demonstration projects that were intended to capture CO 2 from electric power plants (FutureGen and four CCPI Round III projects, see Table 2 ). The remaining four projects listed in Table 2 are large, industrial-scale demonstration projects under the ICCS program. The projects in each category were awarded more than $100 million. They are listed to illustrate that DOE prioritized large-scale demonstration projects with Recovery Act funding. For comparison, the ICCS projects not included in Table 2 (combined in the All Other Projects category; see Appendix for detailed listing by project) are smaller in scope and received Recovery Act funds in amounts ranging from less than $1 million to $72 million, averaging about $12 million. The CCPI program originally provided federal support to new coal technologies that helped power plants to cut sulfur, nitrogen, and mercury pollutants. As CCS became the focus of coal RD&D, the CCPI program shifted to reducing GHG emissions by boosting plant efficiencies and capturing CO 2 . The ICCS program demonstrates carbon capture technology for the non-power plant industrial sector. Both these program areas focus on the demonstration component of RD&D. FutureGen was unique as originally conceived because it was intended to include the full CCS spectrum—capture, transportation, and storage—as one state-of-the-art, unified facility. Approximately 60% of the nearly $995 million in Recovery Act funds allocated to FutureGen went to capture, with the remaining 40% used for transportation and storage. FutureGen On February 3, 2015, DOE announced it was canceling funding for the FutureGen project. The main reason for the program's suspension was the September 30, 2015, deadline for spending the Recovery Act funding and the likelihood that the FutureGen Alliance—an industrial consortium—would not be able to commit the funds by that date. That situation led, in turn, to uncertainty about the alliance's ability to secure private-sector funding to make up the rest of the project costs after Recovery Act funding was exhausted. The FutureGen Alliance had expended nearly $200 million of Recovery Act funding at the time of cancellation, leaving approximately $795 million unspent ( Table 2 ). By itself, FutureGen's cancellation resulted in, by far, the largest dollar amount of CCS-related Recovery Act funds left unspent: $795 million of a total of $1.4 billion unspent overall, or 57%. Including FutureGen, approximately 43% of all CCS-related Recovery Act funds were unspent as of the September 30, 2015, deadline ( Table 2 ). Excluding FutureGen (i.e., subtracting $995 million from the total awarded and $795 million from the total left unspent), the percentage of unspent-to-awarded funds improves to about 26% for CCS-related Recovery Act-funded projects. In addition to FutureGen, two other projects listed in Table 2 were canceled or suspended: Leucadia Energy, LLC, an ICCS major demonstration project, and American Electric Power (AEP) Mountaineer. These projects spent 5% and 12% of their total Recovery Act awards, respectively. FutureGen spent close to $200 million, or 20% of its total project award. A question lawmakers may consider is whether the FutureGen effort produced tangible results benefitting the DOE goal to allow for commercial-scale demonstration in both new and retrofitted power plants and industrial facilities by 2020. Or, alternatively, would the funding have been better directed to the other major demonstration efforts within the CCPI and ICCS programs? Background and Development FutureGen did not begin with the $995 million Recovery Act award in 2010. As originally conceived by the George W. Bush Administration in 2003, the plant would have been a coal-gasification facility that would have produced and sequestered between 1 million and 2 million tons of CO 2 annually. The project changed fundamentally five years later in January 2008, when DOE announced that it was "restructuring" the FutureGen program away from a single, state-of-the-art "living laboratory" of integrated R&D technologies—a single plant—to pursue instead a new strategy of multiple commercial demonstration projects. After passage of the Recovery Act, FutureGen changed again. DOE under the Obama Administration announced its plans to build FutureGen 2.0, which differed from the original concept for the plant. FutureGen 2.0 aimed to retrofit an existing power plant in Meridosia, IL, with oxy-combustion technology rather than to build a new, state-of-the-art plant. Despite its 2003 origin, FutureGen 2.0 arguably began a new effort in 2010 to construct an integrated capture-transport-sequestration facility. The timetable initially proposed for this effort—which would have spent the nearly $1 billion in Recovery Act funds by September 30, 2015, for capture, transportation, and storage engineering, equipment, and infrastructure—proved to be overly ambitious. Challenges and Delays As an early mover fully-integrated CCS project in the United States, FutureGen likely experienced some delays that were difficult or impossible to predict. For example, many other CCS projects plan to sell the captured CO 2 for enhanced oil recovery (EOR), a long-standing practice of injecting CO 2 into aging oil fields to boost production. In contrast, FutureGen planned to inject CO 2 into the subsurface for permanent sequestration. To do so, the project required a first-of-its-kind injection permit from the U.S. Environmental Protection Agency—a Class VI Underground Injection Control well permit, issued under authority of the Safe Drinking Water Act ( P.L. 93-523 ). Projects that inject CO 2 for EOR purposes are not required to obtain Class VI permits. EPA issued its first Class VI well permit to FutureGen on September 2, 2014, four years after Recovery Act funding was awarded and only one year before the deadline for spending Recovery Act funds. In addition, FutureGen encountered challenges in court that may have contributed to the project's delay. For example, the project received approval in late December 2012 from the Illinois Commerce Commission for a power procurement plan that would have guaranteed that utilities would purchase only FutureGen-generated electricity for 20 years. That action faced a challenge from the Illinois Competitive Energy Association, which represents retail electricity suppliers, among others. FutureGen survived the first challenge in the Illinois Appellate Court in July 2014, but in 2014 the Illinois Supreme Court agreed to consider another appeal. The court had not decided the issue by the time DOE canceled FutureGen funding. FutureGen also faced a lawsuit filed by the Sierra Club against the project. The environmental advocacy group argued that FutureGen did not obtain the proper well permit and would be in violation of the Clean Air Act (P.L. 88-206). The CEO of the FutureGen Industrial Alliance, Inc., Ken Humphreys, filed a motion with the Illinois Pollution Control Board to expedite the review of the case. Humphreys testified that "time is of the essence in this case," and that "one billion dollars ($1B) in contractually-obligated government funding and seven hundred million ($700M) in commercial financing is at stake if the case is not resolved expeditiously." His testimony continued, "The Claim casts a dark shadow over the ongoing commercial financing effort, which raises investor concern." Further, Humphreys acknowledged that major construction spending could not occur prior to resolution of the lawsuit. The court challenge, lawsuit, and other actions likely contributed to delays in construction and the concomitant expenditure of Recovery Act funds. Those delays eventually led to the project's termination. FutureGen was a technically challenging project as well, but the technical challenges do not appear to have been causes for undue delay in project construction. Rather, uncertainty in the legal, financial, and regulatory spheres probably were more acute challenges to keeping the project on schedule to meet its September 30, 2015 spending deadline. Clean Coal Power Initiative Projects Of the four CCPI projects listed in Table 2 , three projects—Hydrogen Energy California, Summit Texas Clean Energy, and AEP Mountaineer—did not expend all Recovery Act funding prior to the September 30, 2015 deadline. The NRG Energy/Petra Nova project did expend its $167 million prior to the deadline and is moving forward. The project broke ground in September 2014 and, as of September 2015, engineering, procurement, and construction activities were over 60% complete. The Summit Texas Clean Energy Project spent about 51% of its Recovery Act funding. DOE and its private-sector partner are currently evaluating the future of the project, according to DOE, although the private company has indicated that it plans to move forward on the project with financial closing in spring 2016 and groundbreaking shortly thereafter. The status of the Hydrogen Energy California Project is uncertain. DOE lists the project as suspended on its CCPI website. In July 2015, DOE suspended funding for the project because it failed to meet certain benchmarks, according to one source. Other sources indicate that the private company partner continues to fund project development independently while DOE evaluates the Hydrogen Energy California project's future. The AEP Mountaineer project is different from the other three CCPI projects in Table 2 because AEP, the private-sector partner in the project, terminated the project in July 2011. The project is included in Table 2 because it received and expended Recovery Act funding, even though AEP withdrew its support at an early stage of project development. DOE expended only a small amount of federal funding for the project—about $17 million—compared to the other CCPI projects. As Table 3 shows, the federal share of the AEP Mountaineer project was $334 million in its original conception, and the total project cost was estimated to be $668 million. Of the $334 million that was DOE's share, $129 million was unspent Recovery Act funding. Also unspent was $187 million of non-Recovery Act funding for the project, which Congress rescinded in 2012 (See Table 1 , FY2012 column). Table 3 also shows two other projects—Southern Company Plant Barry and Basin Electric Power—originally selected for CCPI Round III support with Recovery Act funding. These projects withdrew from CCPI very early after selection. Reasons for Withdrawal from the CCPI Program Southern Company—Plant Barry Project : DOE Secretary Steven Chu announced $295 million in DOE funding for the 11-year, $665 million project that would have captured up to 1 million tons of CO 2 per year from a 160 megawatt coal-fired generation unit. Southern Company withdrew its Alabama Plant Barry project from the CCPI program on February 22, 2010, slightly more than two months later. According to some sources, Southern Company's decision was based on concern about the size of the company's needed commitment (approximately $370 million) to the project and its need for more time to perform due diligence on its financial commitment, among other reasons. Basin Electric Power—Antelope Valley Project : On July 1, 2009, Secretary Chu announced $100 million in DOE funding for a project that would capture approximately 1 million tons of CO 2 per year from a 120 megawatt electric-equivalent gas stream from the Antelope Valley power station near Beulah, ND. In December 2010, the Basin Electric Power Cooperative withdrew its project from the CCPI program citing the lack of a long-term energy strategy for the country and regulatory uncertainty with regard to capturing CO 2 , the project's cost (one source indicates that the company estimated $500 million total cost; DOE estimated $387 million—see Table 3 ), and environmental legislation. AEP—Mountaineer Project : In July 2011, AEP decided to halt its plans to build a carbon capture plant for a 235 megawatt generation unit at its 1.3 gigawatt Mountaineer power plant in New Haven, WV. The project represented the second phase of an ongoing CCPI project. Secretary Chu had announced a $334 million award for the project on December 4, 2009. According to some sources, AEP dropped the project because the company was not certain that state regulators would allow it to recover the additional costs for the CCS project through rate increases charged to its customers. In addition, company officials cited broader economic and policy conditions as reasons for canceling the project. Some commentators suggested that congressional inaction on setting limits on GHG emissions, as well as the weak economy, may have diminished the incentives for a company such as AEP to invest in CCS. One source concluded that "Phase 2 has been canceled due to unknown climate policy." Reshuffling of Funding for CCPI According to DOE, $140 million of the $295 million in Recovery Act funds allotted to the Southern Company Plant Barry project was redistributed to the Summit Texas Clean Energy project and the Hydrogen Energy California project. DOE provided additional funding, resulting in each project receiving $100 million above its initial award. The remaining funding from the canceled Plant Barry project (up to $154 million) was allotted to the NRG Energy/Petra Nova project. According to DOE, the department announced the selection of the Basin Electric Power project but never reached a cooperative agreement. Funds that were set aside for the Basin project were made unavailable in the spring of 2012 when Congress rescinded $187 million in non-Recovery Act funding from the AEP Mountaineer project. About $129.6 million of Recovery Act funding was left unspent for the AEP Mountaineer project in January 2012. Industrial Carbon Capture and Storage Projects Table 2 indicates that only one ICCS project, Leucadia Energy, LLC, left Recovery Act funding unspent. DOE disbursed only $12.76 million for the project out of a total DOE project share of about $261 million, or about 5% of the total award. The Leucadia Energy project represented the second-largest DOE investment in ICCS projects (see Table 2 and Appendix ). However, as a class of CCS spending, the ICCS program spent 83% of its total Recovery Act funds disbursed by DOE. That figure compares favorably to the overall spent-to-unspent percentage of 55% for CCPI projects and 20% for FutureGen. The ICCS projects listed in Table 2 each received between $141 million and $284 million in Recovery Act funding, totaling $856 million, or 58% of total ICCS spending ($1.49 billion). The $100 million threshold for inclusion in Table 2 is somewhat arbitrary but illustrates that DOE allocated the bulk of Recovery Act funds to large demonstration projects within the ICCS category. Including the large ICCS projects also provides for a comparison with the large demonstration projects in the CCPI program. As Table 2 shows, ICCS projects in total expended 83% of allocated Recovery Act funds, versus 55% for total CCPI projects. However, if only the four largest ICCS projects are considered, the amount-spent to amount-allocated ratio drops to 71%, closer to the value for large CCPI demonstration projects. Spending the full amount of Recovery Act funding may not be an appropriate metric for project success. Five of the nine projects in Table 2 left Recovery Act funds unspent, however, suggesting that the larger and presumably more complex demonstration projects were more susceptible to project delays than the smaller ICCS projects listed in the Appendix that left no funds unspent. Discussion Stakeholders and observers long have emphasized the importance of large-scale demonstration projects to the future commercial deployment of CCS at large, stationary sources of CO 2 , such as power plants and large industrial facilities. DOE's shift in emphasis to the demonstration phase of carbon capture technology within its fossil energy RD&D program is therefore not surprising. It was manifest in DOE's allocation of approximately $2.65 billion of the $3.4 billion in Recovery Act funds to nine large-scale demonstration projects (listed in Table 2 ). In addition, DOE's decision to allocate the majority of Recovery Act CCS funding to support demonstration projects aligns with the evolution of cost estimates for new environmental technologies, in which the demonstration phase is the costliest, as illustrated in Figure 1 . In comparative studies of cost estimates for other environmental technologies, such as scrubbers that remove sulfur and nitrogen compounds from power plant emissions, some experts note that the farther away a technology is from commercial reality, the more uncertain is its estimated cost. As Figure 1 portrays, at the beginning of the RD&D process, initial cost estimates could be low, but they typically increase through the demonstration phase before decreasing after successful deployment and commercialization. Some stakeholders argue that DOE CCS programs have been inadequately funded, and that the DOE incentive programs for deploying CCS are not as effective as they should be. One study concluded that even the financial boost from the Recovery Act was insufficient support for development and commercialization of CCS technology: While the $3.4 billion allocated for CCS in the American Recovery and Reinvestment Act (ARRA) of 2009 was a good start in providing the kind of federal funding assistance needed for CCS technology development, much of those funds were returned to Treasury due to canceled projects. Because CCS projects are more complex and carry higher risk, several of the projects that received ARRA funding awards have had challenges achieving financial close. ARRA funding falls short of what will be needed to successfully commercialize and support widespread development of CCS technology. Large-scale CCS projects are complex endeavors, requiring large capital investment and multiyear planning and construction schedules. Nevertheless, the conclusion that more federal funding by itself—per the quote above—is what is needed to support development and commercialization of CCS technology may be overly simplistic. The ability for projects to achieve "financial close" goes beyond lack of sufficient funding for several projects discussed above, notably FutureGen, the AEP Mountaineer project, and the other projects listed in Table 3 that were initially selected to receive Recovery Act funding but withdrew for various reasons. Further, delays in the timelines for the Hydrogen Energy California and Summit Texas Clean Energy projects, under DOE CCPI Round III, led to each project relinquishing more than $100 million in Recovery Act funding. The complexity and risk inherent in each of these projects no doubt affected the projects' ability to attract private financing, which may have led to project delay, but financial considerations were one of many challenges. FutureGen, in particular, faced various impediments that led to its cancellation despite receiving nearly $1 billion of Recovery Act funds. As briefly discussed above (see " Challenges and Delays "), these impediments included delays in receiving the required injection-well permits from the Environmental Protection Agency, court challenges to its plan to sell electricity, and a lawsuit from an environmental advocacy group. FutureGen, a genuine first-mover project with a more than 10-year lifespan, may have been the highest-profile CCS project in the United States, which could have drawn additional attention from CCS opponents. For these reasons and likely others, FutureGen was unable to move its construction schedule forward at a sufficient pace, despite having more than $990 million in Recovery Act funds available to expend over a five-year period. At the end of five years, FutureGen had spent only 20% of its Recovery Act award. Outlook Of the four CCPI large-scale CCS demonstration projects listed in Table 2 , three projects—Hydrogen Energy California, Summit Texas Clean Energy, and NRG Energy/Petra Nova—are still viable and could eventually become operational. Two of the three projects had to return about $226 million of the $486 million in awarded Recovery Act funds, however, which put further strain on private-sector financing for those projects. Including FutureGen and AEP Mountaineer, the five electricity-generating large-scale CCS demonstration projects expended 55% of awarded Recovery Act funds and left the remaining 45% unspent. Of the CCPI projects funded by Recovery Act dollars, NRG Energy/Petra Nova was the only one to expend all its Recovery Act-awarded funds. This project has begun construction and appears to be closest to becoming operational of all the CCPI Round III projects. Of the three ICCS large-scale demonstration projects in Table 2 , only one—Leucadia Energy, LLC—failed to expend its Recovery Act award and left about $249 million unspent. The Air Products & Chemicals, Inc., large demonstration project is currently operational and has captured and stored more than 2 million metric tons of CO 2 since late 2012. The Archer Daniels Midland large demonstration project is scheduled to begin operations sometime in 2016. All other ICCS projects appear to have expended their Recovery Act funds prior to the September 30, 2015, deadline. The example of the Kemper County Energy Facility in Kemper County, MS, an integrated gasification combined-cycle (IGCC) power plant that will be owned and operated by Mississippi Power Company, a subsidiary of Southern Company, provides insight into several Recovery Act-funded projects. DOE awarded Southern Company Services a cooperative agreement under the CCPI Round II program, prior to enactment of the Recovery Act and the CCPI Round III awards, to develop gasification technology called Transport Integrated Gasification (TRIG TM ). The Kemper project may be the first electricity-generating power plant with CCS to begin operations in the United States. DOE awarded Kemper $270 million, a figure comparable to Recovery Act awards for CCPI and ICCS large demonstration projects shown in Table 2 . Similar to many of those projects, the complex Kemper project experienced schedule delays and cost overruns. Currently, the projected start date is the third quarter of 2016, and the project's overall cost has increased from less than $3 billion to more than $6.6 billion. The technical challenges for a first-mover demonstration plant of its kind, and the concomitant escalating cost estimates, lend credence to the shape of the cost curve trend shown in Figure 1 , in which demonstration plants are at peak cost between development and deployment. Most, if not all, of the large CCPI projects likely fall along that portion of the cost curve depicted in Figure 1 . In contrast to the Recovery Act-funded projects listed in Table 2 , the Kemper project did not face a September 30, 2015 spending deadline. DOE acknowledges that many of the Recovery Act-funded projects were technologically difficult and challenging, but it does not consider the relinquishment of unspent funds to signify project failure; rather, DOE takes the relinquishment of funds to mean that the projects simply did not meet the requirement to spend the funds by the deadline. DOE notes that due to its spending on CCS and its partnerships with industry, the costs of capturing CO 2 have dropped significantly and its projects have stored more than 10 million metric tons of CO 2 . Despite these achievements, some stakeholders conclude that the DOE CCS program "has not reached critical mass with regard to the commercialization of CCS in the time frame needed to meet stated U.S. goals for CO 2 emissions reductions." Even though Recovery Act funding predominantly targeted large-scale demonstration projects, "significantly more CCS/CCUS pilot and demonstration projects are needed in order to commercially deploy the technology.... Without adequate demonstration, there can be no commercialization." The level of funding for CCS projects is a perennial issue for Congress. Given that a substantial amount of appropriated funding through the Recovery Act for CCS demonstration projects went unspent, Congress may examine the broader policy, financial, and regulatory factors that posed challenges to several large Recovery Act-funded demonstration projects and led to their delay or cancellation. Appendix. ICCS Projects With Less Than $100 Million of Recovery Act Funding

Federal policymakers have long been interested in the potential of carbon capture and sequestration (CCS) as a mitigation strategy for lowering global emissions of carbon dioxide (CO2). Congress has appropriated more than $7 billion since FY2008 to CCS activities at the U.S. Department of Energy (DOE). The Obama Administration has promulgated rules on CO2 emissions from fossil fuel-burning power plants and entered into a global agreement to limit CO2 emissions. Congress remains divided over those executive branch decisions. DOE, however, has continued to embrace CCS as part of the Administration's strategy to reduce CO2 emissions from power plants. Several bills introduced in the 114th Congress address CCS directly or indirectly (e.g., S. 601, S. 1283, H.R. 3392, and others). The American Recovery and Reinvestment Act (Recovery Act; P.L. 111-5) provided $3.4 billion for CCS projects and activities at DOE. The large infusion of funding was intended to help develop technologies that would allow for commercial-scale demonstration of CCS in both new and retrofitted power plants and industrial facilities by 2020. Nine individual projects garnered approximately $2.65 billion of the $3.4 billion—about 78%. Each of the nine projects was awarded more than $100 million, and these projects illustrate that DOE prioritized large-scale demonstration projects with Recovery Act funding. The lion's share of funding went to DOE's flagship CCS project FutureGen, which was awarded nearly $1 billion from the Recovery Act. Authority to spend Recovery Act funds expired on September 30, 2015. Of $3.4 billion allocated for CCS activities, approximately $1.4 billion went unspent as of the spending deadline. The largest portion of the unspent funds, $795 million, was intended for FutureGen, which DOE suspended in February 2015. FutureGen faced various impediments that led to its cancellation, including delays in receiving required injection well permits from the Environmental Protection Agency, court challenges to its plan to sell electricity, and a lawsuit from an environmental advocacy group. Several other large CCS demonstration projects also were canceled, suspended, or failed to spend all of their Recovery Act funding before the 2015 deadline. Some stakeholders argue that DOE's CCS programs have been inadequately funded, providing less incentive than they should for deploying CCS. One study concluded that even the financial boost from the Recovery Act was insufficient. To be sure, large-scale CCS projects are complex endeavors, requiring substantial capital investment and multiyear planning and construction schedules. However, the conclusion that more federal funding by itself would be sufficient to support development and commercialization of CCS technology may be overly simplistic. DOE acknowledges that many of the Recovery Act-funded projects were technologically difficult and challenging, but it does not consider the relinquishment of unspent funds to signify project failure. DOE notes that due to its spending on CCS and its partnerships with industry, the costs of capturing CO2 have dropped significantly and its projects have stored more than 10 million metric tons of CO2. The U.S. Environmental Protection Agency's (EPA's) final rule for reducing CO2 emissions from new fossil fuel power plants, part of the Administration's Clean Power Plan, found plants incorporating partial CCS to be the Best System of Emission Reduction (BSER). EPA asserts that CCS is technically feasible. Technical feasibility, however, is just one factor of many that determine whether a project successfully reaches its goal of producing electricity and capturing CO2 at commercial scale. EPA states that implementing partial CCS in the rule is likely to boost future research and development in CCS technologies and to make CCS implementation more efficacious and cost-effective. That may be the case; however, other issues also affect CCS implementation. These issues, as well as the outcomes from promulgation of EPA's final rule, will likely continue to shape the outlook for CCS commercialization and deployment.

Introduction The Department of Defense (DOD) relies extensively on contractors to equip and support the U.S. military in peacetime and during military operations. Contractors design, develop, and build advanced weapon and business systems, construct military bases around the world, and provide services such as intelligence analysis, logistics, and base support. Congress has long been frustrated with perceived cost overruns, waste, mismanagement, and fraud in defense acquisitions, and has spent significant effort attempting to reform and improve the process. Since the 1970s, there have been numerous efforts to comprehensively reform defense acquisition. Congress generally sets acquisition policy for the DOD through the annual National Defense Authorization Acts (NDAAs) as well as through stand-alone legislation, such as the Defense Acquisition Workforce Improvement Act of 1990, Federal Acquisition Streamlining Act of 1994, Clinger-Cohen Act of 1996, and Weapon System Acquisition Reform Act of 2009. This report provides a brief overview of selected acquisition-related provisions found in the NDAAs for FY2016 ( P.L. 114-92 ), FY2017 ( P.L. 114-328 ), and FY2018 ( P.L. 115-91 ). This report also has a section on some of the more controversial and extensive changes in recent years: the changes to the role of the Chiefs of the Military Services and the Commandant of the Marine Corps (collectively referred to as the Service Chiefs) in the acquisition process, the breakup of the office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD [AT&L]), and the shift of authority from the Office of the Secretary of Defense (OSD) to the military departments. Acquisition Reform in the FY2016-FY2018 NDAAs In recent years, Congress has generally exercised its legislative powers to affect defense acquisitions through Title VIII of the NDAA, entitled Acquisition Policy, Acquisition Management, and Related Matters . In some years, the NDAA also contains titles specifically dedicated to aspects of acquisition, such as Title XVII of the FY2018 NDAA, entitled Small Business Procurement and Industrial Base Matters . Congress has been particularly active in legislating acquisition reform over the last three years. For FY2016-FY2018, NDAA titles specifically related to acquisition reform contained an average of 82 provisions (247 in total), compared to an average of 47 such provisions (466 in total) in the NDAAs for the preceding 10 fiscal years (see Appendix A and Appendix B ). Faster and More Efficient Acquisitions The FY2016 NDAA sought to develop more timely and efficient ways for DOD and the Military Services to acquire goods and services. One provision expanded the use of rapid acquisition authority to support certain military operations. Another provision required DOD to develop guidance for rapidly acquiring middle tier programs (intended to be completed in two to five years), to include rapid prototyping and rapid fielding. Congress also required the development of streamlined alternative acquisition paths that maximize the use of flexibility allowed under the law to acquire critical national security capabilities. In addition to expanding existing flexibilities and trying to create new and quicker acquisition methods, Congress authorized the Secretary of Defense to, in certain circumstances, waive any provision of acquisition law or regulation if (1) the acquisition of the capability is in the vital national security interest of the United States; (2) the application of the law or regulation to be waived would impede the acquisition of the capability in a manner that would undermine the national security of the United States; and (3) the underlying purpose of the law or regulation to be waived can be addressed in a different manner or at a different time. In the FY2017 NDAA, Congress reflected its concern with defense technology innovation, dedicating a number of sections to promoting integration and collaboration of the national technology and industrial base, and attempting to spur defense-related innovation among nontraditional defense and small businesses. Other Transaction Authority Other transaction authority (OTA) allows DOD, using the authority found in 10 U.S.C. 2371, to enter into transactions with private organizations for basic, applied, and advanced research projects. OTA, in practice, is often defined in the negative: it is not a contract, grant, or cooperative agreement, and its advantages come mostly from exempting OTA transactions from certain procurement statutes and acquisition regulations. The FY2016 NDAA expanded DOD's ability to use Other Transaction Authority for certain prototype programs, including making some authorities permanent. Subtitle G of Title VIII of the FY2018 NDAA— Provisions Relating to Other Transaction Authority and Prototyping —contains eight sections aimed at expanding and improving the use of OTA. Reports, Advisory Panels, and Pilot Programs The FY2016 NDAA required numerous reports and chartered efforts to explore ways to improve defense acquisition. The most comprehensive such effort was the establishment of the Advisory Panel on Streamlining and Codifying Acquisition Regulations (knows as the 809 Panel after the section of the NDAA establishing the group). The 809 Panel was tasked with finding ways to streamline and improve the defense acquisition process. The independent panel has two years to develop recommendations for changes in the regulation and associated statute to achieve those ends, and must report the recommendations to the Secretary of Defense and to Congress. The FY2016 NDAA also required each Service Chief to submit a report on linking and streamlining the requirements, budget, and acquisition processes; and the Secretary of Defense and Joint Chiefs of Staff to review the requirement, budgeting, and acquisition processes, in part to determine the "advisability of providing a time-based or phased distinction between capabilities needed to be deployed urgently, within 2 years, within 5 years, and longer than 5 years." The FY2018 NDAA established a three-year pilot program requiring certain companies filing a Government Accountability Office (GAO) bid protest to pay DOD processing costs for the protest when GAO issues an opinion that denies all elements of the protest. The pilot program would begin two years from enactment of the bill. Types of Contracts, Contract Audits, and Source Selection Criteria A m icro - purchase is an acquisition of supplies or services using simplified acquisition procedures, the total amount of which does not exceed the micro-purchase threshold. The FY2017 NDAA raised DOD's micro-purchase threshold from $3,500 to $5,000. The FY2018 NDAA raised the micro-purchase threshold for the rest of the federal government to $10,000, thus establishing a different threshold for DOD vis-à-vis other federal agencies. A s implified acquisition is a streamlined method for making purchases of supplies or services. The simplified acquisition threshold delineates what types of purchases can use this streamlined method. The FY2018 NDAA also increased the simplified acquisition threshold from $100,000 to $250,000. The FY2017 NDAA clarified Congress's desire to see DOD increase its use of 1. fixed price contracting, (requiring a regulation establishing a preference for such contracts, and generally requiring fixed-price contracts for foreign military sales); and 2. performance-based contract payments. The FY2017 NDAA also restricted the use of l o west price technically a cceptable (LPTA) source selection criteria to certain circumstances, and specifically calls for avoiding using LPTA for IT and related services, personal protective equipment, and knowledge-based services. LPTA is a source selection process where the government determines that the lowest price is the determining factor for award as long as the bidder meets the technical requirements of the solicitation. LPTA is appropriate only when the government "expects" it can achieve best value from selecting the proposal that is technically acceptable and offers the lowest evaluated price.   The FY2018 NDAA required DOD to adhere to commercial standards for risk and materiality when auditing costs incurred under flexibly priced contracts and requires the use of qualified private auditors to ensure the auditing needs of DOD are met, and raising the threshold (as well as making other modifications) to required submissions of certified cost and pricing data. Major Defense Acquisition Programs The FY2017 NDAA required major defense acquisition programs (MDAPs) to be designed and developed using "a modular open system architecture approach to enable incremental development and enhance competition, innovation, and interoperability." The open architecture requirements extend to major system interfaces and standards for use in major system platforms. The act also generally establishes the authority to conduct and establish funding for prototype projects when there is a high-priority warfighter need due to a capability gap, there is an opportunity to integrate new components into a major weapon system based on commercial technology, the technology is expected to be mature enough to prototype within three years, and there is an opportunity to reduce sustainment costs. In an effort to gain visibility into MDAPs and rein in cost growth, the FY2017 NDAA requires the Secretary of Defense to assign program cost and fielding targets to MDAPs before funds are obligated for development. It also requires that after each milestone decision, the milestone decision authority provide Congress with an "acquisition scorecard" that includes estimated cost, schedule, and technology risk information. Reflecting congressional concern with the sustainment and total life-cycle costs of MDAPs, the FY2017 NDAA required a number of DOD actions, including initiating a review by an independent entity to determine the extent to which sustainment is considered in acquisition decisions, and conducting sustainment reviews of programs five years after initial operational capability. The act also repealed chapter 144a of Title 10, which created a separate category of acquisition for major automated information systems (§846). The FY2018 NDAA also contained a number of provisions relating to MDAPs, including a provision excluding defense business systems and major automated information systems from the definition of an MDAP; and one prohibiting the use of an LPTA source selection process for development contracts. Other sections would add new requirements aimed at emphasizing reliability and maintainability in MDAPs, and focus on test and evaluation plans and data analysis. Commercial Items In the FY2016 NDAA, Subtitle E, Provisions Relating to Commercial Items , required the establishment of a centralized office to oversee commercial item determinations and authorizes a contracting officer to use a prior DOD commercial item determination to serve as the basis for such determinations for subsequent purchases of the same item. The act requires that prices previously paid by the government be considered when establishing price reasonableness. The act also contained sections aimed at reinforcing the existing statutory preference for buying commercial. Building on the FY2016 NDAA, the FY2017 NDAA included 10 provisions relating to commercial items, including requiring market research when determining price reasonableness, and encouraging and simplifying commercial acquisitions. The FY2018 NDAA further continued the trend to encourage and expand commercial items authorities. The FY2018 NDAA contained five sections relating to commercial items, including a requirement that GSA contract with multiple commercial online marketplaces and permit agencies to purchase commercial products from these marketplaces. Other sections clarify the definition of commercial items and commercial item determinations. Data Rights and Intellectual Property Rights to technical data developed in relation to government contracts have been a long-standing subject of debate between contractors and the government. The FY2016 NDAA set up an advisory panel to submit recommendations on amending regulations governing technical data in MDAPs. The FY2017 NDAA made a number of amendments to technical data rights, including giving DOD more authority to negotiate for data rights, and, in the case of interfaces developed exclusively at private expense, to require negotiations to determine the appropriate compensation for the technical data. The FY2018 NDAA required DOD to develop policy on the acquisition or licensing of intellectual property and establish a cadre of experts to assist in managing and acquiring intellectual property rights. Service Contracting The FY2017 NDAA limited the amount of funds allowable for staff augmentation contracts within OSD and the military department headquarters for FY2017 and FY2018. The FY2018 NDAA addressed contracts for services, including provisions aimed at improving data collection and analysis for contracts for services; creating standard guidelines for evaluating requirements for such contracts; and establishing a pilot program granting DOD authority to enter into up to five multiyear contracts for services, with each contract lasting for up to 15 years instead of the current limit of 5 years. Acquisition Workforce The FY2016-2018 NDAAs contained 17 provisions relating to the acquisition workforce. The FY2016 NDAA modified the Defense Acquisition Workforce Development Fund (DAWDF), required training on how to conduct market research, created a dual career track for acquisition and operational specialties, and clarified tenure requirements for program managers for MDAPs. The FY2017 NDAA expanded the use of DAWDF and made other adjustments to the fund and authorizes the position of senior military acquisition advisor, which is filled by presidential appointment, with the advice and consent of the Senate. The FY2018 NDAA required the implementation of a program manager development program, modifies the Secretary of Defense's authority to adjust DAWDF, and extends and expands the Acquisition Demonstration project pilot. The Changing Roles of the Chiefs and OSD in Acquisition Historically, the military services were responsible for virtually all aspects of acquisition and OSD played a limited role. In the early 1980s a number of major defense acquisition programs experienced dramatic cost overruns that increased the defense budget by billions of dollars but resulted in the production of the same number of, or in some cases fewer, weapons than originally planned. In 1985, President Ronald Reagan established the President's Blue Ribbon Commission on Defense Management, chaired by former Deputy Secretary of Defense David Packard. In 1986, the commission issued a final report that contained far-reaching recommendations "intended to assist the Executive and Legislative Branches as well as industry in implementing a broad range of needed reforms." The commission's work, and the recommendations found in the final report, led to the ultimate establishment of the office of the USD (AT&L). Creation of USD (AT&L) One of the recommendations of the Packard Commission was to create the position of Under Secretary of Defense (Acquisition) to "set overall policy for procurement and research and development (R&D), supervise the performance of the entire acquisition system, and establish policy for administrative oversight and auditing of defense contractors." The report stated that the motivation for establishing this position was as follows: Responsibility for acquisition policy has become fragmented. There is today no single senior official in the Office of the Secretary of Defense working full-time to provide overall supervision of the acquisition system.... In the absence of such a senior OSD official, policy responsibility has tended to devolve to the Services, where at times it has been exercised without the necessary coordination and uniformity. Worse still, authority for executing acquisition programs—and accountability for their results—has become vastly diluted. Later that year, Congress established the position of Under Secretary of Defense for Acquisition (renamed the Under Secretary of Defense for Acquisition and Technology in the FY1994 NDAA and finally the Under Secretary of Defense [AT&L] in the FY2000 NDAA). The Goldwater-Nichols Act further consolidated centralized civilian control over acquisitions within OSD, as did other acts enacted in subsequent years. Even with these changes, the service Chiefs retained influence over acquisitions. As GAO stated in 2014 (prior to the FY2016 NDAA): Existing policies and processes for planning and executing acquisition programs provide multiple opportunities for the service chiefs to be involved in managing acquisition programs and to help ensure programs meet cost, schedule, and performance targets. Whether the service chiefs are actively involved and choose to influence programs is not clear. Shifting Authority Back to the Chiefs and the Services In 2015, a number of analysts and officials, including former Deputy Secretary of Defense John Hamre (currently CEO of the Center for Strategic and International Studies), and then-Army Chief of Staff General Ray Odierno, called for reversing course and giving the services and the Chiefs more authority over acquisitions. John Hamre argued the following: No one assumes that the service chiefs are not responsible for weapon systems; they play a central role in establishing military requirements and resourcing decisions. Moreover, every time a program gets in trouble, it is the service chief who is called up for a grilling before Congress. Yet the service chief is not in the acquisition chain of command. We get in trouble in the Defense Department when authority and accountability are fractured. Giving the service chiefs responsibility for requirements and budgets but not acquisition makes no sense. Many other analysts took the opposite view, and the Obama Administration strongly objected to such changes, arguing that if enacted, they would reduce the Secretary of Defense's ability to guard against unwarranted cost optimism and prevent excessive risk-taking. The Senate initiated a number of provisions that enhanced the role of the Chiefs and the military services. Commenting on the provisions in the Senate version of the NDAA, the Statement of Administration Policy stated that if enacted, the Senate provisions would significantly reduce the Secretary of Defense's ability—through the Under Secretary of Defense for Acquisition, Technology and Logistics USD (AT&L)—to guard against unwarranted optimism in program planning and budget formulation, and prevent excessive risk taking during execution—all of which is essential to avoiding overruns and costly delays. Much of the substance of the provisions in the Senate bill was incorporated into the FY2016 NDAA. The FY2017 NDAA refined the swing back to the services and also initiated a large-scale reorganization of the office of the USD (AT&L), a reorganization that continued in the FY2018 NDAA. The FY2016 NDAA According to the joint explanatory statement accompanying the FY2016 NDAA, Section 802 was intended to "enhance the role of Chiefs of Staff in the defense acquisition process." The section opens with the policy statement that the purpose of defense acquisition is to "meet the needs of its customers in the most cost-effective manner practicable." The customer is defined as the military service with primary responsibility for fielding the system or systems acquired, represented by "the Secretary of the military department concerned and the Chief of the armed force concerned" with regard to major defense acquisition programs. Section 802 goes on to amend 10 U.S.C. 2547(a) by assigning the Chiefs the responsibility to assist the Secretary of the military department in making decisions regarding balancing resources and priorities, and associated trade-offs among cost, schedule, technical feasibility, and performance on major defense acquisition; and the management of career paths in acquisition for military personnel. Section 802 also required the Joint Requirements Oversight Council to "seek, and strongly consider, the views of the Chiefs of Staff of the armed forces" and for major defense acquisition programs, the Chiefs to advise the decision authority for Milestones A and B on cost, schedule, technical feasibility, and performance trade-offs. Section 825 requires that, generally, the service acquisition executive be the milestone decision authority for major defense acquisition programs. A number of other sections in the NDAA aim at strengthening the role of the services in acquisitions, including requiring the Milestone A and Milestone B decision authority to get concurrence on the cost, schedule, technical feasibility, and performance trade-offs of a program from the relevant service Secretary and Chief (§§823-824); requiring Configuration Steering Boards for major programs to ensure that the relevant Chief, in consultation with the service Secretary, "approves of any proposed changes that could have an adverse effect on program cost or schedule'' (§830); and giving the Chiefs a role in establishing policies on the development, assignment, and employment of the acquisition workforce (§842). This section does not include the future USD (A&S) in the chain of command in establishing such policies. The FY2017 NDAA and the Split of USD (AT&L) Responsibilities The FY2017 NDAA does not directly shift more acquisition authority to the military services. However, some of the sections in the bill could have the effect of adjusting acquisition authority in favor of the services. Section 901, while not directly affecting the balance of authority between OSD and the services, significantly affects OSD's role in defense acquisition. Most notably, the section breaks up AT&L into the USD (Research and Engineering) and USD (Acquisition and Sustainment, A&S). According to the conference report [t]hree broad priorities framed the conference discussions: (1) elevate the mission of advancing technology and innovation within the Department; (2) foster distinct technology and acquisition cultures to better deliver superior capabilities for the armed forces; and (3) provide greater oversight and management of the Department's Fourth Estate. Section 807 of the FY2017 NDAA requires that before funds are obligated for technology development, systems development, or production of an MDAP, the Secretary of Defense must establish goals for the milestone decision authority, including for cost, schedule, and technology maturation. Notably, the responsibility to establish these goals " may be delegated only to the Deputy Secretary of Defense . " Given that the decision authority is generally the service acquisition authority, and the requirement to set goals cannot be delegated below the Deputy Secretary of Defense, this section does not include the future USD (A&S) in the chain of command, potentially eroding the influence of the USD (A&S). A number of other sections in the NDAA appear to strengthen the role of the services in acquisitions, including the following: Requiring the Director of Operational Test and Evaluation to submit the annual report to the Secretaries of the military departments (§845). Previously, the annual report was submitted to the Secretary of Defense, USD (AT&L), and Congress. Granting the service acquisition authority the ability to waive tenure requirements in certain circumstances (§862). Previously, only the Secretary of Defense could do so. Authorizing the military departments to establish service-specific funds for acquisition programs using certain rapid fielding and prototyping authorities (§897). The FY2018 NDAA The FY2018 NDAA included a number of provisions conforming and clarifying the roles of USD (A&S). As it relates to MDAPs, the act also amended 10 U.S.C. 2547(b), requiring that the relevant service chief concur with the need for a material solution (as identified in the Material Development Decision Review); the cost, schedule, technical feasibility, and performance trade-offs before Milestone A is approved; the cost, schedule, technical feasibility, and performance trade-offs before Milestone B is approved; and the requirements, cost, and fielding timeline before Milestone C is approved. Appendix A. Title VIII Provisions in the FY2006-FY2018 NDAAs Appendix B. Title VIII Provisions in the FY2016-FY2018 NDAAs, by Subtitle Topic

Congress has long been interested in defense acquisition and generally exercises its legislative powers to affect defense acquisitions through Title VIII of the National Defense Authorization Act (NDAA), entitled Acquisition Policy, Acquisition Management, and Related Matters. Congress has been particularly active in legislating acquisition reform over the last three years. For FY2016-FY2018, NDAA titles specifically related to acquisition contained an average of 82 provisions (247 in total), compared to an average of 47 such provisions (466 in total) in the NDAAs for the preceding 10 fiscal years. This report provides a brief overview of selected acquisition-related provisions found in the NDAAs for FY2016 (P.L. 114-92), FY2017 (P.L. 114-328), and FY2018 (P.L. 115-91), including the following topics that were a focus of the legislation: Major Defense Acquisition Programs, the acquisition workforce, commercial items, Other Transaction Authority, and contract types. This report also discusses one of the more controversial and extensive legislative changes made in recent years affecting acquisition: the breakup of the office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, as well as the shift of authority from that office to the military departments.

Introduction Persons suspected of terrorist or criminal activity may be transferred from one State (i.e., country) to another to answer charges against them. The surrender of a fugitive from one State to another is generally referred to as rendition . A distinct form of rendition is extradition , by which one State surrenders a person within its territorial jurisdiction to a requesting State via a formal legal process, typically established by treaty between the countries. However, renditions may be effectuated in the absence of extradition treaties, as well. The terms "irregular rendition" and "extraordinary rendition" have been used to refer to the extrajudicial transfer of a person from one State to another, generally for the purpose of arrest, detention, and/or interrogation by the receiving State (for purposes of this report, the term "rendition" will be used to describe irregular renditions, and not extraditions, unless otherwise specified). Unlike in extradition cases, persons subject to this type of rendition typically have no access to the judicial system of the sending State by which they may challenge their transfer. Sometimes persons are rendered from the territory of the rendering State itself, while other times they are seized by the rendering State in another country and immediately rendered, without ever setting foot in the territory of the rendering State. Sometimes renditions occur with the consent of the State where the fugitive is located; other times, they do not. Besides irregular rendition and extradition, aliens present or attempting to enter the United States may be removed to another State under U.S. immigration laws, if such aliens are either deportable or inadmissible and their removal complies with relevant statutory provisions. Unlike in the case of rendition and extradition, the legal justification for removing an alien from the United States via deportation or denial of entry is not so that he can answer charges against him in the receiving State; rather, it is because the United States possesses the sovereign authority to determine which non-nationals may enter or remain within its borders, and the alien fails to fulfill the legal criteria allowing non-citizens to enter, remain in, or pass in transit through the United States. Although the deportation or exclusion of an alien under immigration laws may have the same practical effect as an irregular rendition (especially if the alien is subject to "expedited removal" under § 235 of the Immigration and Nationality Act, in which case judicial review of a removal order may be very limited), this practice is arguably distinct from the historical understanding of what constitutes a rendition. Nonetheless, the term "extraordinary rendition" has occasionally been used by some commentators to describe the transfer of aliens suspected of terrorist activity to third countries for the purposes of detention and interrogation, even though the transfer was conducted pursuant to immigration procedures. Over the years, several persons have been rendered into the United States by U.S. authorities, often with the cooperation of the States where such persons were seized, to answer criminal charges, including charges related to terrorist activity. The Obama Administration has continued this practice. Besides receiving persons through rendition, the United States has also rendered persons to other countries over the years, via the Central Intelligence Agency (CIA) and various law enforcement agencies. There have been no widely-reported cases of persons being rendered from the interior of the United States, perhaps due to the constitutional and statutory limitations upon the summary transfer of persons from U.S. territory. There have been cases where non-U.S. citizens were allegedly "rendered" at U.S. ports of entry but had yet to legally enter/be admitted into the United States. However, these "renditions" appear to have been conducted pursuant to immigration removal procedures. Noncitizens arriving at ports of entry have no recognized constitutional rights with regard to their admission into the United States, and federal immigration law provides arriving aliens with fewer procedural protections against their removal than aliens residing in the United States. Instead, it appears that renditions by the U.S. to third countries have involved non-citizens seized outside U.S. territory. The Supreme Court has found that the Constitution protects U.S. citizens abroad from actions taken against them by the federal government, and this would generally appear to limit the summary transfer of such persons to the custody of foreign governments. In contrast, noncitizens who have not entered the United States have historically been recognized as receiving few, if any, constitutional protections (though noncitizens in foreign locations over which the United States exercises significant control, such as Guantanamo Bay, Cuba, may be owed greater protections than other noncitizens abroad). Reportedly, the rendition of terrorist suspects to other countries was authorized by President Ronald Reagan in 1986 and has been part of U.S. counterterrorism efforts at least since the late 1990s. In testimony before the House Foreign Affairs Committee in April 2007, former CIA official Michael F. Scheuer claimed authorship of the CIA's rendition program and stated that it originally began in mid-1995. The initial goals of the rendition program, according to Scheuer, were to ensure the detention of Al Qaeda members posing a threat to U.S. security and to seize any documents in their possession. However, [a]fter 9/11, and under President Bush, rendered al-Qaeda operatives have most often been kept in U.S. custody. The goals of the program remained the same, although ... Mr. Bush's national security team wanted to use U.S. officers to interrogate captured al-Qaeda fighters. In a 2002 written statement to the Joint Committee Inquiry into Terrorist Attacks Against the United States, then-CIA Director George Tenet reported that even prior to the 9/11 terrorist attacks, the "CIA (in many cases with the FBI) had rendered 70 terrorists to justice around the world." The New York Times has reported that following the 9/11 attacks, President Bush issued a still-classified directive that broadened the CIA's authority to render terrorist suspects to other States. Although there are some reported estimates that the United States has rendered more than 100 individuals following 9/11, the actual number is not a matter of the public record. Controversy has arisen over the United States allegedly rendering suspected terrorists to States known to practice torture for the purpose of arrest, detention, and/or harsh interrogation. Critics charge that the United States has rendered persons to such States so that they will be subjected to harsh interrogation techniques prohibited in the United States, including torture. In 2009, an Italian court convicted 22 CIA operatives and a U.S. military colonel in absentia for their purported role in the irregular rendition of an Egyptian cleric from Italy to Egypt. The Italian Ministry of Justice apparently has yet to request the United States to extradite these persons so that they may serve their criminal sentences. The Bush Administration did not dispute charges that U.S. authorities rendered persons to foreign States believed to practice torture, but denied rendering persons for the purpose of torture. Answering a question regarding renditions in a March 16, 2005 press conference, President Bush stated that prior to transferring persons to other States, the United States received "promise[s] that they won't be tortured ... This country does not believe in torture." In testimony before the Senate Armed Services Committee in 2005, acting CIA Director Porter Goss stated that in his belief, "we have more safeguards and more oversight in place [over renditions] than we did before" 9/11. Secretary of State Condoleezza Rice stated that "the United States has not transported anyone, and will not transport anyone, to a country when we believe he will be tortured. Where appropriate, the United States seeks assurances that transferred persons will not be tortured." In January 2009, President Obama issued an Executive Order creating a special task force to review U.S. transfer policies, including the practice of rendition, to ensure compliance with applicable legal requirements. In August, the task force issued recommendations to ensure that U.S. transfer practices comply with applicable standards and do not result in the transfer of persons to face torture. These recommendations include strengthening procedures used to obtain assurances from a country that a person will not face torture if transferred there, including through the establishment of mechanisms to monitor the treatment of transferred persons. Little publicly available information from government sources exists regarding the nature and frequency of U.S. renditions to countries believed to practice torture, or the nature of any assurances obtained from them before rendering persons to them. To what extent U.S. agencies have legal authority to engage in renditions remains unclear. The only provision within the United States Code appearing to expressly permit an agency's participation in a rendition is 10 U.S.C. § 374(b)(1)(D), as amended in 1998, which permits the Department of Defense (DOD), upon request from the head of a federal law enforcement agency, to make DOD personnel available to operate equipment with respect to "a rendition of a suspected terrorist from a foreign country to the United States to stand trial." On the other hand, given that the United States has participated in renditions, there would appear to be legal limits on the practice, especially with regard to torture. This report describes the most relevant legal guidelines limiting the transfer of persons to foreign States where they may face torture, as well as recent legislation seeking to limit the rendition of persons to countries believed to practice torture. Limitations Imposed on Renditions by the Convention Against Torture and Implementing Legislation The U.N. Convention against Torture and Other Cruel, Inhuman, or Degrading Treatment or Punishment (CAT) and U.S. domestic implementing legislation impose the primary legal restrictions on the transfer of persons to countries where they would face torture. CAT requires signatory parties to take measures to end torture within territories under their jurisdiction, and it prohibits the transfer of persons to countries where there is a substantial likelihood that they will be tortured. Torture is a distinct form of persecution, and is defined for purposes of CAT as " severe pain or suffering ... intentionally inflicted on a person" under the color of law. Accordingly, many forms of persecution—including certain harsh interrogation techniques that would be considered cruel and unusual under the U.S. Constitution—do not necessarily constitute torture, which is an extreme and particular form of mistreatment. CAT also obligates parties to take measures to prevent "other acts of cruel, inhuman or degrading treatment or punishment which do not amount to torture," but this obligation only extends to acts occurring in territory under a State Party's jurisdiction. CAT also established the Committee against Torture, a monitoring body which has declaratory but non-binding authority concerning interpretation of the Convention. State parties are required to submit periodic reports to the Committee concerning their compliance with CAT. The United States ratified CAT in 1994, subject to certain declarations, reservations, and understandings, including that the Convention was not self-executing and therefore required domestic implementing legislation to take effect. The express language of CAT Article 2 allows for no circumstances or emergencies where torture could be permitted by Convention parties. On the other hand, a number of CAT provisions limiting the acts of Convention parties do not use language coextensive as that contained in CAT Article 2. The following paragraphs describe the relevant provisions of CAT and implementing statutes and regulations that restrict the rendition of persons to countries when there is a substantial likelihood that such persons will be tortured. As will be discussed below, while CAT imposes an absolute prohibition on the use of torture by Convention parties, the plain language of certain CAT provisions may nevertheless permit parties in limited circumstances to transfer persons to countries where they would likely face torture, though such an interpretation arguably conflicts with the intent of the treaty. CAT Limitation on the Transfer of Persons to Foreign States for the Purpose of Torture46 CAT Article 3 provides that no State Party "shall expel, return ('refouler') or extradite a person to another State where there are substantial grounds for believing that he would be in danger of being subjected to torture." The U.S. ratification of CAT was contingent on its understanding that this requirement refers to situations where it would be "more likely than not" that a person would be tortured if removed to a particular country, a standard commonly used by U.S. courts when determining whether to withhold an alien's removal for fear of persecution. It is important to note that CAT does not prohibit a State from transferring a person to another State where he or she would likely be subjected to harsh treatment that, while it would be considered cruel and unusual under the standards of the U.S. Constitution, would nevertheless not be severe enough to constitute "torture." Domestic Implementation of CAT Article 3 The Foreign Affairs Reform and Restructuring Act of 1998 (FARRA) implemented U.S. obligations under CAT Article 3. Section 2242 of the act announced the U.S. policy "not to expel, extradite, or otherwise effect the involuntary return of any person to a country in which there are substantial grounds for believing the person would be in danger of being subjected to torture, regardless of whether the person is physically present in the United States ." The act further required all relevant federal agencies to adopt appropriate regulations to implement this policy. In doing so, however, Congress opened the door for administrative action limiting CAT protection by requiring that, "to the maximum extent consistent" with Convention obligations, regulations adopted to implement CAT Article 3 exclude from their protection those aliens described in § 241(b)(3)(B) of the Immigration and Nationality Act (INA). INA § 241(b)(3)(B) acts as an exception to the general U.S. prohibition on the removal of aliens to countries where they would face persecution (which may or may not include actions constituting torture). An alien may be removed despite the prospect of likely persecution if the alien: assisted in Nazi persecution or engaged in genocide; ordered, incited, assisted, or otherwise participated in the persecution of an individual because of the individual's race, religion, nationality, membership in a particular social group, or political opinion; having been convicted of a particularly serious crime, is a danger to the community of the United States; is strongly suspected to have committed a serious nonpolitical crime outside the United States prior to arrival; or is believed, on the basis of reasonable grounds, to be a danger to the security of the United States. Thus far, however, U.S. regulations concerning the removal of aliens and extradition of fugitives have prohibited the removal of all persons to States where they would more likely than not be tortured, regardless of whether they are described in INA § 241(b)(3)(B). CIA regulations concerning renditions (i.e., renditions where a person is seized outside the United States and transferred to a third country) are not publicly available. Nevertheless, such regulations would presumably need to comply with the requirements of FARRA. The Role of Diplomatic Assurances in Transfer Decisions U.S. regulations implementing CAT Article 3 permit the consideration of diplomatic assurances in removal/extradition decisions. Pursuant to removal and extradition regulations, a person subject to removal or extradition may be transferred to a specified country that provides diplomatic assurances to the Secretary of State that the person will not be tortured if removed there. Such assurances must be deemed "sufficiently reliable" before a person can be transferred to a country where he or she would otherwise more likely than not be tortured. Although DOD has not promulgated regulations implementing CAT Article 3, diplomatic assurances are also used by military authorities when determining whether to transfer a person from U.S. military detention at Guantanamo Bay, Cuba. Assurances have also reportedly been used in rendition decisions made by the CIA . The Washington Post reported in 2005 that the CIA Office of General Counsel required the CIA station chief in a given country to obtain verbal assurances from that country's security service that a person will not be tortured if rendered there. Such assurances would then reportedly be cabled to CIA headquarters before the rendition may occur. In August 2009, a special task force created by the Obama Administration to review U.S. interrogation and transfer policies recommended that the State Department be involved in the evaluation of assurances in all cases. CAT Article 3 itself (as opposed to U.S. regulations implementing CAT) provides little guidance as to the application of diplomatic assurances to decisions to transfer a person to another country. Although CAT Article 3 obligates signatory parties to take into account the proposed receiving State's human rights record, it also provides that the proposed sending State should take into account "all relevant considerations" when assessing whether to remove an individual to a particular State. A State's assurances that it will not torture an individual would appear to be a "relevant consideration" in determining whether or not it would be appropriate to render him there, at least so long as the assurances are accompanied by a mechanism for enforcement. Article 3 does not provide guidelines for how these considerations should be weighed in determining whether substantial grounds exist to believe a person would be tortured in the proposed receiving State. In its second periodic report to the Committee against Torture, the United States claimed that it: obtains assurances, as appropriate, from the foreign government to which a detainee is transferred that it will not torture the individual being transferred. If assurances [are] not considered sufficient when balanced against treatment concerns, the United States would not transfer the person to the control of that government unless the concerns are satisfactorily resolved. On the other hand, the Committee against Torture has expressed concern over the use of diplomatic assurances by the United States. In 2006, it made a non-binding recommendation that the United States: should only rely on "diplomatic assurances" in regard to States which do not systematically violate the Convention's provisions, and after a thorough examination of the merits of each individual case. The State party should establish and implement clear procedures for obtaining such assurances, with adequate judicial mechanisms for review, and effective post-return monitoring arrangements. In addition, the United States has an obligation under customary international law to execute its Convention obligations in good faith, and is therefore required under international law to exercise appropriate discretion in its use of diplomatic assurances. For instance, if a State consistently violated the terms of its diplomatic assurances, the United States would presumably need to look beyond the face of such promises before permitting the transfer of an individual to that country. Criminal Penalties for Persons Involved in Torture One of the central objectives of CAT is to criminalize all instances of torture, regardless of whether they occur inside or outside a State's territorial jurisdiction. CAT Article 4 requires signatory States to criminalize all instances of torture, as well as attempts to commit and complicity or participation in torture. While CAT does not necessarily obligate a State to prevent acts of torture beyond its territorial jurisdiction, State Parties are nevertheless required to criminalize such acts and impose appropriate penalties. CAT Article 5 establishes minimum jurisdictional measures that each State Party must adopt with respect to offenses described in CAT Article 4. A State Party to CAT must establish jurisdiction over CAT Article 4 offenses when: the offenses are committed in any territory under its jurisdiction or on board a ship or aircraft registered in that State; the alleged offender is a national of that State; the victim was a national of that State if that State considers it appropriate; or the alleged offender is present in any territory under its jurisdiction and the state does not extradite him in accordance with CAT Article 8, which makes torture an extraditable offense. In order to fulfill its obligations under CAT Articles 4 and 5, the United States enacted §§ 2340-2340B of the United States Criminal Code, which criminalize torture occurring outside the United States. Jurisdiction occurs when the alleged offender is either a national of the United States or is present in the United States, irrespective of the nationality of the victim or alleged offender. Congress did not enact legislation expressly prohibiting torture occurring within the United States, as it was presumed that such acts would "be covered by existing applicable federal and [U.S.] state statutes," such as those statutes criminalizing assault, manslaughter, and murder. The Federal Torture Statute criminalizes torture, as well as attempts and conspiracies to commit torture. The Federal Torture Statute provides that the specific intent of the actor to commit torture is a requisite component of the criminal offense. Specific intent is "the intent to accomplish the precise criminal act that one is later charged with." This degree of intent differs from general intent, which usually "takes the form of recklessness (involving actual awareness of a risk and the culpable taking of that risk) or negligence (involving blameworthy inadvertence)." Application of CAT and Implementing Legislation to the Practice of Extraordinary Renditions Although the express intent of CAT was to help ensure that no one would be subjected to torture, it is arguably unclear as to whether CAT would in all circumstances bar renditions to countries that practice torture, including possibly in certain cases where the rendering State was aware that a rendered person would likely be tortured. Clearly, it would violate U.S. criminal law and CAT obligations for a U.S. official to conspire to commit torture via rendition, regardless of where such renditions would occur. However, it is not altogether clear that CAT prohibits the rendering of persons seized outside the United States, or whether criminal sanctions would apply to a U.S. official who authorized a rendition without intending to facilitate the torture of the rendered person (as opposed to, for instance, the harsh mistreatment of the rendered person to a degree not rising to the level of torture). Renditions from the United States CAT Article 3 clearly prohibits the rendition of persons from the territory of a signatory State to another State when there are substantial grounds for believing the person would be tortured. Even if it could be technically argued that renditions do not constitute "extraditions" within the meaning of CAT Article 3, and the rendition was to a country other than one where the person previously resided (meaning that the person was not being "returned" to a country where he would risk torture), such transfers would still violate the Convention's requirement that no State Party "expel" a person from its territory to another State where he is more likely than not to be tortured. If the United States were to receive diplomatic assurances from a State that it would not torture a person rendered there, and such assurances were deemed sufficiently credible, the rendition would not facially appear to violate either CAT Article 3 or domestic implementing legislation. U.S. regulations permit the use of assurances in removal and extradition decisions, and CAT does not discuss their usage. As mentioned previously, however, the United States is obligated to execute its CAT obligations in good faith, and therefore must exercise appropriate discretion in its use of diplomatic assurances. If a State consistently violated the terms of its diplomatic assurances, or the United States learned that a particular assurance would not be met, the United States would presumably need to look beyond the face of such promises before permitting the transfer of an individual to that country. Again, neither CAT nor U.S. implementing regulations prohibit the United States from transferring persons to States where they would face harsh treatment—including treatment that would be prohibited if carried out by U.S. authorities—that does not rise to the level of torture. Indeed, the United States could conceivably render a person to a State after receiving sufficient diplomatic representations that the rendered person could be accorded cruel and inhumane treatment not rising to the level of torture without violating CAT or CAT-implementing regulations. Renditions from Outside the United States As mentioned earlier, while CAT Article 2(2) provides that there are "no ... circumstances whatsoever" allowing torture, certain other CAT provisions do not use language coextensive in scope when discussing related obligations owed by Convention parties. While CAT Article 3 clearly limits renditions from the United States, it is not altogether certain as to what extent CAT applies to situations where a country seizes suspects outside of its territorial jurisdiction and directly renders them to another country. Extraterritorial Application of CAT Article 3 The territorial scope of CAT Article 3 is a matter of debate. As a general matter, the United States has taken the position that human rights treaties "apply to persons living in the territory of the United States, and not to any person with whom agents of our government deal in the international community." In 2006, representatives of the U.S. State Department informed the CAT Committee Against Torture that the United States does not believe CAT Article 3 applies to persons outside U.S. territory. However, these representatives also claimed that as a matter of policy, the United States accords CAT Article 3 protections to all persons in U.S. custody, regardless of whether such persons were found in U.S. territory. In congressional testimony in June 2008, State Department Legal Advisor John Bellinger testified that the view that CAT Article 3 did not apply to extraterritorially has "been the long-standing legal position[] of the United States since the Convention against Torture was ratified in 1994." Although the scope of human rights treaties may generally be limited to conduct occurring within the territorial jurisdiction of parties, it seems clear that at least some CAT provisions are extraterritorial in scope. Most notably, CAT Articles 4-5 require parties to criminalize all acts of torture, regardless of where they occur. Indeed, the Federal Torture Statute implementing this obligation expressly covers torture occurring "outside the United States." Although several CAT provisions limit their scope to acts occurring "in any territory under [the State Party's] jurisdiction," CAT Article 3 does not contain a similar limiting provision. Accordingly it could be argued that, like CAT Articles 4-5, CAT Article 3 is intended to be extraterritorial in scope. Nevertheless, it could still be argued that the express provisions of CAT Article 3 do not apply to extraordinary renditions occurring outside the United States, at least so long as the person is not rendered to a country where he has formerly resided. Article 3 states that no party shall "expel, return ('refouler') or extradite a person" to a country where there are substantial grounds to believe that he or she will be tortured. It could be argued, however, that certain extraterritorial renditions are not covered by this provision. Seizing a person in one country and transferring him to another would arguably not constitute "expelling" the person, if a State is understood only to be able to "expel" persons from territory over which it exercises sovereign authority. So long as these persons were rendered to countries where they had not previously resided, it also could not be said that the United States "returned" these persons to countries where they faced torture (though persons rendered to countries where they had previously resided would presumably be protected under CAT Article 3). In addition, if such renditions were not executed via a formal process, it could be argued they did not constitute extraditions for the purposes of Article 3. Accordingly, it could be argued that the United States would not violate the express language of Article 3 if it rendered persons to countries where they faced torture, so long as no part of these renditions occurred within the territorial jurisdiction of the United States. Critics of this view might argue that such a narrow interpretation of CAT Article 3 would contradict the Convention's over-arching goal to prevent torture. The fact that CAT requires parties to take legal steps to eliminate torture within their respective territories and to impose criminal penalties on torture offenders, coupled with the Convention's statement that "no exceptional circumstances whatsoever" can be used to justify torture, arguably imply that a State Party may never exercise or be complicit in the use of torture, even when it occurs extraterritorially. It could be further argued that the drafters of CAT did not explicitly discuss extraterritorial renditions because they were either not contemplated or, in cases where such renditions might occur absent the consent of the hosting country, because these actions were arguably already understood to be impermissible under international law. Indeed, some of the drafters of CAT have taken the position that Article 3 was "intended to cover all measures by which a person is physically transferred to another State." Opponents of a narrow interpretation of CAT would likely argue that it is contrary to the purpose of CAT to interpret the Convention as prohibiting formal transfers of persons to States where they face torture while still allowing such transfers through irregular rendition. In 1994, the CAT Committee against Torture declared in a non-binding opinion that Article 3 prevents not only the return of a person to a country where he or she is in danger of being tortured, but also prohibits the person's transfer to "any other country where he runs a real risk of being expelled or returned to [his or her country of origin] or of being subjected to torture." More recently in 2006, the Committee urged the United States to "apply the non-refoulement guarantee [of CAT Article 3] to all detainees in its custody, cease the rendition of suspects, in particular by its intelligence agencies, to States where they face a real risk of torture, in order to comply with its obligations under article 3 of the Convention." Extraterritorial Application of Legislation Implementing CAT Article 3 Beyond CAT, it is important to note that, given the express language of CAT-implementing legislation, the United States cannot "expel, extradite, or otherwise effect the involuntary return of any person to a country in which there are substantial grounds for believing the person would be in danger of being subjected to torture, regardless of whether the person is physically present in the United States ." It may be argued that this express statutory language prohibits renditions from outside the United States, even if such renditions would not otherwise be in violation of CAT obligations. Two possible counter-arguments could be made to this position, at least in certain circumstances. The first and perhaps most compelling counter-argument is that although FARRA generally prohibits persons from being expelled, extradited, or involuntarily returned regardless of whether the person is physically present in the United States, section 2243(c) of the act makes an exception requiring federal agencies to exclude from the protection of CAT-implementing regulations any aliens who, inter alia , are reasonably believed to pose a danger to the United States, "to the maximum extent [such exclusions are] consistent" with CAT obligations. Accordingly, presuming for the sake of argument that CAT does not protect persons believed to be security dangers from being rendered from outside the United States, FARRA would require such persons to be excluded from the protection of any CAT-implementing regulations as well. A second counter-argument is that the clause "regardless of whether the person is physically present in the United States" should be read only in reference to the prohibition contained in the CAT-implementing legislation upon the "involuntary return" of persons to countries where they would more likely than not be tortured, and not be read in reference to the prohibition on the extradition or expulsion of persons. CAT Article 3 obligates States not to "expel, return ('refouler') or extradite a person" to a State where he would be at substantial risk of torture. The principle of non-refoulement is commonly understood to prohibit not simply the exclusion of persons from the territory of the receiving State, but also a State from "turning back" persons at its borders and compelling their involuntary return to their country of origin. Unlike CAT Article 3, CAT-implementing legislation enacted by the United States does not use the term "refouler." However, its use of the phrase "involuntary return ... regardless of whether the person is physically present in the United States" appears to reflect the principle of non-refoulement expressed in CAT. It could be argued that the use of the phrase "regardless of whether the person is physically present in the United States" in CAT-implementing legislation was only intended to be read in reference to the "involuntary return" phrase that precedes it (a reading that reflects the non-refoulement obligation imposed by CAT), and not meant also to be read in reference to the prohibition imposed upon the expulsion and extradition of persons to countries where they would likely face torture, as this alternative reading would arguably go beyond the non-refoulement obligations imposed upon the United States by the express language of CAT. Regardless of whether renditions that occur outside of the United States are covered under CAT Article 3 and CAT-implementing legislation and regulations, CAT Article 4 and corresponding domestic law criminalizing all acts of torture and complicity therein would be controlling. Accordingly, U.S. officials could not conspire with officials in other States to render a person so that he would be tortured. As discussed below, however, criminal penalties may not necessarily attach to a person who renders another with the knowledge that he will likely be tortured. Criminal Sanctions for Participation in Torture CAT Article 4 and the Federal Torture Statute do not expressly prohibit the transfer of a person to a State where he is more likely than not to face torture. Indeed, the Federal Torture Statute only imposes criminal penalties for acts or attempts to commit torture and, most relevantly to the subject of renditions, conspiracies to commit torture. Clearly, if a U.S. official rendered a person to another country with instructions for the country to torture the rendered individual, that official could be criminally liable under the Federal Torture Statute. However, it appears unlikely that a U.S. official would be found criminally liable for conspiracy to commit torture if he authorized a rendition after receiving assurances that the rendered person would not be tortured. It is generally understood that a conspiracy to commit a crime requires an agreement between parties for a common purpose. Presuming that the United States received assurances before rendering a person to another country, it would be difficult to argue that the official "agreed" to facilitate the rendered person's subsequent torture. Other Statutes and Treaties Relevant to the Issue of Renditions Although CAT and its implementing legislation provide the primary legal constraints upon the rendition of persons to countries believed to engage in torture, other treaties and statutes are also potentially relevant. The following paragraphs briefly discuss a few of them. 1949 Geneva Conventions In certain situations, the 1949 Geneva Conventions may impose limitations on the use of renditions separate from those imposed by CAT. Each of the four Conventions accords protections to specified categories of persons in armed conflict or in post-conflict, occupied territory. The torture, or inhumane or degrading treatment of persons belonging to specified categories—including civilians and protected prisoners of war (POWs)—is expressly prohibited by the Conventions. In addition, "[n]o physical or moral coercion shall be exercised against protected [civilians], in particular to obtain information from them or from third parties." The Geneva Conventions impose limitations on the transfer of protected persons. Civilians may not be forcibly (as opposed to voluntarily) transferred to another State. A violation of this obligation represents a "grave breach" of the relevant Geneva Convention and therefore constitutes a war crime. However, it is not a violation of the Geneva Conventions to extradite such persons, in compliance with extradition treaties concluded before the outbreak of hostilities, who are charged with ordinary criminal law offenses. Neither civilians nor protected POWs may be transferred to penitentiaries for disciplinary punishment. In addition, persons protected by the Conventions may only be transferred to other Convention parties, and then only after the transferring Power "has satisfied itself of the willingness and ability of such transferee Power to apply the Convention." If the transferee Power fails to abide by the Convention in any important respect (e.g., torturing a transferred person), upon notification the transferring Power is required to either request their return or "take effective measures to correct the situation." Accordingly, in order to comply with its Convention obligations, the United States may only render a protected person if (1) the State to which the person was being rendered was a member of the Convention; (2) the United States had received assurances that the person would not be tortured if rendered there; and (3) the United States requested the return of the rendered person or took other effective measures if the rendered individual was subsequently tortured. In the case of armed conflicts that are not of an international character and occur in the territory of a High Contracting Party, each party is obligated under Article 3 of each of the 1949 Geneva Conventions (Common Article 3) to accord de minimis protections to "[p]ersons taking no active part in the hostilities, including members of armed forces who have laid down their arms and those placed hors de combat by sickness, wounds, detention, or any other cause." Parties are required to treat such persons "humanely," and are prohibited from subjecting such persons to "violence to life and person ... mutilation, cruel treatment and torture ... [and] [o]utrages upon personal dignity, in particular humiliating and degrading treatment." As mentioned previously, the Geneva Conventions apply in limited circumstances. Besides only applying in armed conflict or in post-conflict occupied territory, the Conventions also only protect designated categories of persons (though other persons may nevertheless be owed certain protections under customary laws of war). At least since early 2002, the Bush Administration took the position that the Geneva Conventions did not apply to members of Al Qaeda. Reportedly, the Administration also concluded that the Geneva Convention prohibition on the "forcible transfer" of civilians did not apply to "illegal aliens" who entered Iraq following the U.S.-led invasion, or bar the temporary removal of persons from Iraq for the purposes of interrogation. In the 2006 case of Hamdan v. Rumsfeld , the Supreme Court held that, at a minimum, Common Article 3 of the Geneva Conventions applied to the armed conflict with Al Qaeda and accorded Al Qaeda members certain minimal protections, even if such persons were not otherwise covered by other Convention provisions (i.e., those covering "lawful combatants" and civilians in conflicts between States). Common Article 3 does not expressly prohibit the transfer of persons to other countries, even if such persons might face cruel treatment or torture there. Some have argued that Common Article 3 nevertheless prohibits renditions committed to facilitate the rendered person's torture or cruel treatment. However, it is unclear whether this interpretation is proper or that it would cover all renditions to countries where the detainee would face torture or cruel treatment (e.g., when the rendering country does not request the torture or cruel treatment of the detainee by the party to which he is rendered). For purposes of U.S. law, however, it does not appear that Common Article 3 has been understood to cover renditions of persons to countries where they might face torture. The Military Commissions Act of 2006 (MCA, P.L. 109-366 ), which was signed into law on October 17, 2006, provides that for purposes of U.S. law it is generally a violation of Common Article 3 to engage in conduct (1) inconsistent with the Detainee Treatment Act of 2005, which prohibits "cruel, inhuman, or degrading treatment" of persons in U.S. custody or control; or (2) subject to criminal penalty under provisions of the War Crimes Act, as amended, concerning "grave breaches" of Common Article 3. Under this standard, torture and cruel treatment would only be considered a violation of Common Article 3 in cases where the victim was in the custody or control of the United States , not in circumstances where the victim was transferred to the custody and control of a third-party and was subsequently treated harshly. As discussed in the following paragraph, however, this standard might still prohibit U.S. personnel from rendering a person covered by Common Article 3 if they have conspired with the receiving party to intentionally cause the transferee serious bodily injury. War Crimes Act The War Crimes Act imposes criminal penalties upon U.S. nationals or Armed Forces members who commit listed offenses of the laws of war. Persons who commit applicable war crimes are potentially subject to life imprisonment or, if death results from such acts, the death penalty. War crimes include "grave breaches" of the Geneva Conventions, such as torture of protected POWs or civilians and the "unlawful deportation or transfer or unlawful confinement" of protected civilians, as well as certain violations of Common Article 3. As discussed previously, following the Supreme Court's ruling in Hamdan , it is understood as a matter of U.S. law that Common Article 3 covers the conflict with Al Qaeda and accords Al Qaeda members captured in that armed conflict with certain protections. Accordingly, certain forms of treatment with respect to Al Qaeda members is subject to criminal penalty, including torture, certain lesser forms of cruel treatment, and the intentional infliction of serious bodily injury. Although the War Crimes Act imposes criminal penalties for conspiring to subject protected persons to torture or cruel treatment, such persons must be in the offender's custody or control. Accordingly, the provisions of the War Crimes Act covering torture and cruel treatment do not appear to cover the rendition of persons to countries for the purpose of cruel treatment or torture (though any U.S. personnel who conspired with officials in other States to render a person so that he would be tortured could still be prosecuted under the Federal Torture Statute). However, the War Crimes Act may be interpreted as prohibiting some renditions. As amended by the MCA, the War Crimes Act expressly prohibits persons from conspiring to commit such acts as rape, mutilation or maiming, or causing "serious bodily injury" against persons protected by Common Article 3. A person may be subject to criminal penalty for these offenses regardless of whether the victim was in his custody or control. Accordingly, any U.S. personnel who conspire with officials in other States to render a person so that he would be subjected to serious bodily injury, rape, or sexual assault would appear to be subject to criminal liability under the War Crimes Act. As a practical matter, it is unclear whether the War Crimes Act would prohibit renditions in any circumstance not already prohibited under the Federal Torture Statute. International Covenant on Civil and Political Rights Article 7 of the International Covenant on Civil and Political Rights (ICCPR), ratified by the United States in 1992, prohibits the State Parties from subjecting persons "to torture or to cruel, inhuman, or degrading treatment or punishment." The Human Rights Committee, the monitoring body of the ICCPR, has interpreted this prohibition to prevent State Parties from exposing "individuals to the danger of torture or cruel, inhuman or degrading treatment or punishment upon return to another country by way of their extradition, expulsion or refoulement ." Although the Committee is charged with monitoring the compliance of parties with the ICCPR and providing recommendations for improving treaty abidance, its opinions are not binding law. U.S. ratification of the ICCPR was contingent upon the inclusion of a declaration that the treaty's substantive obligations were not self-executing (i.e., to take effect domestically, they require implementing legislation in order for courts to enforce them, though U.S. obligations under the treaty remain binding under international law). The United States also declared that it considered Article 7 binding "to the extent that 'cruel, inhuman or degrading treatment or punishment' [prohibited by ICCPR Article 7] means the cruel and unusual treatment or punishment prohibited by the Fifth, Eighth, and/or Fourteenth Amendments to the Constitution of the United States." The United States has not enacted laws or regulations to comply with the Human Rights Committee's position that ICCPR Article 7 prohibits the transfer of persons to countries where they would likely face torture or cruel, inhuman, or degrading treatment. CAT-implementing regulations prohibit the transfer of persons to countries where they would more likely than not face torture , but not cruel, inhuman, or degrading treatment that does not rise to the level of torture. Universal Declaration of Human Rights The U.N. Charter provides that it is the duty of the United Nations to promote "universal respect for, and observance of, human rights and fundamental freedoms," and Member States have an obligation to work jointly and separately to promote such rights and freedoms. In 1948, the U.N. General Assembly adopted the Universal Declaration of Human Rights, to explicate the "human rights and fundamental freedoms" that Member States were obliged to protect. The Universal Declaration prohibits, inter alia , the arbitrary arrest, detention, or exile of persons, as well as torture and cruel, inhuman, or degrading treatment. The Universal Declaration is not a treaty and accordingly is not technically binding on the United States, though a number of its provisions are understood to reflect customary international law. The Universal Declaration does not include an enforcement provision. Recent Developments On January 22, 2009, President Barack Obama issued a series of Executive Orders concerning the treatment of persons apprehended by the United States in connection with armed conflicts or counterterrorism operations. The Orders do not expressly modify U.S. rendition policy, though one Order does mandate the closure of all CIA detention facilities, some of which were used to hold persons seized by the United States in other locations. However, two of the Orders create separate task forces charged with reviewing aspects of U.S. detention policy, including the transfer of detainees to foreign States. The Executive Order entitled "Ensuring Lawful Interrogations" establishes a Special Interagency Task Force on Interrogation and Transfer Policies, which is charged with reviewing the practices of transferring individuals to other nations in order to ensure that such practices comply with the domestic laws, international obligations, and policies of the United States and do not result in the transfer of individuals to other nations to face torture or otherwise for the purpose, or with the effect, of undermining or circumventing the commitments or obligations of the United States to ensure the humane treatment of individuals in its custody or control. Another Executive Order, entitled "Review of Detention Policy Options," creates a Special Task Force on Detainee Disposition, which is required to conduct a comprehensive review of the lawful options available to the Federal Government with respect to the apprehension, detention, trial, transfer, release, or other disposition of individuals captured or apprehended in connection with armed conflicts and counterterrorism operations, and to identify such options as are consistent with the national security and foreign policy interests of the United States and the interests of justice. Each Task Force was required to issue a report to the President of its recommendations within 180 days, unless the Task Force chair determined that an extension was appropriate. In July, the Chairman of the Special Task Force on Interrogation and Transfer Polices extended the deadline for the Task Force's final report by two months, while the deadline for the Special Task Force on Detainee Disposition was extended by six months. On August 24, 2009, the Special Task Force on Interrogation and Transfer Polices issued its recommendations to the President, including with respect to the practice of rendition. These included recommendations to ensure that U.S. transfer practices comply with applicable legal requirements and do not result in the transfer of persons to face torture. The Task Force supported the continued use of assurances from a receiving country that an individual would not face torture if transferred there. However, the Task Force made recommendations intended to strengthen the procedures used in obtaining and evaluating such assurances. These include involving the State Department in evaluating assurances in all cases. The Task Force advised that relevant agencies obtaining assurances should "insist on a monitoring mechanism, or otherwise establish a monitoring mechanism, to ensure consistent, private access to the individual who has been transferred, with minimal advance notice to the detaining government." The Task Force also recommended that the Inspectors General of the Departments of State, Defense, and Homeland Security prepare an annual, coordinated report on transfers which were effectuated in reliance on assurances and were conducted by each of their agencies. The Task Force made specific recommendations with respect to immigration removal proceedings and military transfer decisions. Classified recommendations were also made to ensure that, in the event that the Intelligence Community participates in a transfer, any affected individual is subjected to lawful treatment. In the 110 th Congress, legislative proposals were introduced to limit the ability of U.S. agencies to render persons to foreign States, and it is possible that similar proposals will be introduced in the 111 th Congress. S. 1876 , the National Security with Justice Act of 2007, introduced by Senator Biden on July 25, 2007, would have barred the United States from rendering or participating in the rendition of any individual to a foreign State absent authorization from the Foreign Intelligence Surveillance Court, except under limited circumstances in the case of enemy combatants held by the United States (though renditions in such circumstances would still have to comply with other legal requirements). For an order to be issued by the Foreign Intelligence Surveillance Court authorizing a rendition, the requesting U.S. official would have needed to provide evidence that the rendered person was (1) an international terrorist; and (2) would not be subjected to torture or lesser forms of cruel, inhuman, or degrading treatment—a more stringent limitation on the transfer of persons than that expressly imposed by CAT Article 3, which only bars the transfer of persons to countries where they would face torture. H.R. 1352 , the Torture Outsourcing Prevention Act, introduced by Representative Markey on March 6, 2007, would have required the State Department to provide annual reports to appropriate congressional committees regarding countries where there are substantial grounds for believing that torture or cruel, inhuman, or degrading treatment is commonly used in the detention or interrogation of individuals. Generally, persons could not be transferred to such countries, whether through rendition or some other process. This prohibition could be waived by the Secretary of State in limited circumstances, including, at a minimum, when continuing access to each such person was granted to an independent humanitarian organization. Written or oral assurances made to the U.S. government would have been deemed insufficient to demonstrate that a person would not face torture or cruel, inhuman, or degrading treatment if rendered to a particular State.

Persons suspected of criminal or terrorist activity may be transferred from one State (i.e., country) to another for arrest, detention, and/or interrogation. Commonly, this is done through extradition, by which one State surrenders a person within its jurisdiction to a requesting State via a formal legal process, typically established by treaty. Far less often, such transfers are effectuated through a process known as "extraordinary rendition" or "irregular rendition." These terms have often been used to refer to the extrajudicial transfer of a person from one State to another. In this report, "rendition" refers to extraordinary or irregular renditions unless otherwise specified. Although the particularities regarding the usage of extraordinary renditions and the legal authority behind such renditions are not publicly available, various U.S. officials have acknowledged the practice's existence. During the Bush Administration, there was controversy over the use of renditions by the United States, particularly with regard to the alleged transfer of suspected terrorists to countries known to employ harsh interrogation techniques that may rise to the level of torture, purportedly with the knowledge or acquiescence of the United States. In January 2009, President Obama issued an Executive Order creating a special task force to review U.S. transfer policies, including the practice of rendition, to ensure compliance with applicable legal requirements. In August, the task force issued recommendations to ensure that U.S. transfer practices comply with applicable standards and do not result in the transfer of persons to face torture. These recommendations include strengthening procedures used to obtain assurances from a country that a person will not face torture if transferred there, and the establishment of mechanisms to monitor the treatment of transferred persons. This report discusses relevant international and domestic law restricting the transfer of persons to foreign states for the purpose of torture. The U.N. Convention against Torture and Other Cruel, Inhuman, or Degrading Treatment or Punishment (CAT), and its domestic implementing legislation (the Foreign Affairs Reform and Restructuring Act of 1998) impose the primary legal restrictions on the transfer of persons to countries where they would face torture. Both CAT and U.S. implementing legislation generally prohibit the rendition of persons to countries in most cases where they would more likely than not be tortured, though there are arguably limited exceptions to this prohibition. Historically, the State Department has taken the position that CAT's provisions concerning the transfer of persons do not apply extraterritorially, though as a matter of policy the United States does not transfer persons in its custody to countries where they would face torture (U.S. regulations and statutes implementing CAT, however, arguably limit the extraterritorial transfer of individuals nonetheless). Under U.S. regulations implementing CAT, a person may be transferred to a country that provides credible assurances that the rendered person will not be tortured. Neither CAT nor its implementing legislation prohibits the rendition of persons to countries where they would be subject to harsh treatment not rising to the level of torture. Besides CAT, additional obligations may be imposed upon U.S. rendition practice via the Geneva Conventions, the War Crimes Act (as amended by the Military Commissions Act (P.L. 109-366), the International Covenant on Civil and Political Rights (ICCPR), and the Universal Declaration on Human Rights. Legislation was introduced in the 110th Congress to limit or bar U.S. participation in renditions. It is possible that similar legislation will be proposed in the 111th Congress.

About This Report Amidst concerns about college affordability, and suggestions that increases in student aid may help to fuel college price increases, numerous congressional requesters have asked for a product that examines what is actually known about the relationship between student aid and college prices. This report has been undertaken in response to those requests. The report approaches this topic by examining trends in college prices and student aid, examining explanations for why college prices are increasing, and then focusing on one particular explanation—the notion that increases in student aid may lead to increases in the prices charged by colleges and universities. The layout of the report is as follows. The first section provides an introduction to concepts related to college costs and prices. The next section presents data on the extent to which prices have increased at colleges and universities in the past decade, considering multiple measures of price, and comparing those increases to rates of inflation. This is followed by an examination of trends in student aid. The next section of the report presents an overview of many possible explanations for price increases. After the overview of these competing explanations, one explanation is focused on—the possibility that increases in student aid may lead to college price increases. This is examined through a review of primary studies undertaken in the last decade that attempt to isolate the effects of increases in student aid on prices. Introduction to Concepts Related to Price and Cost Few domestic social policy issues have received as much attention in recent years as rising college prices. Scarcely a month goes by without a major publication raising concerns about the sustainability of price increases or about potential consequences that may result from the debt being assumed by students to pay for college. College affordability in light of increasing prices has been the focus of many legislative proposals, congressional hearings, and recent presidential initiatives. Ensuring access to affordable higher education is a priority for many federal policy makers. In part this stems from a desire to ensure the economic wellbeing of individuals, but beyond the benefits that education provides to individuals, education is valued for its contributions to the vitality of the labor force overall, and as such, is often viewed as an important component of economic policy. In addition to having an interest in college affordability for the aforementioned reasons, federal policy makers tend to be attentive to the issue as stewards of a large investment in programs designed to promote postsecondary attendance. The federal government plays the primary role in supporting direct aid to postsecondary students, supporting roughly $170 billion, or 71% of such aid, in the most recent academic year for which data are available. Given that federal policy makers oversee a large investment in this area, they have a natural interest in understanding the efficacy of the federal aid programs that collectively aim to promote postsecondary access, attainment, and affordability. The efficacy of the federal financial aid effort has been called into question by some lately as suggestions have surfaced that federal aid may be helping to fuel college prices. In considering some of these issues, a starting place is examining changes in college prices. The first challenge with regard to examining college pricing, however, is determining the appropriate measure of price to track. Defining Cost and Price In considering how much it costs for students to attend college, it is important to understand the difference between college costs from the institution's perspective and prices for the student. In literature on college costs and prices the term cost generally refers to what institutions spend to provide education and educational-related services to students. College costs are supported through a mix of government appropriations, endowment revenue, payments from students, and in some instances through other revenue sources. An important consideration when examining college costs and prices is that only a portion of college costs are covered through student payments, the remainder is thought of as a subsidy. College prices commonly refer to what students or families are asked to pay for higher education. The primary focus of this report is changes in college prices—although college costs are discussed frequently, particularly in relation to the role they may play in affecting how colleges determine prices. Colleges publish prices known as list prices delineating the applicable charges to students paying full price for items such as tuition and fees, and room and board. While colleges post list prices they also engage in fairly extensive discounting of those prices on the basis of factors such as students' financial need or merit. Because colleges publish a list price, but in actuality do not ask all students to pay a common price, and because many governmental subsidies are available to help defray the actual price that students pay, a variety of terms are used to distinguish between published prices and the prices that are actually paid by students net of certain types of subsidies and discounts. Perhaps the most commonly used term to depict actual prices students are paying is net price , which generally refers to the amount a student pays net of grant and scholarship aid. When considering affordability from the perspective of the student, for instance, many would argue that it is more helpful to track changes in net price as opposed to the published price. A complication, however, is that annual data on list prices are readily available, while comprehensive historical data on net price are not, making it harder to systematically track net price trends. Prices can also be examined from the perspective of the institution. If, for instance, the actual prices institutions set for students are the focal point of an examination, measures of the effective price being charged after institutional discounting is accounted for may be reported. A commonly reported figure depicting this is net tuition rev enue , which reflects the average tuition revenue per full time equivalent (FTE) student received by institutions after institutional discounts are subtracted. Adding to the complexity of the topic, when college prices are discussed, still other distinctions are commonly made. For example, another distinction can be made between the price charged for only tuition and required fees and the other components that make up a student's total cost of attendance . A student's total cost of attendance may include charges for tuition and fees, and also charges for other components such as room and board, transportation expenses, books, supplies, and other expenses. It is often viewed as important when presenting trends for prospective students to display the price associated with the total cost of attendance for academic years, in addition to the price associated exclusively with tuition and fees. Moreover, eligibility for federal student aid programs is typically determined based, in part, on a student's total cost of attendance. Therefore, any measure of college price could include other expenses associated with the student's cost of attendance during the year. Measures of net price are usually based upon the students' full cost of attendance, whereas measures of net tuition are usually based upon the charges associated with tuition and fees. Figure 1 depicts net price for students and net tuition revenue per FTE student for institutions of higher education (IHEs), which in addition to list price tend to be commonly reported measures of price. Institutional Considerations A Focus on Public and Private Nonprofit Institutions This report primarily focuses on four-year public and private nonprofit institutions of higher education. Together they serve roughly half of the student population enrolled in degree-granting institutions. The decision to focus on these institutions is a pragmatic one. Much of the report examines research and literature seeking to explain college price increases, and that work typically concentrates on this set of institutions. Price increases at this set of institutions also tend to be the focus of much of the affordability debate. Broad Differences in Reliance on Tuition Revenue and in Pricing Practices at Public and Private Nonprofit Institutions Four-year public and private nonprofit institutions typically receive a lot of the attention in the policy discourse on college price increases. While there are substantial variations within each of these institutional sectors in the roles different institutions play and in the ways prices are established, some fundamental differences exist across the sectors that bear highlighting. Public colleges and universities are state subsidized institutions that have historically aimed to provide affordable higher education options for state residents in particular. State tuition levels are established by legislatures, statewide coordinating/governing agencies, and/or by coordinating/governing boards for individual state systems. Although certain entities have primary tuition-setting authority in many states, tuition setting processes are described as consultative multi-step processes including input from the governor, legislature, colleges, and coordinating/governing boards. While many factors are taken into consideration when setting tuition levels, the share of the expense associated with providing education that is to be assumed by the students versus the broader base of taxpayers is often a central consideration in these deliberations. Where private nonprofit colleges and universities are concerned, tuition revenue typically plays the primary role in covering costs. As such prices are heavily relied upon to ensure revenues are sufficient to cover educational expenses. Private institutions are reported to typically consider a variety of factors such as revenue needs and prices at peer institutions when setting list prices, and as needed they use "tuition discounting" as a strategy to help make sure they meet enrollment and revenue needs. Tuition discounting has been characterized as the "art and science of establishing the net price of attendance for students at amounts that will maximize tuition revenue while achieving certain enrollment goals." In effect, through discounting private colleges and universities employ a pricing practice that economists call "price discrimination," which means charging different consumers a different price for the same product. Prices are set on the basis of the consumers' ability or willingness to pay more for a product, or based on factors such as how valued a certain type of customer or business is. Tuition discounting at private nonprofit colleges and universities is a long-standing and prevalent practice. These price discounts can be used to fill seats that would otherwise go unoccupied, to enhance the academic profile of an institution, to make it possible for lower income students to attend an institution, or to compete for financially desirable students who may be weighing other options. Roughly three out of five students at private nonprofit four-year colleges and universities receive a discount. From an institutional perspective, this can be examined in terms of "discount rates." Discount rates are a measure of the institution-wide percentage reduction in tuition revenue stemming from the award of institutional grant aid. At private nonprofit four year institutions discount rates range from 27% to 36%, depending on the type of institution. At public institutions, list prices are more indicative of the effective prices colleges and universities are asking students to pay. Nonetheless, public colleges and universities also engage in tuition discounting for many of the same reasons that private institutions do. While not as prevalent at public institutions, price discounting is still a fairly widespread practice, benefitting roughly one out of five students. At public four-year institutions, discount rates range from 12% to 18%, depending on the type of institution. In addition to this mode of price differentiation, at public institutions prices are differentiated in another way as well. This is through the separate tuition levels that are established for in-state and out-of-state students. Out-of-state tuition can be set at higher levels to generate more tuition revenue for institutions, and within limitations associated with their roles as state supported institutions, some institutions may also have the latitude to boost their shares of nonresident students to enhance tuition revenues by expanding the number of students paying higher prices. Hence at both public and private nonprofit institutions myriad factors affect how prices are established, and in both sectors there is price differentiation across students. It is not possible to describe the pricing practices employed within varied types of schools in each sector in fine detail, but in broad terms it is possible to identify basic characteristics of these approaches and some basic differences in pricing practices across institutional sectors. As the report segues into an examination of trends in price, examining multiple measures of price, it may be useful to keep in mind some of these fundamental ways in which public and private nonprofit institutions may differ. Examining Recent Trends in Prices and Student Aid Recent Trends in College Prices List or Published Prices It is commonly reported that in recent decades college prices have consistently increased at rates that have outpaced inflation. In truth, examining price increases is not a totally straightforward exercise. A complication in assessing price increases stems from variations in the ways a diverse set of colleges and universities establish prices for different students. One way to examine price increases is to look at the list prices established by institutions. While list price may not be the most informative measure of price it is probably the most ubiquitous measure reported, particularly with regard to price trends. As discussed earlier, the list or published price is the amount listed by institutions that a student will be charged before taking into account any grant aid. However, in academic year 2011-2012, approximately 59.1% of all undergraduates received some form of grant aid, effectively reducing the list price. That said, high list prices grab headlines and often receive substantial attention from prospective students and at times are the focus of policy debates. One way to examine trends in list prices is to look at whether price increases for postsecondary education are outpacing some measure of inflation. That is, do annual percentage increases in list prices exceed annual percentage increases in inflation? Any such increase that exceeds the inflation rate can be viewed as an increase that "outpaces" inflation. One common measure of inflation is the Consumer Price Index for All Urban Consumers (CPI-U). Although alternative measures of inflation have been developed to account for the inflationary factors that may uniquely affect college expenditures, some economists believe these measures are inherently flawed. Figure 2 illustrates how changes in the list price for tuition, fees, and room and board (i.e., cost of attendance) have outpaced inflation over the last decade. Because prices at IHEs vary by sector (e.g., four-year public, four-year private, nonprofit) due to different operating and financial structures, Figure 2 shows a trend line for both four-year public and four-year private, nonprofit IHEs. Moreover, Figure 2 depicts changes in the list price for cost of attendance (COA) for undergraduate students who enroll full-time and choose to room and board on campus. Specifically, Figure 2 shows the following: From academic years 2000-2001 to 2011-2012, increases in the average COA at both types of IHEs outpaced inflation in each year. The average annual increase above inflation at four-year public IHEs was 3.5%; whereas, the average annual increase above inflation at four-year private, nonprofit IHEs was 2.4%. In academic year 2003-2004, the average COA at four-year public IHEs outpaced inflation by 6.8%, the largest increase during the time period measured for both types of IHEs. Despite a small decline in the CPI-U during academic year 2009-2010, the average COA increased by 5.3% at four-year public IHEs and 3.7% at four-year private IHEs. Annual changes in the COA at four-year private, nonprofit IHEs appear to be less volatile than those at four-year public IHEs. One possible reason for this is that four-year private, nonprofit IHEs are not dependent on state appropriations to help pay for costs and may, in part, determine prices based on enrollment and endowment spend-out targets. Net Price Institutions engage in varied types of price discounting through the award of institutional grants and scholarships. Typically this takes the form of merit (e.g., academic, athletic, artistic) or need based aid. In the 2011-2012 academic year, the most recent year for which nationally representative data on student aid packages are available, approximately 20% of all undergraduates spanning all institution types received institutional grants averaging $6,400. In addition to the discounting done by institutions themselves, federal, state, and outside grants and scholarships help to lower the out-of-pocket costs for students. Thus when considering changes in college prices over time, if affordability is the central concern it is useful to consider changes in net price as well. As discussed earlier and shown in Figure 1 , net price is the price IHEs charge students after all grant and scholarship assistance is taken into account, or subtracted out. In essence, net price represents the actual price students and their families need to pay out of their own pockets (including loans) to attend college. One source for identifying trends in net price is the National Postsecondary Student Aid Study (NPSAS), although new data from NPSAS are available only in four-year intervals. The latest year for which NPSAS data are available is academic year 2011-2012. NPSAS provides detailed information on many aspects of a student's budget and aid package, and net price can be constructed by looking at the out-of-pocket price a student pays after grant and scholarship aid is subtracted from the total student budget. Although veteran's benefits and federal tax benefits also reduce the price a student ultimately pays, the most consistent cross-year definition of net price available in NPSAS does not subtract these benefits from a student's budget. Therefore, the NPSAS definition used below to examine changes in net prices subtracts only grant aid from a student's budget to arrive at a net price. Using data in NPSAS, Table 1 shows the average net price in 2011 constant dollars at four-year public and four-year private, nonprofit IHEs for AY1999-2000, AY2003-2004, AY2007-2008, and AY2011-2012. Some key points from Table 1 include the following: Across the 12-year time period between AY1999-2000 and AY2011-2012, the average net price at four-year public IHEs exceeded inflation by 23.7% and at four-year private, non-profit IHEs by 23.9%. The largest increase in the average net price at four-year public IHEs, 7.60%, occurred during the recent four-year time period between AY2007-2008 and AY2011-2012. At four-year private, nonprofit IHEs, the largest increase was 10.61%, between AY2003-2004 and AY2007-2008. Given that net price data are only available at four-year intervals, it is difficult to generate possible explanations for why net prices increased at a higher rate in either sector during any particular interval. Another source for net price information that is worthy of mention is the Integrated Postsecondary Education Data System (IPEDS). As part of the Higher Education Opportunity Act of 2008 ( P.L. 110-315 ; HEOA), the U.S. Department of Education (ED) is required to make publicly available on its College Navigator website information about the average net price of each postsecondary institution that participates in Title IV federal student aid programs. ED calculates average net price from data provided in an institution's annual submission to IPEDS and is generated by subtracting the average amount of federal, state/local government, or institutional grant and scholarship aid from the total cost of attendance. ED populates the online College Affordability and Transparency Center with average net price by institution each year to meet the requirements established in the HEOA. While the net price amounts provided in the online College Affordability and Transparency Center are informative, the average net price is only calculated for full-time, first-time degree/certificate-seeking undergraduates who were awarded grant or scholarship aid from the federal government, state/local government, or the institution. As a result, net price information is excluded for a significant number of postsecondary students when calculating the average net price listed in the College Affordability and Transparency Center. Moreover, the omission of students who were not awarded some type of grant aid may lead to misleading averages. Net Tuition Revenue Another way of looking at net college prices and the role of institutional grant aid in discounting prices is to evaluate certain components of tuition revenue received by institutions net of institutional discounts. Examining net price through this lens is a shift from viewing net price from an individual student's perspective. It places the focus on the net amount received by the institution per FTE student, in effect making the institution the unit of analysis. Using available data this approach also focuses on revenue received for charges related to tuition and fees only, as other revenue generated from charges for room, board, and other operations that provide services to students (and may be considered part of a student's cost of attendance) are reported in a separate revenue category as part of the annual IPEDS reporting requirements for institutions. The National Center for Education Statistics (NCES) recently released a database called IPEDS Analytics: Delta Cost Project Database 1987-2010 that provides researchers with several multi-year panel datasets of matched institutions that meet certain panel requirements, allowing for a more stable comparison of institutional characteristics across multiple years. Using this dataset, it is possible to compare changes in average net tuition revenue at the same institutions on a FTE student basis. As discussed earlier, n et tuition revenue is the total revenue received at an institution from tuition and fees that is received in the form of federal and state grant and loan aid and direct payments by students. Net tuition revenue would not include institutional grant aid. Put simply, it reflects the average tuition revenue per FTE student received by institutions after institutional discounts are subtracted. Using data calculated by CRS from the IPEDS Analytics: Delta Cost Project Database 1987-2010 , Table 3 shows the average net tuition revenue at IHEs by Carnegie sector in constant 2010 dollars for academic years 1999-2000 to 2009-2010 on a FTE student basis. Some of the key points shown by Table 3 include the following: At public bachelor IHEs, the average net tuition revenue increased by 59% from AY1999-2000 to AY2009-2010, after adjusting for inflation. By comparison, the average net tuition revenue at private, nonprofit bachelor IHEs increased by 24% during the same time period. Across the AY1999-2000 to AY2009-2010 period, after adjusting for inflation, average net tuition revenue at public IHEs, depending on Carnegie Classification, increased annually by an average of 4.49%–4.79%. At private, nonprofit IHEs, after adjusting for inflation, average net tuition revenue increased annually on average by 1.70%–2.17%, depending on Carnegie Classification. Increases in net tuition revenue were the largest at public IHEs during the period from AY2002-2003 to AY2004-2005. This period also corresponds to a period of decline from state appropriations for higher education, although federal aid available to students during this time did not significantly increase. Overall, the changes across the AY1999-2000 to AY2009-2010 period suggest that public IHEs may be relying on more revenue from the student (i.e., less institutional grant aid) during a period of decline in state appropriations for higher education. Changes in Price Spanning Different Measures of Price The examination of recent trends in college prices yields myriad results, depending on how price is defined, the source of the data, and the assumptions behind the methodology. The various trends in college prices presented above, however, share something in common: each price measure, regardless of source or definition, outpaced inflation. This trend is not limited to the last decade. In fact, if the trend line for four-year public institutions in Figure 2 , which depicts the average annual percentage change in the published COA compared to the average change in inflation, is expanded to include the period from AY1991-1992 to AY2011-2012, it would show that the published COA outpaced inflation, on average, by 3% each year. Furthermore, during the period from AY1990-1991 to AY1999-2000, published COA outpaced inflation at four-year public institutions each year, on average, by 2.2%. At four-year private institutions, published COA outpaced inflation, on average, by 2.4% each year between AY1990-1991 and AY1999-2000 and 1.9% each year, on average, from AY1991-1992 to AY2011-2012. Recent Changes in Student Aid This section of this report has examined changes in various college prices. The remainder of the report explores a series of possible explanations for college price increases, examining most closely the relationship between student aid and college price increases. It is thus useful to briefly highlight recent changes in student aid. Using data provided in The College Board's 201 3 Trends in Student Aid , Table 3 shows annual changes in selected types of average student aid per FTE undergraduate student in constant 2012 dollars from AY2002-2003 to AY2012-2013. Table 3 shows changes in student aid that both reduce the net price for students (e.g., average grant aid and average federal education tax benefits) and do not reduce the net price for students (e.g., average federal student loan aid). Some of the key points shown by Table 3 include the following: Average grant aid per FTE undergraduate student has increased by 57% from AY2002-2003 to AY2012-2013, after adjusting for inflation. Over that same time period, after adjusting for inflation, loan aid and federal tax benefits per FTE have increased by 44% and 132%, respectively. Average grant aid per FTE increased substantially (23%) in AY2009-2010, even after adjusting for inflation. This large increase is likely due to the substantial increase in Pell Grant aid in AY2009-2010. This corresponds with large boosts in loan aid and tax benefits per FTE in AY2008-2009 and AY2009-2010, which align with enacted expansions in loan limits on federal student loans and with the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 , ARRA) provisions expanding the value and availability of higher education tax credits. After adjusting for inflation, the annual changes in average aid per FTE student for the types of aid examined were more volatile (sometimes escalating by large increments and sometimes declining from year to year) than were the changes in prices under any of the measures of price presented in this report. This suggests that the aid and prices are moving in the same direction but can change in a manner that varies significantly from one another from year to year. If the trends in aid are examined for an additional decade somewhat similar patterns are found for loan and tax benefits. A year or two of large escalations in aid per FTE student (corresponding with a large change in benefits or introduction of new benefits) is followed by a period of little change or declining year to year value in aid per FTE student in constant dollars. For grants, periods of year to year growth ranging from 3% to 8% surround a four-year period of relatively small growth or decline in aid per FTE student in constant dollars. During this preceding decade, after adjusting for inflation, the annual changes in average aid per FTE student for the types of aid examined were generally more volatile than were the changes in prices under available measures of price. Over the decade, however, aid and prices moved in the same direction. Explanations for Price Increases Price increases likely result from a confluence of many factors. Student aid increases are theorized to be one factor contributing to price increases. This relationship is the primary focus of this report. To situate this relationship among the many others possibly affecting college prices, the next section of this report examines a broad range of explanations for rising prices. Some of these explanations are the focus of considerable empirical study, others are derived from economic principles, and still others are generated by authors intimately familiar with institutional practices. It is beyond the scope of this report to assess the evidence base for each of these explanations. Rather these explanations are offered to provide a sense of the factors researchers must consider when trying to isolate the effects of any single relationship on price, and to provide some context for interpreting any research on college prices. There are myriad factors thought to be playing some role in contributing to the escalation of college prices. Some of the factors stem from forces that are external to colleges and universities, whereas others may be related to internal institutional practices and decisions. Inflation Inflation refers to the increase in the cost of living over time. Economy-wide, the cost of goods and services rises over time, historically by an average of roughly 3.3%, and over the last couple of decades by roughly 2.4%, per year. Like any other productive endeavor, colleges are affected by this. As colleges incur more costs associated with heating and air conditioning buildings, purchasing insurance or technology, or maintaining their physical plant, these costs are passed on to consumers. However, the portion of college price increases that have garnered the most attention is the increment above the rate of inflation. Cost Disease The "cost disease" thesis was introduced to the higher education discourse by William J. Baumol and William G. Bowen in the mid-1960s and has subsequently been extended and updated by several authors. It argues that wages increase more rapidly in service industries that are labor intensive and primarily reliant on highly educated workers than they do elsewhere in the economy. Some studies have documented the trend in higher education and other service fields such as law, medicine, investment counseling, and fields reliant on actuaries and statisticians. Supporters of this theory suggest that outsized labor costs are largely responsible for the increased cost of providing education, which gets passed on to students through price increases. Under this paradigm, these industries are afflicted by a "cost disease" because the principal service they provide is a limited-scale interaction between service provider and recipient and altering provider/recipient ratios is presumed to reduce the quality of the service. Likewise it is believed to be unlikely that the industries can become much more productive by substituting capital or technology for labor as is possible in many other industries. At its heart the cost disease thesis is an opportunity cost argument, suggesting that as wages rise economy-wide, higher education has to pay higher wages to stay competitive in attracting and retaining high-skill workers. This in turn becomes a major driver of increases in college costs, and ultimately in prices charged to students. Demand A basic economic principle is that when there is limited supply of a good, high levels of demand drive up prices. Even though college prices have increased at rates well above inflation in recent decades, more students have continued to enroll in colleges during that time period. Over the last few decades, the population of students enrolled in four-year institutions of higher education has gone from 7.6 million in 1980 to 13.3 million in 2010. The share of the traditional college age population (18-24 year olds) attending four-year institutions has gone from 18.6% to 28.2% over that same time period. If the total enrollment trends are examined, spanning two-year institutions as well, enrollment over that time period went from 12.1 million to 21.0 million and the share of 18-24 year olds enrolled in college went from 25.7% to 41.2%. One explanation for the strength of consumer demand is the earnings premium associated with college degrees. The U.S. Census Bureau has constructed synthetic work-life earnings estimates by educational attainment. Even when controlling for other demographic factors predicted to influence earnings, educational attainment is the most important factor for predicting earnings. In the aggregate, expected earnings over a 40-year time period for the population aged 25 to 64 who are employed full-time, year-round the entire time are $2.4 million for individuals with a bachelor's degree, compared to $1.4 million for individuals with a high school degree only. While it may not be the case that all types of educational investments result in a good return, a desire to receive higher earnings and expand career opportunities is clearly strong motivation to pursue a college education. Because of the value of the skills and knowledge imparted in college and the value of the degree itself, which serves as a prerequisite for many positions, colleges are selling a product that has great economic value to consumers. As credentialing institutions, colleges are selling a product many consumers believe is essential for their personal economic success. As such, the demand for the product has been very durable, or inelastic, and this may not place pressure on institutions to provide services in a more cost-effective manner. Declining State Appropriations and Endowments Postsecondary education is financed through a mix of government appropriations, gift and endowment revenue, and payments for tuition and fees. In recent years, prior to, during, and after the recession there have been reductions on a per-student basis in state subsidies to public institutions of higher education. Over the 25-year period spanning 1986-2011, state appropriations for higher education increased from $57.7 billion to $74.2 billion in constant (inflation adjusted) dollars. However, these increases did not keep pace with boosts in enrollment, and on a per student basis education appropriations declined by 21.6%, going from $8,025 to $6,290 in constant dollars. When the state contribution per student has declined (or failed to keep pace with growth in enrollment), the institutions generally have relied more heavily on tuition revenues. This is reflected in trends in net tuition revenue, which comprised 23.2% of total revenues for public institutions in 1986 and 43.3% in 2011. Contributions to schools from endowments also fluctuate. While data are more limited on these contributions, available data suggest that in recent years the share of endowment funds used to support college operations is relatively stable, but the size of the endowments can fluctuate—moving up or down—in accordance with market conditions. Declining revenues from these sources have led some colleges to rely more heavily on tuition revenue and look to price increases to meet their costs. Revenue Theory The "revenue theory" thesis, introduced by Howard Bowen, suggests that internal institutional decisions play an important role in raising costs of higher education. This in turn affects price. Bowen suggests that institutions of higher education are principally focused on educational excellence, prestige, and influence, and that there do not seem to be many strict limits on the amount institutions are willing to spend in support of these aims. He further suggests that each institution raises as much money as it can, and spends all it raises. In effect, Bowen notes "the cost of any institution is largely determined by the amount of revenue it can raise." A take away point from the Bowen thesis is that colleges are principally focused on educational excellence and on enhancing the educational experience of students; they are not focused on efficiency. While a focus on academic excellence may yield many benefits for individuals and society, it may also help explain growth in spending at institutions. Scholarships and Other Forms of Discounting A growing area of spending for colleges is on institutional student aid. While initially more of a private college phenomenon, institutional aid has been growing at public colleges as well. In the 2011-2012 academic year, the most recent year for which nationally representative data on student aid packages are available, approximately 20% of all undergraduates spanning all institution types received institutional grants averaging nearly $6,400. At public four-year institutions 21% of students received institutional grants averaging nearly $4,100, and at private, nonprofit four-year institutions 58% of students received institutional grants averaging roughly $13,200. Looked at from an institutional spending perspective, $32.8 billion was spent on undergraduate institutional aid across all types of institutions in academic year 2011-2012. Spending on scholarships and other forms of institutional discounting may contribute to increases in the prices encountered by some students. It has been widely reported that one strategy that is used to help offset the cost of discounting prices for targeted students is charging higher prices to other students with greater ability and willingness to pay more. Some have identified this as a potential cyclical problem. As list price becomes higher and more students need scholarships, more discounting is done for targeted students to keep net price more affordable for them, placing a particular burden on and further escalating the price for those who pay list price or close to it. Higher Price Signals Higher Quality Some researchers and administrators believe that institutions have an incentive to publish high prices given the perception that a high price is associated with a higher-quality product. It is often reported that institutions are attentive to the prices established by peer institutions, and it has also been noted that many colleges feel it is not beneficial to be the low price point. Inherent in this line of thought is the notion that students prefer purchasing a high-quality product, and a higher price can signal a higher-quality product. This is sometimes referred to as a "Chivas Regal effect," whereby consumers choosing between products tend to think the higher-priced one is superior. Colleges embracing this notion may be inclined to set prices accordingly. They may also be inclined to believe that students prefer a high-priced product while receiving a discount (e.g., a grant) to purchasing a product with a lower sticker price. This is theorized to be a factor that may be motivating colleges to raise list prices, which affects those who pay list price, and depending on how well accompanying discounts offset list price increases, may affect net price for a broader population of students. Productivity Critiques of practices, decisions, and organizing and governance structures at colleges are commonplace in literature on college costs and prices. Among the topics regularly identified are smaller than may be necessary class size and teaching loads, reluctance to seriously examine efficiencies that may accompany better uses of technology in instruction, tenure policies, faculty governance, a plurality of missions, and having multiple relatively independent constituencies and ineffective central control of costs. There seem to be a lack of studies that look closely at productivity or cost effective practices, but it is often posited that inefficient work processes and governance structures add to the cost of providing education and thereby play a role in price increases. Product Bundling Some critiques raise questions about the "full service model" that colleges offer to students. These critiques suggest that amenities such as manicured lawns, state of the art dining halls, and residential and exercise facilities; intercollegiate athletic programs and arenas; and student enrichment activities collectively comprise a bundle of offerings, many of which may not be essential to the educational experience, and the bundling of these products may be helping to drive up prices. Some go further, suggesting an educational model consisting of faculty involvement in both the production and transmission of knowledge may constitute a bundled product and it may be unnecessary for as much subsidy to be devoted to time spent by faculty on research and publication across a broad range of institutions. Embedded in these critiques is the notion that it is difficult for consumers to bypass a bundled product to purchase just the services they seek. The bundle that is offered may be comprised of nonessential components that are driving up prices. Some suggest that it is the nonessential components in particular that may be driving up prices. Bennett Hypothesis Federal higher education policy, since the enactment of the Higher Education Act of 1965, has been principally focused on promoting college access and affordability through the provision of direct aid to students. Questions over the extent to which this aid actually makes college more affordable have been raised at various intervals since the HEA policies have been in effect. Often these questions arise when concerns about college prices have received a good deal of attention. The general issue that is raised was popularized by former Secretary of Education William Bennett in a 1987 New York Times op-ed titled "Our Greedy Colleges." Bennett wrote that student aid policies "enabled colleges and universities blithely to raise their tuitions, confident that federal loan subsidies would cushion the increase." Further, he noted that "Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible." The general thesis forwarded by Bennett has come to be called the "Bennett Hypothesis." Whether or not its current use is a literal, precise depiction of the original thesis, the "Bennett Hypothesis" label is commonly used to represent the notion that increases in student aid may have the unintended consequence of leading to price increases. Considering Student Aid as a Possible Explanation for College Price Increases As noted in the introduction of this report, it has been undertaken in response to a series of questions from congressional offices about the effects of student aid on college prices. These questions have come in different forms, and have been raised with increasing frequency in recent years. It is useful to devote some attention to the differing nature of these questions prior to examining how empirical research addresses them. Unraveling Questions about the Effects of Student Aid on College Prices Generally speaking, two lines of inquiry are reflected in the questions CRS receives. One set of questions focus on recipients of aid . These questions are typically raised in the context of a possible increase in a type of aid that is intended to enhance college affordability (e.g., grants), and there is a desire to know whether recipients of the aid are likely to realize the reduction in net price that is intended. Another set of questions focuses more broadly on whether there is evidence that increases in varied types of aid may inflate college prices. Here the focus can be on any type of aid, including aid that does not aim to reduce net price (e.g., loans), and the emphasis is placed on a likely institutional price response that may affect a broad group of students, including those who are targeted by the aid as well as those who are not. For research to address these questions the focus is not exclusively on prices faced by recipients of the aid. Each type of question is discussed in relation to federal aid programs in a little more depth below. Is the Full Value of an Increase in Aid Likely to Be Realized by Aid Recipients? An initial concern, when policy makers contemplate increasing the amount of aid made available to targeted populations if the aid is intended to enhance affordability for such students by lowering their net price, tends to focus on the likelihood that the full value of an increase will be realized by the aid recipients. That is, policy makers want to know if the aid strategy will have the intended effect of lowering net price for the targeted population by the targeted amount or not. This question arises because it is understood that colleges establish different prices for different students and out of concern that colleges may enjoy pricing power (i.e., the ability to raise prices without destabilizing demand). Hence there is concern that colleges may act to capture part of an increase in aid, resulting in a lower than intended reduction in net price for recipients. Aid could be captured by increasing prices, or by allowing the increased federal aid to replace institutional aid that would have otherwise been available to the student, thus preventing the student from fully realizing the gain in purchasing power intended by the aid increase. Will an Increase in Aid Have the Unintended Effect of Broadly Increasing Prices? Another concern often expressed by policy makers pertains to whether increases in aid may actually fuel price increases. This concern centers on whether the availability of additional student aid revenue signals colleges that an opportunity may exist to increase spending or prices or to rely more heavily on tuition revenue to cover costs. When this concern arises, it is generally assumed price increases could affect students targeted by the aid as well as students who are not. Questions about a potential broad effect on prices are commonly raised with regard to many types of aid. This is considered below with regard to a few of them. Perhaps most commonly these issues surface with regard to loan aid. Loan aid is not explicitly focused on lowering net price for student borrowers. That is, it would not be expected that a $2,000 boost in loan limits would reduce the student's net price. Rather this aid is intended to facilitate students' and families' abilities to finance postsecondary education. For loans, questions tend to be focused on possible unintended effects of making large amounts of low-cost capital broadly available, which may signal colleges that more tuition revenue is potentially available. This could lead to more spending by colleges or heavier reliance on tuition revenue, each of which might result in price increases for students whether or not they are taking out loans. Tax credits are the focus of many similar inquiries. They also are available to a broad range of students and families at varying income levels. Unlike loans, tax credits are intended to offset a student or family's tuition outlays, but they too are broadly targeted and concerns arise that they may provide enough broadly available assistance to result in institutional price responses. Federal grants tend to be more narrowly targeted, concentrated on high-need students. Where grants are concerned, questions pertaining to unintended effects of grant increases on the price for all students (i.e., including those students not receiving the grants) do arise, but often as a second-level question. Focus is often placed on whether desired gains in purchasing power will be realized by grant recipients or compromised by institutional behavior, as discussed in the first question, immediately above. For aid designed to cover the student's cost of attendance completely (e.g., various forms of GI bill benefits), concerns arise that the promise by the government to meet students' full costs could provide incentive for institutions to elevate prices. Similar questions arose in the past when in order to realize the maximum value of a Pell Grant or tax credit some four-year institutions would need to charge more than they were charging and it was suggested that the ability to yield the full amount of available Pell aid by increasing charges might provide incentive to do so. The breadth of targeting (or number of recipients per institution) may be an especially important consideration with regard to potential unintended effects of this style of aid, which may or may not be available to a very small proportion of students at an institution. As this report moves into a review of studies examining the effects of aid increases on prices, it will initially discuss their alignment with the policy questions CRS receives, in terms of the types of aid they study, and the extent to which studies focus on prices for individuals targeted by the aid versus the broad effect on prices. Subsequently, the report will discuss the consistency and direction of their findings. Review of Studies Examining the Relationship between Federal Aid and College Prices Identification of Studies Over the last decade, a relatively small number of studies have sought to investigate the potential causal link between college prices and financial aid. To identify studies CRS searched primary databases for educational and social science research and literature as well as bibliographies and references from relevant literature and existing reviews of research. In the search and ultimately in the review for this report, CRS included published studies or working papers that were presented after the year 2000. It did not include secondary sources, correlational examinations, dissertations, or descriptive models that seek to fit existing data. It included primary sources in which the authors employed a quasi or natural experimental approach or tested a statistical model that attempted to isolate the effect of financial aid on some measure of college prices. CRS identified nine studies that investigated the potential causal link between college prices and financial aid. Collectively, these studies focus on a variety of aid types (e.g., grants, loans, and tax credits), although grant aid is the most commonly studied form of aid. The studies vary in the extent to which federal aid is their principal focus. Five of the studies are designed to focus principally on the effects of federal aid on college prices, three are not principally focused on federal aid but consider it as an explanation for price increases, and one of the studies focuses exclusively on state grant aid. Overwhelmingly, the studies focus on a broad institutional price response, rather than the extent to which student aid actually reduces net price for recipients. More specifically, the studies most commonly attempt to gauge whether changes in grant aid cause a broad price response. The relationship between prices and loans or tax assistance—the types of aid that are most widely available and that are available to students and families across higher income categories—is not the focus of much of this research. (See Table 4 .) Review of Studies The previous sections of this report established that both college prices and federal financial aid have increased over the last decade. That is, college prices and federal financial aid are positively correlated with each other. As noted above, one hypothesis proffered on this relationship—the "Bennett Hypothesis"—seeks to explain this correlation with a causal explanation. Briefly restated, this hypothesis is based on comments from former U.S. Secretary of Education William J. Bennett, who wrote in part, "If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase." In other words, according to the Bennett Hypothesis colleges raise their prices in response to the availability of federal financial aid. Drawing causal conclusions from correlational relationships, however, is problematic in at least two ways. First, a correlational relationship between two variables cannot provide any information on whether one variable is causing another. For example, if federal financial aid and college prices are both increasing, the correlation itself cannot determine causality. An alternative explanation might be that a third variable (e.g., actual cost of attendance) is driving increases in college prices and in federal financial aid. Second, a correlational relationship between two variables cannot provide any information on the direction of the relationship. Again, the Bennett Hypothesis presumes that colleges raise their prices in response to the availability of federal financial aid as a means of capturing additional revenue. Alternatively, the relationship may run in the opposite direction—the availability of federal financial aid has increased in response to colleges raising prices. There are a limited number of studies that attempt to study the Bennett Hypothesis, or more generally the relationship between financial aid and some measure of "price," and provide evidence that increases in federal financial aid lead to increases in college prices. Most of the available literature simply describes the correlational relationship between college prices and financial aid and does not attempt to isolate a causal effect. CRS has undertaken a targeted literature review that seeks to examine the most relevant literature on the relationship between college prices and financial aid. The review examined only those studies that attempt to isolate a causal effect and provide evidence that supports or fails to support the idea that colleges raise their prices in response to financial aid. For readers seeking more information about the studies, the Appendix presents brief summaries of each of the nine that were reviewed. The summaries provide for each study a concise depiction of the research design, major hypothesis, main results, and caveats or limitations, many of which are identified by the studies' authors. Table 5 , below, presents a summary of findings of the studies, which are considered in terms of consistency with the Bennett Hypothesis. When looked at closely, the foci of the studies and the analytical approaches employed vary a good deal. In fact, the studies vary across many dimensions, including the main research questions explored, theorized mechanisms of causation (i.e., how they theorize aid would be captured by institutions), the analytical/methodological approaches employed to examine causality (e.g., natural or quasi experimental versus regression based approaches), selection and use of data, construction and use of proxy measures for aid and price, model specification, and universe of colleges and universities studied. Broadly speaking the studies address common policy issues, but when examined closely they differ from one another in myriad ways. This makes it challenging to summarize the studies, and their findings, in a concise format. It is a particularly difficult body of studies to compare and contrast. That said, some broad themes surface when the studies are examined in relation to one another. Direction of Findings As Table 5 shows, there is not a consensus, nor even a consistent set of findings, on the relationship between federal financial aid and college prices. When findings are considered across the nine studies, they are fairly evenly distributed between being generally supportive, having mixed results, or being generally not supportive of the Bennett Hypothesis. The same is true when only the findings from those studies that are principally focused on federal financial aid are considered. There is also not consistency in findings for either public or private colleges across the studies. Moreover, as the more detailed summaries of the studies in the Appendix illuminate, there are often contradictory findings within studies, depending on the specifications used in the different models. Limitations of Findings Across the studies, findings are limited by challenges associated with measuring change in price as well as by challenges associated with isolating the effects of student aid on prices. Measuring Change in Price Not having the outcome measure of primary interest available—a good measure of net or effective price—is ultimately a substantial limiting factor in understanding the relationship between aid and price. The outcome variables used to measure "college price" differ, often times considerably across these studies, making it difficult to group, summarize, and compare results. There is no consensus on or consistent measurement of the outcome variable of interest, which can be measured by changes in institutional grant aid or through different components of charges to students. Available data do not allow for researchers to measure change in price for individual students or for subgroups of students—such as aid recipients—within an institution. This precludes analyses that would be responsive to many prevalent policy questions, particularly those pertaining to the extent to which aid aiming to lower net price did so for targeted students or was captured by the institution, as well as those seeking a more thorough understanding of what an institutional price response might look like across students. The lack of individual level data or thorough or precise institution level data leads to reliance on measuring change in list price or in average institutional grant aid per FTE student. Limitations associated with list price, an often discounted sticker price which many students do not pay, as a measure of the real prices paid by the student or charged by the institution are well documented. See, for instance, the early sections of this report. Limitations associated with using average institutional grant aid as outcome measures also exist. One limitation associated with these averages is that they typically apply only to a segment and not the entirety of the student population at institutions. That is, these averages are generally constructed using data that apply only to full-time, first-time, degree-seeking fall enrollees. Part-time students and students not in their first semester of their first year are excluded from these averages. Year-to-year changes in price or grant aid may occur differently for students who are omitted and included in these averages, which would mean that part of an institutional price response would be missed if these averages are used to measure change in price. Another limitation associated with this set of outcome measures is that they do not reflect all of the charges comprised in prices. Available data do not allow for average institutional charges for room and board to be calculated, because the list prices for room and board cannot be weighted to reflect the portion of students paying them. This is consequential if an institutional price response is comprised in part of an increase in price for room and board. The average increase in room and board costs across students cannot be calculated, and room and board charges are generally omitted altogether from these analyses. Moreover, a challenge stemming from the lack of actual, all inclusive, composite measures of average net or effective price at an institution is that it leads to researchers examining the effects of student aid on the component parts of net price (e.g., institutional grants, list price for tuition—for in state and out of state students) in separate models, theorizing that upward change in list price accompanied by no change or downward change in institutional grant aid can be used to confirm an institution has responded to an aid increase by capturing aid. Unfortunately, this approach often results in separate models with disparate findings that do not reinforce each other. It also does not allow for a true test of the extent to which movement in some of these variables (e.g., list price) may be partially offset by movement in the others (e.g., institutional grant aid). If an institution raises or lowers its list prices for tuition, for example, this provides little information on how individual students or students across an institution are affected, which may depend on other factors such as tuition discounting through institutional aid or adjustments to room and board charges. Thus, how much of the additional revenue from an increase in financial aid an institution "captures" depends on its response through a variety of mechanisms. Ideally, measuring the impact of financial aid on actual prices for students might take the form of thoroughly analyzing net or effective prices across students, and institution-wide. Due to data limitations, however, the ideal outcome measure (individual level net or effective price) is not available. As shown in the literature review, there is not even agreement on the use of outcome variables among the next-best measures (i.e., measures of price other than individual net price variables). As a result, empirical studies are focusing heavily on changes in list prices, and often look as well, although separately, at changes in average institutional grants. This raises the fundamental question of whether, across the studies, the outcome variables actually measure change in the outcome of interest. Establishing Causality In addition to the specific problem of not having an outcome variable that captures change in price in an analytically precise way, studies on the relationship between grant aid and prices are limited by more general problems in social science research—establishing causality. Ideally, a research design would allow analysts to determine the impact of any given variable (independent variable) on an outcome of interest (dependent variable) and to attribute causality to that independent variable. In social science, however, such studies are fairly rare due to the inability to control the environment in which policy is implemented. In this particular research agenda, there is no planned or easy-to-study natural experiment that allows firm conclusions to be drawn about the relationship between forms of federal financial aid and college prices. Most of the studies rely on some sort of regression analysis to try to draw causal connections between aid and prices. While multivariate regression analysis is a standard tool for examining a relationship such as that between federal aid and college prices, regression analysis can also be affected by factors that make establishing causality difficult, some of which are described below. Covariates. A wide and divergent set of covariates are used across these studies. Different researchers choose to control for different factors that they hypothesize will affect some measure of college price. In many of the studies, for example, some measures of state appropriations for higher education, endowment, income per capita, and selectivity are used. In other studies, however, these more common covariates are included with less common covariates, such as home equity in the area of the college, unemployment in the state, percentage of population aged 18-24, and number of governing boards. There is little to no consistency about the mix of covariates across studies. As such, covariates that are found to be statistically significant in some studies are not present in other studies, thus making comparisons across studies difficult. This in turn makes it difficult to find a consensus or consistent set of robust conclusions in this literature. There are often contradictory findings within studies, depending on the specifications used in the different models. Direction of Causality. In regression models, causality runs from the independent variables to the dependent variable. To be statistically valid, a regression model must meet certain criteria, one of which is that neither the dependent variable, nor another independent variable or a missing variable, can influence any independent variable. In the world of actual policy phenomena, this criterion rarely holds because of the complex interactions among variables. For example, in the current case, it is possible that the level and structure of financial aid (independent variable) is influenced by the pricing strategies of institutions of higher education (dependent variable). In studies that include a measure of state aid as an independent variable, for example, the estimates may be biased if the dependent variable (a measure of college prices) affects state aid. This is a form of endogeneity bias. Instrumental Variables. One way to address engodeneity bias is through the use of instrumental variables. That is, if the independent variable is endogenous to the dependent variable, an instrumental variable that is related to the independent variable but exogenous to the dependent variable may be used to understand the causal effect of the variable of interest on the outcome variable. For example, the typical outcome variable in the studies under review is some measure of price. But, as noted, price may affect a key explanatory variable—financial aid. Thus, to understand the effect of aid on price, some researchers try to identify a variable that is related to aid but only affects price through aid rather than affecting it directly. One study, for example, uses state general tax revenue and state lottery revenues as instruments for state financial aid. The choice of valid instruments can be difficult but may be important to correct for endogeneity bias. The range of instrumental variables used in the studies under review shows the difficulty in choosing valid instruments. A partial list of instrumental variables includes state lottery revenues, median home equity, Barron's ranking of institutional quality, average SAT scores of high school seniors, and dummy variables for changes in the need analysis formula. In many of the studies, the direction and magnitude of the findings change dramatically when instrumental variables are included, displaying the potential importance of the selection of instrumental variables, and sometimes making it difficult to interpret the substantive meaning of their effect on findings and difficult to discern the best model to explain changes in prices. Omitted Variable Bias. If a regression equation does not control for a factor that affects the outcome variable, then the effects of the other independent variables in the regression equation will be biased. Thus, when variables with explanatory variables are omitted, the effects of the included variables are biased (the effects of positively correlated variables will be overstated and negatively correlated variables understated). Given real world data limitations, it is not possible to construct a perfectly controlled study that includes every variable with explanatory power, but it is possible to include many control variables that explain some but not all variation in prices. In the case of studies examining the relationship between grant aid and prices, for example, there are likely variables that affect prices but are not included because they cannot be measured well (e.g., prestige or demand) or because data are not consistently available (e.g., availability of home equity credit). If factors that do have an effect on college prices are not included in a regression equation, then the regression would attribute their (the excluded variables) effects to other variables that are included in the regression equation, such as grant aid. Where studies rely on natural and quasi experimental designs to establish causality, some of the challenging factors encountered involve constructing well-matched comparison groups and having the data needed to construct "difference in difference" comparisons. Final Thoughts The review of studies presented in this report suggests the body of research on the relationship between federal financial aid and college prices does not provide conclusive results in any direction. In fact, there are often contradictory findings within a single study and there is certainly no consensus on the existence, and certainly not the magnitude, of causal relationship between aid and price. This suggests the difficulty in isolating the effect of one variable—financial aid—on a phenomenon—rising college prices—with many likely causes. Put differently, it is not plausible to say that college prices would not have gone up much or at all in the absence of increases in federal financial aid. Rather the reality of rising costs in higher education is likely over determined. As Long notes in an earlier review of some of the college cost literature, other factors have been shown to be determinants of rising prices, including reductions in state appropriations for higher education, increasing costs of faculty and staff, greater investment in technology and student services, and the growing use of institutional aid. Even if the relationship between financial aid and price changes is not clear cut, that absence of evidence does not mean that cause and effect does not exist. This lack of a consensus finding is likely due in no small part to the fact that changes in the main independent variable, or the treatment, in many of the studies (i.e., Pell increases) were not common in the periods under study. Or, as Long notes, in the "case of the Pell Grant, there has not been a large, discrete change in its maximum since its creation." In addition, it is not likely that there is one relationship between changes in financial aid and changes in price but instead that there are many, primarily because of different abilities and incentives of different institutions to respond. For example, institutions with greater power to increase prices (e.g., highly selective institutions) might not have as much to gain from "capturing" increases in federal grant aid because this type of federal financial aid is not a large source of revenue. On the other hand, institutions with greater incentive to capture aid (e.g., community colleges) might have difficulty in doing so because of a mission more focused on maintaining access and affordability. Finally, the widespread use of tuition discounting (i.e., raising the list price but varying the net prices for individual students) means that using averages or list prices is unlikely to unravel the underlying relationship between aid changes and price changes, as there is a complex chain between a list price, the cost to an individual, and the actual revenue received by an institution. Implications for Policy Implications for the Identification of Policy Options Given existing data constraints, methodological challenges, and the plethora of rival explanations for why prices continue to increase, it is unlikely in CRS's view that research is on the horizon that will illuminate a clear diagnosis or prescription for price increases that consistently outpace inflation. There is growing concern that college affordability is a significant problem. There are many levers available to Congress to attempt to address affordability, but clear evidence on the effects of aid on prices is seemingly not available to help guide decisions. Considerations for Policy Related Research It is sometimes suggested that there is asymmetry in the information available to those setting prices and those paying and subsidizing prices. That is, colleges gather expansive information about students' financial circumstances and their ability to pay varied prices, and share fairly limited information about the prices they actually set for different students. Generally this is discussed in the context of the quality of available consumer information. The limited availability of information about actual prices charged affects oversight and research as well. Research on a potential causal link between student aid increases and price increases is impeded by the limited availability of institutional and individual level data on real prices. What is more, it is not possible to do good descriptive analyses on the prices faced by students at institutions and on pricing behavior of institutions. Without data improvements, desired research may not materialize. In addition to data issues, although likely connected to those issues, it is worth noting that some of the policy questions CRS encounters most regularly are not typically the focus of the empirical research in this area. Partially this pertains to the types of aid studied. In particular, the effect on price of student loans and tax credits, the forms of federal aid that are most widely available and that are available to students and families from middle and higher income levels, is not the focus of much research. Additionally, existing studies are generally focused on a broad price response and not on effects on prices for aid recipients or subgroups of students. This is likely, at least in part, a result of data limitations. It is not clear that there is consistently conceptual alignment between commonly asked policy questions and empirical research as it pertains to the hypothesized relationship(s) to be examined. At issue is whether "the typical student" or a group of students or the school is the unit of analysis. That is, does the research need to focus on students or a particular group of students or the pricing behavior of institutions? From a disciplinary standpoint, many researchers may be inclined to focus on the institutions, although from a policy maker standpoint, examining change in average prices at schools is unlikely to be nearly as informative as studying the underlying distribution of prices as well. Appendix. Summaries of Studies Examining Effects of Student Aid on College Prices This appendix presents brief summaries of each of the nine studies reviewed in this report. The summaries provide for each study a concise depiction of the research design, major hypothesis, main results, and caveats or limitations. In the summaries, only information related to the research questions of interest in this report is included. (Also see Table 4 and Table 5 ). Acosta Acosta (2001) uses a series of regression models to test the relationship between federal student aid and institutional aid and tuition revenues. The study finds an overall positive association between federal student grant aid and public and private tuition revenue, but the effects are attenuated by changes in institutional aid. That is, the author finds that for an additional $1 per student in federal student aid, private institutions increase tuition revenues by $3.24 per student but only increase institutional aid per student by $1.48, for a net revenue gain of $1.76 per student. A similar, but smaller, effect is found for public institutions but the results are sensitive to the specification used and are not significant overall. Despite the significant finding for private institutions, the explanatory power of the model is generally low. A model with low explanatory power generally indicates that the researchers did not account for variables that likely explain most of the relationship between federal grant aid and tuition. The variables were not included in the model because they are either unknown contributors to changes in tuition or they are too difficult to measure. Regardless, a significant finding with low explanatory power indicates that federal grant aid is not the only factor contributing to changes in tuition. Cellini and Goldin In a study that employs a quasi-experimental design comparing tuition responses of Title IV eligible and non-Title IV eligible institutions in five states, Cellini and Goldin (2012) test for a tuition premia for Title IV eligible institutions. They hypothesize that Title IV eligible institutions likely charge higher tuition than comparable non-Title IV eligible institutions, in part due to the availability of federal financial aid to Title IV students. The authors find that for comparable full-time non-degree programs in the same field, Title IV institutions charge, on average, around 75% more in tuition than non-Title IV eligible institutions. The suggestion of this finding is that Title IV institutions, which are able to receive federal aid, are raising tuition as a response to that aid and thus capturing the additional aid. These findings, however, are possibly mitigated. It is not clear if all of the non-Title IV institutions are accredited. If not, the tuition premium attributed to Title IV institutions being able to capture federal aid through higher tuition might be due in part to accreditation status and possible qualitative differences instead. The difficulty in determining comparability may mitigate the strength of the causal findings. Furthermore, as the authors acknowledge, there is some concern about unobservable differences between Title IV and non-Title IV institutions that may affect the finding of a tuition premium. Finally, while this study produces significant, consistent findings in support of the Bennett Hypothesis, it is not clear how generalizable the results are to the full universe of higher education. The findings in this study apply to non-degree and sub-baccalaureate programs only. Also noteworthy, however, this is the only study profiled that focuses on for-profit institutions where tuition discounting is much less common. In this sector a "tuition" or list price variable is likely a good measure of the effective price students are actually asked to pay, alleviating a challenge faced by other studies considered here. Curs and Dar (1) Curs and Dar (2010) use regression models to explore whether institutions of higher education adjust net price—by increasing list tuition and fees or decreasing institutional aid—in response to changes in state financial aid policy. The authors have a primary interest in examining whether or not institutional responses depend on higher education governance structures (i.e., structure of higher education governing boards). They seek to understand whether institutional pricing policies are reinforcing of state financial aid policies. As part of this examination Curs and Dar test whether institutions respond to changes in federal grant aid. Curs and Dar generally find a negative, but not always significant, association between federal student grant aid and public and private net price. That is, for a $1 increase in federal grant aid, net price at private institutions falls by $0.48. The results for public institutions were not significant. These findings are sensitive to model specification and the use of instrumental variables. For example, in the fixed effects models, Curs and Dar find a significant negative relationship between average federal grant aid and net price across institution type. In the instrumental variable models, however, they only find a significant negative relationship for net price in private institutions. Curs and Dar (2) Curs and Dar (2010) use a series of regression models to test the relationship between financial aid programs and institutional pricing strategies. Specifically, the researchers hypothesize that institutions may implement different net price strategies (i.e., changes in list tuition and fees or institutional aid) in response to changes in state merit-based and need-based grant aid. Once again, the response to changes in federal grant aid is tested as well. Curs and Dar find a negative association between federal student grant aid and public and private net price. That is, for a $1 increase in federal grant aid, in-state net price falls $0.42 and out-of-state net price falls $0.51 at public institutions. For private institutions, a $1 increase in federal grant aid is associated with a $0.39 decrease in net price. These findings, however, appear fairly sensitive to model specification. Specifically, in an earlier version of this research, Curs and Dar found only a negative, significant association between federal grant aid and net price at private institutions. The only difference between the previous finding and the current finding appears to be the splitting of a covariate (state grant aid) into two components—merit-based and need-based. Yet it appears that this single additional specification caused the association between federal grant aid and public institution net price to change from insignificant to significant. It is not clear why this is the case. When results are inconsistent due to small changes in model specification, it is likely that the model does not adequately explain the relationship between federal aid and price. It is likely that other unknown variables are significantly contributing to changes in price. Long (1) In her study of the effect of the Georgia HOPE Scholarship program on list tuition price, employing a difference in differences design based on a natural experiment, Long (2004) hypothesizes that the HOPE program increased incentives for institutions to raise tuition, due to the introduction of additional financial aid in the new scholarship program. She found, however, that public institutions had a relative decrease (compared to control group of southeast colleges) of about 3% in list tuition price. This finding is contrary to the Bennett Hypothesis. For private institutions, however, Long finds a relative increase in tuition compared to the control group. When testing for institutional response for room and board the reverse occurs. That is, Long finds public institutions raised room and board fees in response to HOPE but private institutions did not. Taken as a whole, Long's findings suggest that private institutions responded to HOPE by raising tuition and lowering institutional aid, resulting in recouping as much as $0.30 for every $1 of HOPE aid. On the other hand, there is some evidence that public institutions responded differently by decreasing tuition but raising room and board fees (by about $0.10 more than the comparison group). So Long's evidence from the Georgia HOPE program suggests that it is not easy to make a definitive general statement about aid and price but that sector does appear to matter in understanding this relationship, as it does in other studies under review in this report. Long's study of the Georgia HOPE scholarship may provide a higher level of evidence than other studies under review. As Long notes, the "introduction of a new program that affects some students but not others can provide a useful research opportunity with the aid-eligible students being the 'treatment group' and other being the 'control group.'" The Georgia HOPE Scholarship was first introduced in 1993 and provides full tuition, fees, and a book allowance to Georgia residents attaining at least a "B" average who attend a Georgia public college (comparably valued compensation is given to similar students who attend Georgia private colleges). The introduction of HOPE offers a natural "break" that possibly allows causal inference to be drawn. That is, changes in institutional behavior after the introduction of HOPE might be attributed to HOPE to the extent that other possible explanations are controlled for. In addition, the fact that surrounding states that might reasonably be assumed to be subject to the same trends and economic shocks as Georgia did not introduce similar merit-based programs at the same time provides a reasonable "control group" against which to compare any observed changes in the behavior of institutions of higher education in Georgia. For these reasons, results from the HOPE study may represent a more robust form of evidence than other regression analyses. Generalizability of these findings to federal aid programs is less clear because federal aid programs are not merit-based. Long (2) Long (2004) uses a differences-in-differences-in-differences design based on a natural experiment of the introduction of the federal Hope Learning Credit (HTC) and the Lifetime Learning Tax Credit (LLTC). The natural experiment compares institutions that are likely to take advantage of the HTC and the LLTC (i.e., a treatment group) and institutions that are not likely to take advantage of the tax credits (i.e., a control group). The hypothesis is that institutions with greater incentives to take advantage of the credits (i.e., those with many credit-eligible students and low tuition) are more likely to raise list tuition price in response to credit availability than institutions that have few eligible students and higher tuition. The experiment is premised on some colleges having greater incentives to take advantage of tax credits because they are lower-cost colleges and have many students eligible for the credit. For public, two-year institutions, those with greater incentives to raise tuition experienced 18% faster list tuition price growth than institutions with lower incentives. For public, four-year institutions there were no statistically significant differences between these two groups. In states with relatively high levels of state aid, public two-year and four-year institutions raised tuition faster than other states. Within this group, two-year institutions with many credit-eligible students experienced faster tuition growth than other schools. There is largely no effect for private institutions. The outcome variable is list tuition price, not a net measure. There are a lot of interactive effects in this model, which makes conclusions dependent on the different variables at work. The contingent nature of this model makes it difficult to compare with others but her finding of an effect in public institutions, particularly two-year institutions, is consistent. Rizzo and Ehrenberg Rizzo and Ehrenberg (2004) use a series of regression models to test several hypotheses related to tuition and enrollment. Although the primary interests in this study are the causes and consequences of nonresident enrollment at flagship public universities, the authors include a Pell Grant variable in their equations, in part to test whether institutions respond to Pell increases with list tuition increases. Rizzo and Ehrenberg report a positive and significant association between the maximum Pell Grant award and in-state tuition (but this positive association is not significant for out-of-state tuition). Specifically, the authors find that a 10% increase in the maximum Pell award is associated with a 4.8% increase in in-state tuition. Although the relationship between federal grant aid and tuition was significant in some models, it was not consistently strong enough, and was negative and insignificant in some models, to make broad conclusions. The sample in this study includes only "flagship public research institutions," so the price response of private institutions is not modeled. In other studies, the response of private institutions is often stronger than that of public institutions, which in some cases have no tuition changes in response to changes in federal grant aid. In addition, the subset of public institutions in this study (91 flagship public research institutions) does not capture the full range of response from lower-status public schools. Finally, the number and type of covariates in this particular study make it difficult to compare with other studies, most of which use a smaller number of covariates and a wider sample of institutions (e.g., all public, private). The study also presents findings from many models and it is not entirely clear why the model specification for those models generating the featured findings is superior to other models presented in the study. Singell and Stone Singell and Stone (2007) use various regression models to test the Bennett Hypothesis. That is, the authors use a longitudinal dataset of public and private universities to examine the response of list tuition to changes in the average Pell Grant award amount over time. Singell and Stone report mixed effects of Pell Grant aid on list tuition price, depending on institution, student type, and statistical model. Specifically, the authors find a positive, significant relationship between average Pell Grant aid and public in-state list tuition price in two of their three models. Notably the absence of significance is in their fixed-effects instrumental variable model. For public out-of-state tuition, they do find a significant, positive association between Pell Grant aid and public out-of-state list tuition in two of their three models. Finally, they find significant but mixed results for private tuition. In one model, they report a significant, negative relationship between Pell Grant awards and private tuition but in the two other models, they find a significant, positive relationship. Looking only at the authors' preferred specification (fixed effects, instrumental variables), Singell and Stone find for every $1 increase in Pell Grant per recipient, public out-of-state tuition goes up by $0.80 and private tuition goes up by $0.86. As the authors note, it is possible that any list tuition effects resulting from changes in Pell aid might be offset by changes in net tuition (i.e., list tuition minus tuition discounts and non-Pell financial aid). Singell and Stone do report on a subset of 71 public and private universities for which institutional aid data exist and find little difference between list and net tuition effects of Pell Grants. However, the sample size of 71 does not provide the same robustness of results that the full sample does. Finally, like other studies, the findings reported are sensitive to model specification, the substantive implications of which are not always clear. Turner Turner's (2012) use of a higher form of regression analysis (regression discontinuity and regression kink) adds further nuance to understanding the response of institutions to Pell Grant aid. Turner takes a slightly different approach in that she examines the channel of potential capture of Pell funding through institutional aid, not tuition. In other words, Turner hypothesizes that institutions will adjust to changes in Pell Grant aid through raising or lowering institutional aid, not through tuition or room and board fees. Across all sectors, she estimates that each dollar of Pell Grant aid reduces students' effective prices by 84%, implying that institutions capture the remaining 16% through lower institutional grant aid. But this capture varies across sector and selectivity of institutions, with selectivity being the primary determinant of Pell capture. Nonselective private institutions, a group that includes nonprofit and for-profit schools, are estimated to capture 18% of every Pell dollar, while selective nonprofits capture 79% of every Pell dollar. In the public sector there is not a significant effect. Capture in this study is measured by the percent that institutional grant aid changes in response to Pell Grant aid. Thus "capture" becomes a measure of "effective price" based on how much institutions can capture of changes in Pell Grant aid. But net revenue or effective price consists of other variables, such as room and board or other fees. It is possible that changes in the other sources of institutional revenue (in response Pell or other federal aid) affect the overall "capture" but it is not part of this model. In addition, the Turner study does not consider the possible effect of Pell Grant aid on tuition because the relationship is assumed to be not causally connected. Specifically, Turner asserts that because tuition is set prior to the announcement of Pell Grants, it is not possible for tuition to respond to Pell Grant aid. This assumption is not part of the other studies under review and shuts off a potential channel of adjustment. Turner's study is the only one under review in this report that uses data from the National Postsecondary Student Aid Study (NPSAS), which is, unlike the IPEDS data used in the other studies, an individual-level data set consisting of information on demographic characteristics of students and financial aid data (from institutional and government data). While Turner's analysis is based on NPSAS data, it is an aggregation of four NPSAS waves of data (1996, 2000, 2004, and 2008). It is not clear if there are implications of combining four samples across 12 years, given that the mix of institutions and students is different across survey cohorts and individual sample years are designed to be representative in that given sample period. Regression discontinuity is a quasi-experimental method that approximates natural or randomized experiments by allowing for a clear pretest-posttest design. This break point, or discontinuity, in the population (individuals or institutions) provides researchers some ability to infer causality because the break is determined by a cutoff point in an otherwise similar group. For example, the existence of a Pell Grant eligibility threshold means there is a discrete (zero, non-zero) cutoff, below which an individual receives $0 and above which an individual receives $400. This cutoff allows for the use of RD and creates a sort of natural experiment with a treatment and control group because individuals on either side of the cutoff are presumably similar in most other characteristics.

College affordability is an issue that has received considerable attention from federal policy makers in recent years as concerns have arisen that a college education may be out of reach for an increasing number of students and families. While there is little disagreement that escalating college prices pose a problem, there is not a consensus about the precise causes for these increases. Among the possible explanations for price increases, one that has surfaced with some frequency in recent years is the notion that the availability of or increases in federal student aid may help to fuel price increases, as institutions seek to capture additional aid rather than stabilize or lower prices. This hypothesized relationship has received a good deal of attention and raised some concerns about the efficacy of federal student aid policies that aim to enhance access and affordability. This report has been undertaken in response to numerous congressional requests to explain what is actually known about the relationship between student aid and prices. In this report, this task is approached first through analysis of trends in prices, examining different measures and concepts of price. This is followed by a brief examination of trends in student aid, and an examination of many of the competing explanations for why prices are increasing. Finally, the report explores what is known about the possible causal relationship between student aid and price increases, principally through a survey of primary studies that attempt to isolate the effects of student aid on college prices. Some of the themes highlighted in the report are as follows: While colleges publish list prices, they also engage in fairly extensive price discounting, effectively reducing prices. Additionally, other subsidies such as governmental grants further defray the price students are asked to pay. Trends in college prices can be measured in terms of published prices, effective prices (prices net of institutional discounts), or net prices (prices net of governmental grant aid and institutional discounts). By any measure, in more recent years for which more comprehensive data are available, prices consistently increased at rates exceeding inflation. Overall, student aid per full time equivalent student has also increased in recent years although the trends in aid exhibit more volatility across years (than do the trends in price), sometimes escalating by large increments and sometimes declining or eroding from year to year. A plethora of potential explanations for escalating college prices exist. These include declining state appropriations on a per student basis and fluctuating endowments, which may lead to greater college reliance on tuition revenue from students. Similarly, the escalating cost of items upon which colleges are highly reliant, such as high-skill labor and technology, are identified as factors that increase the cost of providing education and potentially contribute to higher prices. Other explanations suggest that colleges have multiple institutional missions, have ineffective centralized control of costs, suffer from various types of productivity issues, and have institutional orientations and incentives targeted toward raising and spending considerable amounts to enhance students' experiences as opposed to orientations toward using resources efficiently. In addition, it is often suggested that durable, or relatively inelastic, demand for postsecondary education may endow colleges as credentialing institutions with considerable pricing power (i.e., the ability to raise prices without destabilizing demand). There are a substantial number of seemingly plausible explanations for why prices are increasing. This makes it challenging to isolate the effects of any single factor. Through CRS's review of research nine empirical studies have been identified, which over the last decade or so have attempted to isolate the effects of changes in aid on prices. Collectively, the studies focus on price responses associated with several different types of student aid, but the effects of grant aid on prices is the most heavily studied relationship. The relationship between prices and loans or tax assistance—the types of student aid that are most widely available and are available to students and families across higher income categories—is not the focus of much of this research. Concerns that colleges may "capture" some portion of the aid that is provided to students to lower their net price are generally not directly addressed in the studies. The studies are primarily focused on broad institutional price responses. That is, they do not typically address effects on prices for subgroups of students within institutions, and distinctions are not made between those students who are and are not receiving the student aid hypothesized to be affecting prices. Hence, questions about the extent to which aid policies aiming to lower the net price for targeted students actually do so are generally not directly addressed. The studies vary across many dimensions, including the main research questions explored, theorized mechanisms of causation (i.e., how they theorize aid would be captured by institutions), the analytical/methodological approaches employed to examine causality (e.g., natural or quasi experimental versus regression based approaches), selection and use of data, construction and use of proxy measures for aid and price, model specification, and universe of colleges and universities studied. This expansive set of differences makes it especially hard to compare and contrast the studies. There is not a high degree of consensus in the findings generated across the studies. Findings across studies are not consistent in terms of direction and magnitude of effects, and even within studies, changes in model specification or controls lead to vastly different results, often without strong rationales for the superiority of specifications generating more robust findings. Beyond the various differences in these studies and methodological challenges encountered across this research agenda, not having the outcome measure of primary interest available—a good measure of net price—is ultimately a substantial limiting factor in understanding the relationship between aid and price. Rather, the studies rely heavily on measuring change in list price or change in proxies for net price. This raises the fundamental question of whether, across the studies, the outcome variables actually measure change in the outcome of interest and suggests the need to develop more precise data on net price at institutions to further the understanding of the relationship between federal aid and college prices.

Introduction Businesses generally use one of two accounting methods for calculating their federal tax liabilities or for financial reporting. The choice of accounting method determines the timing of the recognition of revenue and expenses. Under cash basis accounting, revenue and expenses are recorded when cash is actually paid or received. Under accrual basis accounting, revenue is recorded when it is earned and expenses are reported when they are incurred. In other words, under accrual accounting revenue and expenses are recognized regardless of when payment is actually made or received. A number of recent congressional proposals would change the tax accounting requirements for certain businesses, which could result in changes in tax liabilities. Similarly, a number of proposals would change how the U.S. government's financial reports are prepared. This report introduces the differences between cash and accrual methods of accounting. The explanations and examples provided in this report emphasize the central concepts needed to understand cash and accrual method of accounting. A detailed discussion of the many complex technical accounting details that would need to be carefully considered if current requirements were to be changed is beyond the scope of this report. A brief presentation of some of the most useful technical concepts appears in the Appendix . Recent Legislative Developments Tax Policy The Internal Revenue Code (IRC) generally requires businesses with average gross receipts in excess of $5 million to use accrual accounting rather than the cash method for tax purposes. Prior to the enactment of the Tax Reform Act of 1986, ( P.L. 99-514 ) businesses were allowed to elect various methods of accounting for reporting revenue and expenses that were then used to determine their tax liabilities. The IRC's current requirement that certain businesses use the accrual method arguably addresses the concern that if related revenue and expense items that contribute to income are assigned to different years, then neither year's income nor tax liability will be properly reported by the business. Under the current IRC, an exception exists for certain farms, partnerships, S corporations, and Personal Service Corporations (PSCs)—allowing these entities to use cash accounting regardless of their average gross receipts. These entities are considered pass-through entities, in which the tax liability is generally paid by the owners of the business and not directly by the business. For other businesses with gross receipts of less than $5 million, the cash method of accounting is available to determine tax liability as it is easier for record keeping and requires less effort. In the 113 th Congress, legislation has been introduced that would raise the threshold. Specifically, the Small Business Accounting and Tax Simplification Act ( H.R. 947 ), Start-up Jobs and Innovation Act ( S. 1658 ), and Small Business Tax Certainty and Growth Act ( S. 1085 ) would each expand the use of cash method accounting by raising the threshold of average gross receipts to $10 million from $5 million. Similar legislation was introduced in the 112 th Congress, the Small Business Tax Simplification Act ( H.R. 4643 ). The Tax Reform Act of 2014, formally introduced as H.R. 1 by House Ways and Means Chairman Dave Camp on December 10, 2014, would more broadly modify the rules surrounding the choice of accounting method for some businesses. In addition to raising the threshold from $5 million to $10 million, the bill would require certain partnerships, S corporations, and PSCs to use accrual basis of accounting when their average annual gross receipts exceed $10 million. Raising the threshold would expand the use of cash accounting, for businesses with gross receipts between $5 million and $10 million. Former Senate Committee on Finance Chairman Max Baucus included a similar provision in his Cost Recovery and Accounting staff discussion draft, which has not been formally introduced as legislation. The proposals would restrict the use of cash accounting for certain types of businesses, making it unclear how these proposals would affect the use of cash accounting overall. The Joint Committee on Taxation has estimated that these modifications proposed by H.R. 1 would increase revenue by $23.6 billion over 10 years. U.S. Government Financial Reports A number of congressional proposals would change how the U.S. government's financial reports are prepared. In the 113 th Congress, the Generally Accepted Accounting Principles Act ( H.R. 476 ) would require the federal government's budget, financial reports, and performance evaluation reports to be prepared using both cash and accrual basis of accounting. Another piece of legislation, H.Res. 545 , encouraged the use of accrual accounting by expressing the sense of the House of Representatives that the federal government should adopt and use accrual basis generally accepted accounting principles for government budgeting, financial reporting, and performance evaluation purposes. In the 112 th Congress, Truth in Government Accounting Act of 2011 ( H.R. 3332 ), also would have required using both cash and accrual basis of accounting to prepare the government's budget and financial and performance reports. Basis of Accounting: Concepts and Principles Cash Basis Cash basis of accounting is generally the more popular method to record and report revenue, expenses, and income; it is simpler than accrual accounting. Under cash accounting, income and expenses are recorded when payment is received or made. The cash method does not, however, accurately reflect a company's assets, liabilities, revenues, or expenses. If a business incurs a large expense to provide a service before it has received the payment for the service, the business's financial statements may communicate a distorted financial condition of the business. Similarly, significant distortion on the financial condition of a business is reflected on the financial statements if it has received a large payment but has not yet delivered the product or provided the service. Cash basis accounting requires less effort in bookkeeping but it is not in accordance with the Generally Accepted Accounting Principles (GAAP). Accrual Basis Accrual basis of accounting is in accordance with GAAP. U.S.-based publicly traded companies are required to file financial reports with the Securities and Exchange Commission (SEC) under GAAP accounting. The accrual basis differs from the cash basis in when revenue and expenses are recognized and in how assets and liabilities are reported. Accrual accounting provides a better picture of how well a company has performed during the periods measured. For most companies, the reporting period is usually a fiscal quarter or fiscal year. Accrual accounting's primary focus is on two types of business events. First, from an asset perspective, an accrual is recorded when a service has been performed or a product has been delivered by a company but the payment has not yet been received. Similarly, from a liability perspective, an accrual is recorded when a service or product has been received, but the payment has not yet been made. Second, a deferral is recorded when payment is received before a service is performed or product has been delivered. Although accrual accounting provides consistent measurement and treatment of a business's economic events, it does not readily communicate a business's cash flow. A separate statement of cash flows must be presented along with the balance sheet, income statement, and statement of changes in shareholders' equity for users of the financial information to make informed decisions. The statement of cash flows is a useful tool in determining the short-term viability of a business, especially a company's ability to pay its bills on time. Table 1 compares cash and accrual basis of accounting. Examples of Cash Versus Accrual Basis of Accounting To illustrate how the choice of accounting method determines the timing of when revenue and expenses are recognized (and ultimately tax liability and cash flow), two different scenarios are presented. In each scenario, a subscriber purchases a two-year subscription for online new content. In the first scenario, the subscriber pays in the first year. In the second scenario, the subscriber pays in the second year. Under both scenarios, information communicated and conclusions drawn about the financial condition of the company differ depending on whether the cash or accrual basis of accounting is used. First, a narrative discussion that only focuses on the income statement is provided for each scenario. A more detailed explanation is then provided that incorporates two financial statements, an income statement, and a balance sheet. The first set of financial statements, Figure 1 - Figure 3 , report transactions if the payment was received in the first year, and the second set of financial statements, Figure 4 - Figure 6 , report transactions if the payment was received in the second year. Figure 1 - Figure 3 provide a better illustration of why accrual accounting provides a more complete picture of a company's financial performance as compared with cash basis of accounting, when the payment is received before the service is provided. Figure 4 - Figure 6 illustrate the impact on cash flow for a small business based on whether the business uses cash or accrual basis of accounting, when the service is provided but the payment has not yet been received. In the examples below, a fictitious small company provides online subscription-only news service. The company is called ONSS and has a single subscriber during the two-year business cycle. A subscription requires a two-year commitment and costs $2,400 (total), which must be paid in full at either the beginning of the first or second year. The $2,400 cost of the subscription for the client is revenue for ONSS. Assume that ONSS incurs service expenses (costs) of $600 each year, or $1,200 total and the company is subject to a 10% tax rate. On January 1, 2015, ONSS had $600 cash on hand, same as the owners' interest (or ownership equity). Scenario 1: Payment Received in the First Year Cash Basis ONSS receives a one-time payment of $2,400 in January 2015. At the end of 2015, ONSS has recognized $2,400 in revenue and $600 in expenses for an income (profit) of $1,800. ONSS pays $180 in taxes (10% of $1,800). After paying for the expenses incurred in the first year and paying taxes, ONSS has net income (net profit) of $1,620 ($2,400-$600-$180=$1,620). The clients' two-year subscription runs from 2015 to 2016. In 2016, no revenue is recognized by ONSS because the subscriber's full payment was recognized as revenue in 2015. ONSS incurs $600 in expenses to provide the service in 2016, resulting in a loss for the year. Under IRC Section 172, ONSS can carry the loss back to the previous year and claim a tax refund from the Internal Revenue Service (IRS). ONSS files for a refund of $60. Taxes paid over the first two years thus total $120. Net income for the two years for ONSS is $1,080. Accrual Basis ONSS receives a payment of $2,400 in January 2015. Because ONSS is following the matching principle of accrual accounting, it only recognizes revenue for which it has incurred expenses. ONSS recognizes $1,200 in revenue and $600 in expenses for an income of $600 in 2015. ONSS pays $60 in taxes (10% of $600). After paying for the expenses incurred in the first year and paying taxes, ONSS has net income of $540 ($1,200-$600-$60=$540) in 2015. Similar to 2015, under accrual basis of accounting ONSS only recognizes revenue for which it has incurred expenses in 2016. Thus in 2016, ONSS recognizes $1,200 in revenue and $600 in expenses for an income of $600. ONSS pays $60 in taxes (10% of $600) again in 2016. After paying for the expenses incurred in 2016 and paying taxes in 2016, ONSS has net income of $540 ($1,200-$600-$60=$540). Taxes paid for the two years total $120. ONSS's net income for the two years is $1,080. Taxes and net income are the same as under cash basis over the life of the subscription, but timing varies. A more comprehensive treatment of which basis of accounting a company uses and how it affects the company's income statement and balance sheet appear in Figure 1 - Figure 3 . The figures also provide a detailed explanation by line item. Payment Received in the First Year—Income Statement and Balance Sheet Perspective for Figures 1-3 As previously discussed, the following examples ( Figure 1 - Figure 3 ) illustrate the difference between cash basis and accrual basis of accounting in determining the tax expense for ONSS. They also better illustrate how revenue, expenses, and earnings can be exaggerated and give a misleading impression of a company's performance under cash basis of accounting. Figure 1 shows the beginning balance for ONSS. No transactions are recorded other than beginning cash balance and owners' equity. Transaction descriptions by line item for cash and accrual basis are provided below the financial statements. Figure 2 shows year-end financial statement for ONSS for the first year. ONSS provided the first year's service and incurred related expenses. It received the full payment for the two-year subscription from the client in January 2015. Taxes paid are higher under cash basis than accrual basis at the end of the first year because the company recognized the full amount of the payment as revenue. Transaction descriptions by line item for cash and accrual basis are provided below the financial statements. Figure 3 a shows year-end financial statement for ONSS for the second year, 2016. At this point, ONSS has provided the second year's service and incurred related expenses. Under cash basis of accounting, the company has no revenue and records a loss. The company's cash on hand and owners' equity also decreased as compared with the first year (see Figure 2 ). The deteriorating financial condition of the company under the cash basis could give the impression of a company in financial trouble, possibly going out of business. On an accrual basis, however, the picture looks quite different. Transaction descriptions by line item for cash and accrual basis are provided below the financial statements. Outcomes As shown in Figure 1 - Figure 3 , under cash basis, higher taxes were paid during the first year (2015), which resulted in less cash on hand at the end of the year. Both cash on hand and shareholders' equity declined by the end of the second year as compared with the first year, which could give the impression of a business in distress. The net result is the same under both the cash and accrual basis, as cash on hand and owners' equity are the same at the end of the second year (2016). Similarly, revenue, expenses, income, and shareholders' equity not recognized over the course of the first and second year under cash basis makes it harder for an investor or creditor to make an informed decision about the health of the business, as compared with accrual basis. Scenario 2: Payment Received in the Second Year Cash Basis ONSS provides service to the client for the first year (2015), but does not receive payment until the second year of the two-year commitment (January of 2016). At the end of 2015, ONSS has recognized no revenue but incurred $600 in expenses for a loss of $600. ONSS does not pay any taxes because it incurred a loss the first year. In 2016, ONSS recognizes $2,400 in revenue as the full payment was received in January 2016. ONSS incurs $600 in expenses for providing the service in 2016, resulting in income of $1,800 ($2,400-$600=$1,800). Because losses are deductible under IRC 172, ONSS carried the loss of $600 from 2015 forward. Taxable income in 2016 is $1,200 ($2,400-$600-$600=$1,200), which includes the expenses from both years. Taxes paid over the first two years total $120. ONSS's net income for the two years is $1,080. Accrual Basis ONSS provides its service to the client for the first year (2015), but does not receive the payment until the second year (January 2016) of the two-year commitment. ONSS keeps true to the matching principle of accrual accounting: even though it has not received any payment by the end of 2015, it recognizes revenue of $1,200 for 2015 because it has an expected receivable that matches the related expense of $600. At the end of 2015, ONSS has recognized $1,200 in revenue and $600 in expenses, for an income of $600. As ONSS has income at the end of 2015, it needs to pay $60 in taxes (10% of $600). Because ONSS has expended all of its cash by the end of 2015 to meet its operating expense, ONSS borrows $60 in cash from a lender to pay taxes. After paying for the expenses incurred in the first year and paying taxes, ONSS has net income of $540 ($1,200-$600-$60=$540) in 2015. ONSS receives the full payment ($2,400) from the client in January 2016. Under accrual basis of accounting ONSS only recognizes revenue for which it has incurred expenses in 2016; ONSS therefore recognizes $1,200 in revenue and $600 in expenses for an income of $600. ONSS pays $60 in taxes (10% of $600). After paying for the expenses incurred in 2016 and paying taxes, ONSS has net income of $540 ($1,200-$600-$60=$540) in 2016. Taxes paid for the two years total $120. Net income for the two years for ONSS is $1,080. Similar to when payment is received in the first year, when payment is received in the second year, taxes and net income are the same as under cash basis over the life of the subscription. Payment Received in the Second Year—Income Statement and Balance Sheet Perspective for Figures 4-6 One objection raised by the industry to proposed tax reforms concerns the allowable methods of tax accounting; that is, whether these can compel a business to borrow cash to meet tax expenses in addition to operating expenses. The tax reform proposals discussed here would require certain businesses with revenues in excess of $10 million to use accrual basis instead of cash basis of accounting. The basis of accounting used to determine taxable income and taxes paid can affect a company's cash flow through the timing of when taxes are paid. Figure 4 - Figure 6 illustrate that a company without sufficient cash that is required to use accrual basis of accounting would need to borrow cash to meet its financial obligations, including its operating and tax expenses. It should not be construed from this example that businesses in a similar position would need to borrow money strictly to meet their tax expenses. Arguably, a business that does not have sufficient cash is likely to borrow money to fund its ongoing operating expenses, and any tax expense would be part of the overall consideration of maintaining cash liquidity in the normal course of business. Figure 4 shows the beginning balance for ONSS. No transactions are recorded except for beginning cash balance and owners' equity. Transaction descriptions by line item for cash and accrual basis are provided below the financial statements. Figure 5 shows the year-end financial statement for ONSS for the first year. ONSS has provided the first year's service and incurred the related expenses but has not received any payment. The company borrows cash to meet its operational and tax related expenses under accrual basis of accounting. Transaction descriptions by line item for cash and accrual basis are provided below the financial statements. Figure 6 shows year-end financial statement for ONSS for the second year. ONSS has provided the second year's service and incurred the related expenses. ONSS received full payment in January 2016 for the services provided in year one (2015) and year two (2016). Transaction descriptions by line item for cash and accrual basis are provided below the financial statements. Outcomes As shown in Figure 4 - Figure 6 , under cash basis, no taxes were paid during the first year (2015), since ONSS did not receive the payment until the second year. Both cash on hand and shareholders' equity declined to $0 at the end of the first year under cash basis. Under accrual basis, at the end of the first year cash declined to $0 but shareholders' equity increased to $1,140, even though payment was not received until January of the second year, as revenue, expenses, and income were recognized and taxes on income earned were paid. Similar to the examples in Figure 1 - Figure 3 , the net result is the same under both the cash and accrual basis, as cash on hand and owners' equity are the same at the end of the second year (2016). Taxes paid under both bases of accounting over the long run were the same. Tax deferral may allow a company to delay paying taxes until a future date and have those funds available to increase its profitability in the short run. Conclusion The previous discussions highlighted the key differences between cash and accrual basis of accounting. Cash basis is simpler for record keeping but arguably, the process of matching revenue and expenses under accrual basis accounting leads to a better understanding of the financial condition of a business compared to the results under cash accounting. The consistency of matching revenue with expenses under the accrual method provides a more consistent treatment of economic events and helps principals to make informed financial and operational decisions. Chairman Camp's Tax Reform Act of 2014 ( H.R. 1 ) proposes changes in accounting rules for tax purposes; under the legislation certain partnerships, S corporations, and PSCs with average gross receipts in excess of $10 million would be required to use the accrual method. The accrual method more accurately reflects the revenue and expense items used to generate income in the taxable year, not merely the cash flows occurring within the period. According to the legislation businesses with average gross receipts of less than $10 million could use the cash method as it is easier for record keeping and requires less effort. Changing from the cash method to accrual method could cause taxpayers to recognize income as a result of the change in accounting methods. Taxes paid on this income would increase federal revenues. Changing the timing of when income is recognized could also accelerate or defer tax liability. A deferral decreases the real value of tax payments over time, due to the time value of money. As the examples above illustrated, over the long run, if tax policy does not change, the amount of taxes collected will remain the same, but the timing of collection will be different. Arguably, in some circumstances, paying taxes on revenue and income earned without having received the payment for the services provided or product shipped involves risk and can jeopardize a business's financial health. Although the accrual basis of accounting captures a more complete financial picture of the U.S. government's future liabilities and revenues, the focus of governmental reporting is different than that of a profit-oriented business. A business relies on its assets to help generate future income and cash, whereas the government relies on tax revenue (or cash receipts) to provide services to its citizens. Arguably, a government's effectiveness can be assessed based on the quality of services provided to its citizens rather than by the revenue it generates from using its existing assets. Reporting in both the cash basis and accrual basis of accounting might provide the executive branch, Congress, and U.S. citizens with a more informative picture of the government's performance and future obligations than relying only on the cash or modified cash basis of accounting. Appendix. Definitions: Principles, Concepts, and Terminology Different stakeholders of an organization rely on financial statements to make informed decisions; they expect the financial statements to have certain characteristics for the information to be useful. Although the accounting principles, concepts, and terminology listed below can be applicable for accrual and other bases of accounting, they are the foundational building blocks of accrual accounting. This is not a comprehensive list of principles, concepts, and terminologies in the field of accounting. Concepts and Terminology Realization . The recognition of revenue when the product is delivered or a service is completed, without considering if the payment (cash) has been received. Matching . The recording of revenue and related expenses in the same period. This assumption is based on a cause-and-effect relationship: expenses are incurred in generating the revenue, thus they should be recorded in the same period. Relevance . The capacity for information to make a difference in a decision. The information should have both confirming and predictive values. Confirming value should help the users of the financial information confirm or correct any past predictions they have made. Predictive value should help users of financial information forecast future trends for a business. Materiality . The degree to which an omission or a misstatement of financial information will affect the judgment of someone using the information. Conservatism . The practice of using the lower estimated value when two estimated amounts are likely for an asset. Conversely, for a liability, the practice of clearly stating the amount likely to be paid in the future. Comparability and Consistency . Allow users to compare and analyze financial information from one period to the next. Comparability and consistency can be ensured by applying similar accounting principles to like items from one period to the next. Financial Statements Income Statement . Summarizes and communicates all the revenues that a company has earned during a specific period of time less all the expenses incurred in generating that revenue, usually for a quarter or a year. Balance sheet . Communicates the financial position of a company at a specific point in time, such as at the end of a quarter or a year. It is divided into assets, liabilities, and owners' equity (stockholders' equity). Statement of Changes in Owners ' Equity . For large businesses with multiple shareholders, this is often called the statement of changes in stockholders' equity. It shows the changes in owners' equity of the business entity during the same period of time as measured by the income statement. It is used to communicate the change between the amount of owners' equity of a business at the beginning of the accounting period and the amount of equity at the end of the period. The statement takes into account such things as increases in equity from issuing stock, repurchase of company stock, net income or net loss, and decrease in equity from dividends. Statement of Cash Flows . Shows the amount of aggregate cash inflows and outflows for a company during a specific period of time, usually for a quarter or a year. Financial Statement Categories These are listed in the order they appear in Figure 1 - Figure 6 . Some of the line items are not listed in all statements because only the relevant line items are normally listed in each set of financial statements. Income Statement—Line Items Revenue . The increase in net assets resulting from selling products or services. Revenue is also identified as sales or sales revenue. Expenses . The use of resources (assets) by a company in the process of providing products or services to a customer, including spending cash. Income (Loss) . The excess of revenue over expenses. Loss results from higher expenses than revenue. Operating Income . Gross profit less all operating expenses. Operating income is pretax income. Operating income is not a line item listed on the financial statements in Figure 1 - Figure 6 . Net Income (Net Loss) . The difference after deducting all expenses, including taxes, from revenues. Net loss is the difference between revenue and expenses, including taxes, when expenses exceed revenue. Loss Carry Forward . The carrying forward or back of a Net Operating Loss (NOL) in the current year to determine taxable income in future or previous years. Balance Sheet—Categories Assets . Cash and any economic resources of a company that generate future cash inflows or reduce future cash out-flows. Liabilities . Obligations of a company to outsiders or claims against the company's assets. Owners' Equity . The owners' claims on a company's assets. Owners' equity is the value of assets less liabilities. Balance Sheet—Line Items Cash . The most liquid asset on a balance sheet. Receivables . The amount owed to a company by customers as a result of the company delivering goods or providing services. Payables . The liability a company incurs from the purchase of goods or services. Cash loan payable listed in Figure 5 is cash that is owed to a creditor. Deferred Revenue . The liability a company incurs owing customers goods and services it has not yet provided.

This report introduces two general methods of accounting—the cash basis method and accrual basis method. The choice of accounting method determines the timing of the recognition of revenue and expenses. Under cash basis accounting, revenue and expenses are recorded when cash is actually paid or received. Under accrual basis accounting, revenue is recorded when it is earned and expenses are reported when they are incurred. Understanding the differences between these two accounting methods could be helpful to Congress as it considers reforming the tax system and changing the federal government's financial reporting requirements. Currently with certain exceptions, the Internal Revenue Code (IRC) requires some companies with gross receipts in excess of $5 million to use accrual basis, instead of cash basis, of accounting to determine their tax liabilities. The IRC's requirement to use the accrual method, arguably, ensures that revenue and the expenses incurred to generate that revenue are realized in the same year. Types of companies that may be excepted from using accrual basis of accounting for income taxes are sole proprietors and certain qualified personal service corporations (PSCs) in such fields as health, law, engineering, accounting, performing arts, and consulting firms, as well as farms that are not corporations or do not have a corporate partner. Some Members of Congress have put forth proposals to revise the circumstances under which certain companies are able to use cash method. House Ways and Means Committee Chairman Dave Camp introduced H.R. 1, the Tax Reform Act of 2014, on December 10, 2014. Among the changes proposed in the bill is the requirement that some partnerships, S corporations, and PSCs use the accrual method instead of the cash method to determine their federal taxable liability. Specifically, these business types would be required to use the accrual method if their average annual gross receipts exceeded $10 million. Former Senate Committee on Finance Chairman Max Baucus included a similar provision in his Cost Recovery and Accounting staff discussion draft, which has not been formally introduced as legislation. The Small Business Accounting and Tax Simplification Act (H.R. 947), Start-up Jobs and Innovation Act (S. 1658), and Small Business Tax Certainty and Growth Act (S. 1085), introduced in the 113th Congress, would raise the gross receipt test limit from $5 million to $10 million. The President's budget is prepared primarily using cash basis. The Financial Report of the United States Government is prepared using both accrual and modified cash basis. For the past 17 years, the Government Accountability Office (GAO) has issued a disclaimer of opinion on the Financial Report of the United States Government. One of the reasons stated by GAO for the disclaimer of opinion for the 2013 financial report was that the federal government's process for preparing the consolidated financial statements was ineffective to determine whether the financial reports were presented fairly in accordance with U.S. Generally Accepted Accounting Principles (GAAP). A number of congressional proposals would change how the U.S. government's financial reports are prepared. In the 113th Congress, the GAAP Act (H.R. 476) and H.Res. 545 would require the federal government's budget, financial reports, and performance evaluation reports to be prepared using both cash and accrual method. This report introduces the difference between cash and accrual methods by providing an overview of concepts and theories that underlie these accounting methods. It then explores these concepts through the business cycle of a fictitious small business and how the basis of accounting would affect the financial condition of the business.

Recent Developments In February 2008, when the Administration sent its FY2009 budget request to Congress, the Department of State also provided its estimates of the FY2008 emergency supplemental funds, by account. Some funds differ from that in the legislation because the department allocated some supplementals into the regular base funding when less than requested in the regular budget was received. The State Department's estimates of pending FY2008 supplemental funds are also related to instances where Congress directed certain uses for the supplementals that were not part of the State Department's supplemental request. On December 26, 2007, the President signed into law the FY2008 Consolidated Appropriations Act ( H.R. 2764 / P.L. 110 - 161 ; hereafter referred to as the "Act") providing funding for most government operations for which regular FY2008 appropriations bills—11 in all—had not been enacted. The measure also included $2.385 billion in emergency international affairs spending in addition to emergency funds for military operations in Iraq and Afghanistan. Background H.R. 2764 , the State, Foreign Operations, and Related Programs Act for FY2008, was the vehicle used for the omnibus bill because it had been previously approved by both the House and Senate. The House passed the amended version on December 17, 2007. The Senate took up the House-passed bill the following day and added an additional $40 billion in emergency military spending for operations in Iraq and Afghanistan in addition to the $31 billion provided by the House that was restricted to operations in Afghanistan. The House then approved the final version on December 19. International affairs programs comprise Division J of the omnibus bill and include both regular and supplemental appropriations. In order to meet budget targets, appropriations in Division J are subject to a 0.81 across-the-board cut. The reduction does not affect emergency supplemental funds. Supplemental funds for international affairs in the Act total $2.385 billion for both State Department operations ($1.262 billion) and Foreign Operations ($1.123 billion). The Act also provides supplemental military funding for operations in Afghanistan and Iraq. For more information on all the provisions of the Act, see CRS Report RL34278, FY2008 Supplemental Appropriations for Global War on Terror Military Operations, International Affairs, and Other Purposes. Supplemental funds for State Department accounts include: $781.6 million for Diplomatic and Consular Programs—$575.0 million for operations and $206.6 million for worldwide security protection; $468.0 million for Contributions to International Peacekeeping for activities in Darfur; and $12.0 million for International Broadcasting. Supplemental funds for Foreign Operations accounts include: $115 million for Global Health & Child Survival; $110 million for International Disaster Assistance; $20.8 million for USAID Operating Expenses for Iraq; $542.6 million for Economic Support Fund; $200 million for Migration and Refugee Assistance; $100 million for Foreign Military Financing; and $35 million for Peacekeeping Operations. Approximately $4.5 billion of the President's emergency request remains outstanding. (Note that the Department of State estimates that $5.4 billion of the President's emergency request remains outstanding because of using supplemental funds to fill unmet needs in the regular FY2008 appropriation and because some supplemental funds were directed by Congress for certain uses not requested by the Administration.) Congressional leaders have stated that an additional supplemental measure could be considered in the spring of 2008. Remaining items include additional sums for foreign aid activities in Iraq and Afghanistan, and a major new counter-narcotics initiative in Mexico and Central America. For State Department operations, outstanding items include additional funds for Diplomatic and Consular Programs security upgrades, and Contributions to International Peacekeeping Activities. International Affairs Emergency Supplemental Request On February 6, 2007, the Administration sent to Congress its regular FY2008 budget that included $35.1 billion for international affairs. At the same time, the President sent Congress an FY2008 emergency supplemental request of $3.301 billion for international affairs. On October 22, 2007, the Administration amended its supplemental request with $3.596 billion in additional spending. The total FY2008 emergency supplemental request for international affairs spending amounts to $6.897 billion. While the largest portion of the total request is for State Department operations and foreign assistance in Iraq and Afghanistan, it also includes sizeable requests for programs in Mexico, the West Bank and Gaza, North Korea, Sudan, and Pakistan. The State Department estimated emergency supplemental funding needs of $3.220 billion for Diplomatic and Consular Programs (DCP) in Iraq and Afghanistan, Worldwide Security Upgrades in Afghanistan, staff housing in Afghanistan, Contributions to International Organizations, and Contributions to International Peacekeeping Activities (CIPA) for Darfur. Two-thirds ($2.1 billion) of the State Department request was for Diplomatic and Consular Program funding for Iraq Operations. Foreign Operations comprise $3.678 billion, including $350 million for P.L. 480 food assistance. Nearly half of the total foreign operations package was allocated for assistance in Iraq and Afghanistan. The Bush Administration has increasingly requested emergency supplemental funds for international affairs budgets. Some budget experts and others have criticized the Administration for relying too heavily on supplementals, and that some items, particularly relating to Iraq and Afghanistan, have become routine and should be incorporated into the regular appropriations cycle. The Administration counters that given the nature of rapidly changing overseas events and unforeseen emergencies, it is necessary to make emergency supplemental requests for what it claims are unexpected and non-recurring expenses. State Department Operations1 In February 2007, the original FY2008 State Department portion of the emergency supplemental request consisted of $1.882 billion for Diplomatic and Consular Programs, all for operations in Iraq, and $53 million for Contributions to International Organizations (CIO). The Administration amended this supplemental, adding nearly $1.3 billion: $401.4 million for Diplomatic and Consular Programs (DCP), $160 million for Embassy Security, Construction, and Maintenance (ESCM), and $723.6 million for Contributions for International Peacekeeping Activities (CIPA). Total emergency funds requested for FY2008 for the State Department's Administration of Foreign Affairs equal $3.220 billion in addition to the regular budget request of $7.317 billion for the Administration of Foreign Affairs ( Table 1 ). The Mission in Iraq consists of about 1,000 direct-hire Americans representing 12 U.S. government agencies. For the Diplomatic and Consular Programs account, the Department requested a total of $2.283 billion, of which $2.120.6 billion was for emergency needs in Iraq. In addition, $402.6 million of carryover funds were available, for a total of $2.523 billion for Iraq operations. Of this sum, $978.7 million would pay for security needs, such as local guards ($151.6 million), compound guards ($164.0 million), regional security ($167.3 million), personal security details ($301.4 million), armored vehicles ($41.2 million), physical and technical security, such as vehicle barriers and bomb detective dogs ($8.7 million), equipment, such as bullet proof vests, ammunition, and masks ($6.4 million), other support, such as special agents traveling to Iraq and counterterrorism training ($28.1 million), and overhead cover protection to bolster rooftops ($110.0 million). Another $907.1 million would go toward Provincial Reconstruction Teams (PRTs), paying salaries ($187.6 million), operations ($63.8 million), living accommodations and medical support ($72.1 million), information technology ($60.3 million), vehicles ($3.3 million), security ($516.8 million) and leases of space in Baghdad ($3.2 million). The Administration also sought $162.4 million for worldwide security upgrades in Afghanistan. Of this amount, $80 million would pay for securing facilities, including overhead (roof) protection; $38 million would be for high threat protection teams and support for the election process; $36.5 million would fund unbudgeted security costs for other agencies; and $7.9 million would buy fully armored vehicles for the embassy and PRTs. Other expenses covered by the FY2008 emergency supplemental request for the Department of State included $160 million for U.S. staff housing in Afghanistan under the Embassy Security, Construction, and Maintenance account, $53 million for U.S. assessments for U.N. activities related to combat terrorism, and $723.6 million for U.S. Contributions for International Peacekeeping activities in Darfur. Congressional Action on State Department Operations Congress provided both regular funding and supplemental funding for the Department of State and the Broadcasting Board of Governors (BBG) in Division J of the Consolidated Appropriation Act ( P.L. 110 - 161 ). The enacted law contains $1.262 billion in supplemental funds for the Department of State—$781.6 million for State's Diplomatic and Consular Programs (D&CP) and $468.0 million for U.S. Contributions to International Peacekeeping (CIPA). In both accounts, the emergency supplemental amounts are significantly less than what the Administration had requested. Of the $781.6 million for D&CP, $575.0 million is specified for Iraq operations and $206.6 million is for worldwide security protection (WSP). According to State Department officials, the Department applied the $206 million to the FY2008 base request, resulting in $162.4 million to be still pending for WSP in Afghanistan. The appropriation does not require any specific allocation for the CIPA emergency supplemental funds, although the measure states that "not less than $550.4 million be used to establish a new United Nations/African Union hybrid peacekeeping mission to Darfur (UNAMID)." According to Department of State officials, $390 million is allocated for Darfur and $78 million for FY2008 U.N. Peacekeeping funds. Still pending is $333.6 million for Darfur, according to Department sources. Emergency supplemental funds for the BBG total $12.0 million in the consolidated appropriation. No funds for international broadcasting were requested in the Administration's emergency supplemental request. While the provision lists general funding allocations for BBG, no requirements for specific allocation of the supplemental funds is mentioned. Foreign Operations3 The Foreign Operations portion, totaling $3.678 billion, of the supplemental request was sent to Congress in two tranches. A $1.367 billion request accompanied the President's budget on February 6, 2007. An amended request for $2.311 billion, including P.L. 480 food aid, was sent to Congress on October 22 nd . Approximately one-third of the request was made up of $2.217 billion in Economic Support Funds (ESF) for Iraq ($797 million), Afghanistan ($834 million), West Bank and Gaza ($350 million), North Korea ($106 million), Sudan ($70 million) and Pakistan ($60 million). (See Table 2 for full request.) Anti-narcotics emergency supplemental funding for FY2008 totaled a requested $734 million, the largest portion allocated for Mexico and Central America ($550 million). Migration and Refugee Assistance (MRA) totaled $230 million, mainly for Iraqi and Palestinian refugees. International Disaster and Famine Assistance (IDFA), totaling $80 million, would fund programs in Iraq to assist internally displaced persons (IDPs). The request also includes $5 million for the Afghanistan Presidential Protection Service from the Nonproliferation, Anti-terrorism, Demining and Related Programs (NADR) account. A $350 million request for P.L. 480 food aid would support programs in the Horn of Africa, Kenya, Sudan, and a $30 million contingency fund to anticipate future needs elsewhere. Congressional Action on Foreign Operations Congress approved $1.123 billion in emergency supplemental funds for foreign operations in the omnibus bill in addition to regular FY2008 funding. In many instances, the amounts approved for emergency funds are less than that requested, making it difficult to ascertain what parts of the request will be funded. For example, the White House had requested approximately $2.2 billion in ESF funds for six recipients, but the legislation is not explicit, in every instance, as to where these funds should be directed, presumably leaving some discretion to the Administration. Supplemental funds approved by Congress include $115 million for Global Health & Child Survival (no CSH funds were requested); $110 million for International Disaster Assistance ($80 million had been requested for activities in Iraq); $20.8 million for USAID Operating Expenses ($61.8 million was requested for operations in Iraq and Afghanistan); $542.6 million for Economic Support Fund ($2.2 billion had been requested for Iraq Afghanistan, the West Bank and Gaza, Pakistan, North Korea, and Sudan); $200 million for Migration and Refugee Assistance for Iraqi refugees and Palestinian refugees in Lebanon, and the West Bank and Gaza ($230 million was requested); $100 million for Foreign Military Financing (no FMF funds were requested); and $35 million for Peacekeeping Operations (no PKO funds were requested). No supplemental funds were provided for counter-narcotics programs requested for Mexico and Central America, and the West Bank and Gaza. Iraq Reconstruction Assistance4 Until the passage of the omnibus FY2008 appropriations bill, nearly $42 billion in U.S. funds had been appropriated to support all facets of Iraq reconstruction. Almost all this funding was appropriated in annual supplemental legislation. For FY2008, the Administration made no request for security assistance in its regular Defense budget proposal, but asked for roughly $392 million under State and Foreign Operations appropriations. In both the June 2007-approved House and September 2007-approved Senate versions of the FY2008 State and Foreign Operations legislation ( H.R. 2764 ), Congress rejected the Administration request for Iraq. Therefore, funding for Iraq reconstruction in FY2008 was expected to come almost entirely from an emergency supplemental measure. Administration Supplemental Request for Iraq Reconstruction The Administration's FY2008 emergency supplemental appropriations request, revised on October 22, 2007, included $4.9 billion in funding for Iraq reconstruction. Reconstruction aid has two main components—security aid funded with Department of Defense (DOD) appropriations and political/economic/social sector assistance funded with State and Foreign Operations appropriations. The request for DOD reconstruction appropriations totaled about $3.7 billion. It would chiefly fund the training and equipping of Iraqi troops under the Iraq Security Forces Fund (ISFF) and reconstruction grants provided under the Commander's Emergency Response Program (CERP). The CERP allows military commanders to support a wide variety of economic activities at the local level, from renovating health clinics to digging wells to painting schools, provided in the form of small grants. CERP also funds some infrastructure efforts no longer supported with other U.S. assistance, such as repair or provision of electric generators and construction of sewer systems. Commanders are able to identify needs and dispense aid with few bureaucratic encumbrances. More recently, the CERP has paid salaries to the so-called Sons of Iraq (formerly known as the Concerned Local Citizens), mostly Sunnis who are joining with U.S. forces to provide security. The October budget revision added a $100 million request to the DOD-funded Iraq Freedom Fund account for the Task Force to Improve Business and Stability Operations in Iraq. The Task Force, funded at $50 million under the previous supplemental appropriations legislation, seeks to stimulate the economy and create employment for Iraqi citizens by rehabilitating some of the roughly 200 state-owned enterprises that comprised a large portion of the Iraqi economy prior to the U.S. occupation. News reports have suggested some difficulty with the program, resulting from the lack of electricity, the insecure environment, and a lack of enthusiasm from U.S. companies that had been expected to invest in the facilities, among other reasons. Under the State and Foreign Operations appropriations budget, the FY2008 emergency supplemental request would direct $1.2 billion toward Iraq—$797 million in the Economic Support Fund (ESF), $159 million in the International Narcotics and Law Enforcement (INCLE), and $195 million in the Migration and Refugee Assistance (MRA), and $80 million in the International Disaster and Famine Assistance (IDFA) accounts. ESF is the primary source of funding for the assistance provided by the Provincial Reconstruction Teams (PRTs), which have grown under the surge to 31, including 13 newly established ePRTs (embedded PRTs) embedded with U.S. combat battalions and concentrated mostly in Baghdad and Anbar province. The ePRTs are intended to help stabilize areas secured by U.S. and Iraqi forces by supporting local small-scale, employment-generating, economic projects, using ESF-funded community development grants, job training and micro-loan programs, among other activities. PRTs also utilize ESF to increase the capacities of local government officials to spend Iraqi-owned capital funds allocated by the Iraqi government for infrastructure programs. At the national level, ESF supports Ministerial capacity development, agriculture and private sector reform, and the strengthening of democratization efforts. The October budget revision added another $25 million to the ESF supplemental request and proposed authorization language to allow the Administration to establish a new Iraq enterprise fund based on the model created for east Europe and the former Soviet Union. Enterprise funds are U.S. government-funded private sector-run bodies that primarily provide loans or equity investments to small and medium business. In the former communist countries, enterprise funds also encouraged growth of the private sector, including support for mortgage lending markets and establishment of private equity funds. The most successful example, the Polish Fund, made many profitable investments, helping companies grow that otherwise were unable to obtain financial support in the period just after the fall of communism. Some of the funds, however, have been much less successful, either by taking on poor investment risks, or unable to locate promising businesses because of the poor business climate or competition from other private sector funding sources. Some observers question the usefulness of the funds because their ostensible development purpose seems often to conflict with pressures for economic profit. The INCLE account largely would support rule of law and corrections programs. The Administration request was expected to fund prison construction, something that Congress has sometimes cut from previous requests. The request was also intended to extend judicial reform and anticorruption efforts to the provinces. The MRA request would address the continuing refugee crisis in the region; an estimated 2.0 million Iraqis have fled the country and another 2.2 million have been displaced due to sectarian violence and instability. The IDA program would provide medical care, food, shelter and other relief to refugees and displaced people. FY2008 emergency funds were also requested for operational costs (not included in the reconstruction aid total) for staffing and administering reconstruction programs: $679 million for PRT and $45.8 million for USAID operations. Congressional Action on Iraq Reconstruction in FY2008 Consolidated Appropriations In its consideration of the regular and supplemental requests for Iraq reconstruction, Congress treated the two facets of reconstruction—security and economic—quite differently. On the one hand, Congress did provide a substantial part—$1.9 billion—of the Administration's $3.7 billion Defense appropriations supplemental request for security reconstruction aid. It appropriated half of the request for the Iraq Security Forces Fund and nearly half of the request for the CERP. On the other hand, with a few discrete exceptions—all involving humanitarian programs—Congress, in section 699K of Division J (the State and Foreign Operations part of the omnibus appropriations), specifically rejected almost all regular or supplemental economic assistance to Iraq, providing only about $250 million. It approved efforts to fund humanitarian demining ($16 million, drawing on regular NADR funds), assist refugees and internally displaced persons (drawing on supplemental MRA funds), and offer disaster relief (drawing on supplemental IDFA funds), and it provided $5 million for the Marla Ruzicka War Victims Fund, and $10 million for the rescue of Iraqi scholars (drawing on regular ESF funds, but the latter reportedly not yet allocated). In the end, Congress appropriated 24% of the total International Affairs budget supplemental request for Iraq reconstruction, which, with FY2008 regular and DOD emergency appropriations brings Iraq reconstruction funding since 2003 to $44.8 billion. However, until the 2 nd tranche of the supplemental is considered, U.S. funding for PRT operations and programs and a wide range of other programs designed to support the surge and enhance the capacity of the Iraqi government to address its own needs will have to rely on available FY2007 funds. Pending FY2008 Supplemental The Administration is seeking the remainder of its emergency Iraq reconstruction aid request—about $1 billion in unenacted Foreign Operations appropriations and $2 billion in unenacted Defense appropriations—when the second tranche is deliberated in spring 2008. Afghanistan6 Background Afghanistan's political transition was completed with the convening of a parliament in December 2005, but in 2006 insurgent threats to Afghanistan's government escalated to the point that some experts began questioning the success of U.S. stabilization efforts. In the political process, a new constitution was adopted in January 2004, successful presidential elections were held on October 9, 2004, and parliamentary elections took place on September 18, 2005. The parliament has become an arena for factions that have fought each other for nearly three decades to debate and peacefully resolve differences. Afghan citizens have started to enjoy new personal freedoms, particularly in the northern and western regions of the country, that were forbidden under the Taliban. Women are beginning to participate in economic and political life, including as ministers, provincial governors, and senior levels of the new parliament. The next elections are planned for 2009. The insurgency, led by remnants of the former Taliban regime, escalated in 2006, after several years in which it appeared the Taliban was mostly defeated. U.S. and NATO military commanders have had recent successes in counter-insurgency operations, but the Taliban continues to present a considerable threat to peace and security in parts of Afghanistan. Slow reconstruction, corruption, and the failure to extend Afghan government authority into rural areas and provinces, particularly in the south and east, have contributed to the Taliban resurgence. Political leadership in the more stable northern part of the country have registered concerns about distribution of reconstruction funding. In addition, narcotics trafficking is resisting counter-measures, and independent militias remain throughout the country, although many have been disarmed. The Afghan government and U.S. officials have said that some Taliban commanders are operating across the border from Pakistan, putting them outside the reach of U.S./NATO forces in Afghanistan. In 2007, the Administration unveiled the Reconstruction Opportunity Zones (ROZ) in Afghanistan and the border regions with Pakistan, an initiative to stimulate economic activity in underdeveloped, isolated regions. The United States and partner stabilization measures focus on strengthening the central government and its security forces and on promoting reconstruction while combating the renewed insurgent challenge. As part of this effort, the international community has been running PRTs to secure reconstruction. Despite these efforts, weak provincial governance is seen as a key obstacle to a democratic Afghanistan and continues to pose a threat to reconstruction and stabilization efforts. The FY2008 original and amended emergency supplemental request The Administration requested $339 million in ESF for Afghanistan reconstruction assistance in the FY2008 emergency supplemental in February 2007. Other parts of the supplement request for Afghanistan included increases in embassy operations and security. The Administration amended the FY2008 supplemental request in October 2007 for a total request of $839 million for reconstruction, which included several provisions intended to continue U.S. efforts to stabilize Afghanistan and continue economic reconstruction efforts. The FY2008 Consolidated Appropriations Act funded most government operations for which regular FY2008 appropriations bills—11 in all—had not been enacted. Although emergency funds for military operations in Afghanistan were appropriated as part of the bridge supplemental in the Consolidated Appropriations Act ($1.753 million), the supplemental request of $839 for reconstruction was not appropriated. Key elements of the FY2008 emergency supplemental requests include funding for the ESF. In addition to the $339 million for ESF in the initial supplemental request, the amended supplemental included additional funding for democratic governance and reconstruction efforts to continue security and development strategy that would be allocated as follows: $275 million to strengthen provincial governance and responsiveness to the Afghan people. Funding would support a wide range of programs, preparation activities for the 2009 election and ongoing programs, such as the National Solidarity Program ($40 million), the Afghanistan Reconstruction Fund ($25 million), and the Provincial Governance Fund ($50 million); $50 million as part of an effort to invest in basic social services, such as health and education, particularly in rural areas; and $170 million for economic growth and infrastructure, including the development of power sector projects ($115 million); road projects ($50 million) focused on those segments that are of strategic military importance and provide key connections between the central and provincial government capitals; and funding to support Reconstruction Opportunity Zones ($5 million) in designated economically isolated areas and to create employment alternatives. In addition to ESF funding, the request includes: $5 million in Non-proliferation, Anti-terrorism, Demining and Related Programs (NADR) to support the Afghan leadership through the Presidential Protection Service. Pakistan8 The Federally Administered Tribal Areas (FATA) are considered strategically important to combating terrorism while continued terrorist and militant activities in the frontier region remain a threat to the United States and its interests in Afghanistan. The Government of Pakistan has developed a FATA Sustainable Development Plan to be implemented over 10 years. In support of this plan, the State Department and the U.S. Agency for International Development have put forward a five-year $750 million development assistance strategy for the frontier region (a pledge of $150 million per year) that complements the Government of Pakistan's plan. The U.S. objectives are to improve economic and social conditions in the FATA in order to address the region's use by terrorists and militants. Programs would include governance, health and education services, and economic development, such as agricultural productivity, infrastructure rehabilitation, credit, and vocational training. On November 3, 2007, President Musharraf imposed emergency rule and suspended Pakistan's constitution. In light of these events, the Administration announced a review of U.S. assistance. However, no action was taken in 2007, and in February 2008, Pakistan held what was reported to be a reasonably credible national election that seated a new civilian government. On April 9, 2008, Secretary of State Condoleezza Rice determined that a democratically elected government had taken office in Pakistan on March 25, 2008, which permitted the removal of coup-related sanctions on Pakistan and the resumption of assistance. The FY2008 original and amended supplemental request The Administration did not request funding for Pakistan in its original FY2008 emergency supplemental request in February 2007. In the FY2008 regular budget, the President asked for $90 million for the frontier region development plan, which left a gap of $60 million in the overall U.S. pledge of $150 million. The FY2008 amended supplemental request for $60 million for ESF would address this funding gap and meet the full pledge as follows: Investment in governance and planning ($13 million); health and education programs ($15 million); and local economic development ($32 million). The $60 million emergency supplemental request is in addition to the regular appropriations from various accounts in the FY2008 budget. Sudan10 No funding was requested for Sudan in the original FY2008 emergency supplemental in February 2007. The Administration sought a total of $868.6 million in the amended emergency supplemental for Sudan, most of which was for humanitarian and peacekeeping support in the Darfur region. Under the Consolidated Appropriations Act, Sudan received $334.8 million in the regular FY2008 budget and also $468 for the African Union/United Nations Hybrid Operation in Darfur (UNAMID) peacekeeping mission. FY2008 additional emergency supplemental request Major elements of the FY2008 amended emergency supplemental included the following: A $70 million request in ESF for Sudan to support upcoming national elections that are to take place before July 2009, as determined in the 2005 Comprehensive Peace Agreement between north and south Sudan. The assistance will focus on strengthening political parties, drafting the electoral law, supporting an electoral commission, promoting civic education, and supporting election-related institutions and processes. The United Nations estimates that the elections could cost nearly $400 million because of the logistical hurdles in conducting elections in a post-conflict environment. $70 million remains in the pending FY2008 emergency supplemental; and $723.6 million in support of the African Union/United Nations Hybrid Operation in Darfur (UNAMID) in the amended FY2008 supplemental. In the Consolidated Appropriations, $468 million was appropriated; $333.6 remains in the pending FY2008 emergency supplemental. Mexico and Central America11 The emergency supplemental request included $550 million to meet the first installment of a reportedly $1 billion-plus anti-narcotics package for the Mexico and Central America Security Initiative. Composed entirely of funds from the International Narcotics Control and Law Enforcement Account (INCLE), the initiative is to address criminal gang and drug trafficking activities and to support improved justice systems and rule of law programs. Mexico would see $500 million of the initial package for border security technology and transport for law enforcement and to improve judicial and prison systems. Countries in Central America would receive $50 million to improve border security, deter the smuggling of drugs, arms, and persons, and improve the justice sector and gang prevention programs. Regular funding for Mexico totaled $65.4 million in FY2007 and a requested $45.1 million in FY2008. The countries of Central America received $134.8 million in FY2007 and are proposed to receive $146.5 million in FY2008. Congress did not include this request in the FY2008 omnibus act. West Bank and Gaza12 The FY2008 emergency supplemental request included $375 million to support the Palestinian Authority (PA) government. The focus is on rule of law, economic growth, and governance issues. The supplemental request was in addition to $77 million requested in the regular FY2008 budget and comes after a new PA government was formed without Hamas control. Consisting largely of ESF funds, $40 million is to address governance issues, $20 million would improve health care services, $130 million is to support job creation, infrastructure, trade and investment, and agriculture programs, and $150 million would consist of budget support in the form of a cash transfer. An additional $25 million in INCLE funds would be used to train and equip the Presidential Guards and National Security Force, and $35 million in MRA funds would be for Palestinian refugees in the West Bank and Gaza and in refugee camps in Lebanon. Congress included $542.6 million in emergency ESF and allocated $155 million of those funds to the West bank and Gaza. No emergency INCLE funds were provided. A total of $200 million in emergency MRA was provided; the request was $230 million, which included $35 million for the West Bank and Gaza. North Korea13 The Administration proposed $106 million in ESF funds for North Korea as a result of commitments made as part of the Six Party Talks. In February 2007, North Korea agreed to shut down and eventually abandon the Yongbyon nuclear facility, to allow International Atomic Energy Agency monitors back in the country and to disable all existing nuclear facilities. In return, the United States and other Six Party Talks members (South Korea, China, Russia and Japan) agreed to provide 1 million metric tons of heavy fuel oil, or the equivalent in other assistance, as North Korea meets its commitments. The U.S. share is one-quarter of the 1 million metric tons, or equivalent assistance. The total cost for the U.S. commitment is $131 million. The President authorized $25 million in FY2007 supplemental funds, leaving $106 million that would be provided with the FY2008 supplemental funding. The omnibus bill provided $53 million in ESF funds for North Korea but does not designate them as emergency. Other Humanitarian Assistance14 Although proposed aid packages for specific countries anticipate and identify some humanitarian needs, the Administration also seeks funding for what it describes as unmet or unforeseen humanitarian needs, including $350 million in additional P.L. 480 - Title II assistance to meet emergency food needs in the Darfur region of Sudan and eastern Chad and elsewhere worldwide, including places such as southern Africa, and the Horn of Africa and Kenya. In addition, the Administration's original request asked for $230 million for Migration and Refugee Assistance (MRA) for anticipated and unanticipated refugee and migration emergencies, of which $195 million was requested for humanitarian assistance to Iraqi refugees. This was an increase of $160 million for Iraqi refugees; $35 million was requested in the earlier version of the FY2008 emergency supplemental request. In addition, $35 million was requested for the emergency needs of Palestinian refugees in Gaza and West Bank, and for Palestinian refugee camps in Lebanon. $200 million was appropriated for MRA in the Consolidated Appropriations Act, of which $195 was allocated for Iraqi refugees. $30 million (of the original $230 million request) remains as part of the pending FY2008 supplemental request for assistance to Iraqi refugees. Appendix. FY2008 Emergency Supplemental Request, State Department and Foreign Operations

Congress approved an FY2008 Consolidated Appropriations Act (H.R. 2764) during the week of December 17, 2007, that included some emergency supplemental funding for international affairs requested by the White House. The President signed the spending measure on December 26 (P.L. 110-161). The White House had submitted emergency supplemental requests to Congress for military operations in Iraq and Afghanistan, and international affairs programs totaling $196.5 billion. The request was made in two installments—an estimate of additional expenses was sent to Congress with the FY2008 regular budget request in February 2007, and a second amended request was made on October 22, 2007. Of the total, $6.897 billion consisted of international affairs spending, relating to State Department operations and foreign assistance programs, and included $350 million in Agriculture Department food aid appropriations. This report analyzes the international affairs portion of the request and tracks related legislative activity. On February 6, 2007, the Administration sent to Congress its regular FY2008 budget that included $35.1 billion for international affairs. At the same time, the President sent Congress a separate FY2008 emergency supplemental request of $3.301 billion for international affairs. On October 22, 2007, the Administration amended its supplemental request with $3.596 billion in additional spending. While the largest portion of the total request was for State Department operations and foreign assistance in Iraq and Afghanistan, it also included sizeable requests for programs in Mexico, the West Bank and Gaza, North Korea, Sudan, and Pakistan. The Bush Administration has increasingly requested supplemental funds for international affairs budgets. Some budget experts and others have criticized the Administration for relying too heavily on supplementals, saying that many items have become routine, particularly relating to Iraq and Afghanistan, and should be incorporated into the regular appropriations cycle. The Administration counters that given the nature of rapidly changing overseas events and unforeseen emergencies, it is necessary to make supplemental requests for what it asserts are unexpected and non-recurring expenses. Some congressional leaders have said that an additional supplemental bill may be considered later in 2008. In the meantime, nearly $2.4 billion in international affairs funding requested in the supplemental was included in an omnibus FY2008 appropriations bill. H.R. 2764, the State, Foreign Operations, and Related Programs Appropriation bill, was the vehicle used to accommodate 11 outstanding appropriations measures for both regular FY2008 and supplemental funding. The omnibus also included supplemental funding for military operations. For further information, see CRS Report RL34278, FY2008 Supplemental Appropriations for Global War on Terror Military Operations, International Affairs, and Other Purposes. This report will not be updated.

Background During the summer and fall of 2002, the question of the possible use of "preemptive" military force by the United States to defend its security was raised byPresident Bush and members of his Administration, including possible use of such force against Iraq. Inmid-September 2002, the Bush Administrationpublished The National Security Strategy of the United States which explicitly states that the UnitedStates is prepared to use preemptive military force toprevent U.S. enemies from using weapons of mass destruction (WMD) against it or its friends or allies (1) The following analysis reviews the historical recordregarding the uses of U.S. military force in a preemptive manner. It examines and comments on military actionstaken by the United States that could bereasonably interpreted as preemptive in nature. For purposes of this analysis a preemptive use of military force isconsidered to be the taking of military actionby the United States against another nation so as to prevent or mitigate a presumed military attack oruse of force by that nation against the United States. Thedeployment of U.S. military forces in support of U.S. foreign policy, without their engaging in combat, is not deemed to be a preemptive use of military force. Preemptive use of military force is also deemed to be an action addressed at a specific and imminentmilitary threat, requiring timely action (2) By contrast, a "preventive war" would be a significant use of military force against a nation as a "preventive"action, to forestall a presumed military threat fromthat nation at some point in the future, whether months or years. Such an action would be outside the traditionalparameters of the concept of preemptive use ofmilitary force. It would be a significant expansion of the customary understanding of the elements that define suchan action. However, such an expansiveview of military preemption is contained in the Bush Administration's September 2002 U.S. National Strategydocument, and in related public policystatements by senior Bush Administration officials. Thus, various instances of the use of force that are examinedherein could, using a less stringent definition,be argued by some as examples of preemption by the United States.CRS:Logo: The discussion below is based uponour review of all noteworthy uses ofmilitary force by the United States since establishment of the Republic. Historical overview. The historical record indicates that the United States has never, to date, engaged in apreemptive military attack, as traditionally defined, against another nation. And only once has the United Statesever unilaterally attacked another nationmilitarily prior to its first having been attacked or prior to U.S. citizens or interests firsthaving been attacked. That instance was the Spanish-American War of1898. In that military conflict, the principal goal of United States military action was to compel Spain to grant Cubaits political independence. An act ofCongress, passed in April 1898, just prior to the U.S. declaration of war against Spain, explicitly declared Cuba tobe independent of Spain, demanded thatSpain withdraw its military forces from the island, and authorized the President to use U.S. military force to achievethese ends, if necessary. (3) Spain rejectedthese demands, and an exchange of declarations of war by both countries soon followed thereafter. (4) Although U.S. military actions against Spain werebasedon special U.S. foreign policy considerations, they occurred after war was formally declared, and cannot be fairlycharacterized as preemptive in nature. During the Cuban Missile crisis of 1962, preemptive use of military force to destroy Soviet missiles that had beenintroduced into Cuba was very seriously consideredin the early days of the crisis, but the matter was ultimately resolved diplomatically. Although the United Statesdid not use military force "preemptively," it diddeploy military forces as an adjunct to its diplomacy, while reserving its right to take additional military actions asit deemed appropriate. The circumstances surrounding the origins of the Mexican War are somewhat controversial in nature-but the term preemptive attack by the United States doesnot apply to this conflict. During, and immediately following the First World War, the United States, as part ofallied military operations, sent military forcesinto parts of Russia to protect its interests, and to render limited aid to anti-Bolshevik forces during the Russian civilwar. In major military actions since theSecond World War, the President has either obtained congressional authorization for use of military force againstother nations, in advance of using it, or hasdirected military actions abroad on his own initiative in support of multinational operations such as those of theUnited Nations or of mutual securityarrangements like the North Atlantic Treaty Organization (NATO). Examples of these actions include participationin the Korean War, the 1990-1991 PersianGulf War, and the Bosnian and Kosovo operations in the 1990s. The use of military force against Iraq in 2003,while controversial within the internationalcommunity, was justified by the United States, the United Kingdom and others, as an action necessary to enforceexisting U.N. Security Council resolutions thatmandated Iraqi disarmament. Yet in all of these varied instances of the use of military force by the United States,such military action was a "response," afterthe fact , and was not preemptive in nature, as traditionally defined. Central American and Caribbean interventions. This is not to say that the United States has not used its militaryto intervene in other nations in support of its foreign policy interests. However, U.S. military interventions,particularly a number of unilateral uses of force inthe Central America and Caribbean areas throughout the 20th century were not preemptive in nature. What led the United States to intervene militarily innations in these areas was not the view that the individual nations were likely to attack the United Statesmilitarily . Rather, these U.S. military interventionswere grounded in the view that they would support the Monroe Doctrine, which opposed interference in the Westernhemisphere by outside nations. U.S.policy was driven by the belief that if stable governments existed in Caribbean states and Central America, then itwas less likely that foreign countries wouldattempt to protect their nationals or their economic interests through their use of military force against one or moreof these nations. Consequently, the United States, in the early part of the 20th century, established through treaties with the Dominican Republic (in 1907) (5) and withHaiti (in1915) (6) , the right for the United States to collect anddisperse customs income received by these nations, as well as the right to protect the Receiver General ofcustoms and his assistants in the performance of his duties. This effectively created U.S. protectorates for thesecountries until these arrangements wereterminated during the Administration of President Franklin D. Roosevelt. Intermittent domestic insurrectionsagainst the national governments in bothcountries led the U.S. to utilize American military forces to restore order in Haiti from 1915-1934 and in theDominican Republic from 1916-1924. But thepurpose of these interventions, buttressed by the treaties with the United States, was to help maintain or restorepolitical stability, and thus eliminate thepotential for foreign military intervention in contravention of the principles of the Monroe Doctrine. Similar concerns about foreign intervention in a politically unstable Nicaragua led the United States in 1912 to accept the request of its then President AdolfoDiaz to intervene militarily to restore political order there. Through the Bryan-Chamorro treaty with Nicaragua in1914, the United States obtained the right toprotect the Panama Canal, and its proprietary rights to any future canal through Nicaragua as well as islands leasedfrom Nicaragua for use as militaryinstallations. This treaty also granted to the United States the right to take any measure needed to carry out thetreaty's purposes. (7) This treaty had the effect ofmaking Nicaragua a quasi-protectorate of the United States. Since political turmoil in the country might threatenthe Panama Canal or U.S. proprietary rights tobuild another canal, the U.S. employed that rationale to justify the intervention and long-term presence of Americanmilitary forces in Nicaragua to maintainpolitical stability in the country. U.S. military forces were permanently withdrawn from Nicaragua in 1933. Apartfrom the above cases, U.S. militaryinterventions in the Dominican Republic in 1965, Grenada in 1983, and in Panama in 1989 were based uponconcerns that U.S. citizens or other U.S. interestswere being harmed by the political instability in these countries at the time U.S. intervention occurred. While U.S.military interventions in Central Americaand Caribbean nations were controversial, after reviewing the context in which they occurred, it is fair to say thatnone of them involved the use of "preemptive" military force by the United States. (8) Covert action. Although the use of preemptive force by the United States is generally associated with the overt use of U.S. military forces, it is important to note that the United States has also utilized "covert action" by U.S.government personnel in efforts to influencepolitical and military outcomes in other nations. The public record indicates that the United States has used this formof intervention to prevent some groups orpolitical figures from gaining or maintaining political power to the detriment of U.S. interests and those of friendlynations. For example, the use of "covertaction" was widely reported to have been successfully employed to effect changes in the governments of Iran in1953, and in Guatemala in 1954. Its use failedin the case of Cuba in 1961. The general approach in the use of a "covert action" is reportedly to support localpolitical and military/paramilitary forces ingaining or maintaining political control in a nation, so that U.S. or its allies interests will not be threatened. Noneof these activities has reportedly involvedsignificant numbers of U.S. military forces because by their very nature "covert actions" are efforts to advance anoutcome without drawing direct attention tothe United States in the process of doing so. (9) Suchprevious clandestine operations by U.S. personnel could arguably have constituted efforts at preemptiveaction to forestall unwanted political or military developments in other nations. But given their presumptive limitedscale compared to those of majorconventional military operations, and also that they were not used to preempt an imminent military attack on theUnited States, it seems more appropriate toview U.S."covert actions" as adjuncts to more extensive U.S. military actions in support of U.S. foreign policy. Assuch, these U.S. "covert actions" do notappear to be true case examples of the use of preemptive military force by the United States. Cuban missile crisis of 1962. The one significant, well documented, case of note, where preemptive militaryaction was seriously contemplated by the United States, but ultimately not used, was the Cuban missile crisis ofOctober 1962. When the United States learnedfrom spy-plane photographs that the Soviet Union was secretly introducing nuclear-capable, intermediate-rangeballistic missiles into Cuba, missiles that couldthreaten a large portion of the eastern United States, President John F. Kennedy had to determine if the prudentcourse of action was to use U.S. military airstrikes in an effort to destroy the missile sites before they became operational, and before the Soviets or the Cubansbecame aware that the U.S. knew they werebeing installed. While the military preemption option was seriously considered, after extensive debate among hisadvisors on the implications of such anaction, President Kennedy undertook a measured but firm approach to the crisis that utilized a U.S. naval"quarantine" of the island of Cuba to prevent receiptof additional missile shipments from the Soviet Union as well as military supplies and material for the existingmissile sites, while a diplomatic solution wasaggressively pursued. At the same time, the U.S. reserved the right to employ the full range of military actionsshould diplomacy fail. This approach wassuccessful, and the crisis was peacefully resolved. (10) Iraq War of 2003. In the case of the Iraq War of 2003, the United States has used significant military forceagainst that nation even though the U.S. was not attacked first by Iraq. Various public speeches made by the BushAdministration during the summer and fallof 2003 noted that the United States was prepared to engage in "preemptive" military action against unfriendlynations in advance of their becoming an"imminent" military threat to the U.S. In September 2002, the Bush Administration published The NationalSecurity Strategy of the United States of America which explicitly states that the United States is prepared to use preemptive military force to prevent enemies of theUnited States from using weapons of massdestruction (WMD) against it or its allies and friends. The timing of the release of this strategy document, togetherwith statements of senior BushAdministration officials regarding the potential threat to the U.S. that Iraq's WMD program posed, led to speculationthat Iraq could be the first case where theexpansive approach to use of preemptive military force would be applied. Subsequently, the Bush Administrationsought and obtained passage of U.N. SecurityCouncil Resolution 1441 on November 8, 2002, which, among other things, noted that Iraq was still in materialbreach of its obligations under prior U.N.Security Council resolutions to destroy and not to seek to obtain various proscribed weapons and capabilities. UNSCR 1441 further noted that "seriousconsequences" would result from failure of Iraq to comply unconditionally with its obligations contained in the U.N.Resolutions. (11) When President Bush launched U.S. military action against Iraq on March 19, 2003, he stated he was doing so, with coalition forces, to enforce existing UNSecurity Council Resolutions that had been violated by Iraq since the Gulf War of 1990-1991--Security CouncilResolutions that expressly contemplated theuse of force should Iraq not comply with them--and also to protect the security of the U.S. In a March 19, 2003report to Congress on the issue, President Bush noted his conclusion and determination that further diplomatic efforts to enforce the U.N. imposed obligation thatIraq destroy its WMD would not succeed,thus requiring the use of military force to achieve Iraqi disarmament. The President did not explicitly characterizehis military action as an implementation ofthe expansive concept of preemptive use of military force against rogue states with WMD contained in his NationalSecurity Strategy document of September2002. (12) However, as U.S. military action wasjustified to protect the security of the United States from a prospective , but not imminent threat of military actionby Iraq, it could be argued that, measured against the traditional concept of preemptive use of military force, thiswas an act of "preventive war"by the UnitedStates.

This report reviews the historical record regarding the uses of U.S. military force ina "preemptive" manner, anissue that emerged during public debates prior to the use of U.S. military force against Iraq in 2003. It examinesand comments on military actions taken by theUnited States that could be reasonably interpreted as preemptive in nature. For purposes of this analysis apreemptive use of military force is considered to bethe taking of military action by the United States against another nation so as to prevent or mitigate a presumedimminent military attack or use of force by thatnation against the United States. The deployment of U.S. military forces in support of U.S. foreign policy, withouttheir engaging in combat, is not deemed tobe a preemptive use of military force. This review includes all noteworthy uses of military force by the UnitedStates since the establishment of the Republic. A listing of such instances can be found in CRS Report RL32170, Instances of Use of United States ArmedForces Abroad, 1798-2003. For an analysis ofinternational law and preemptive force see CRS Report RS21314, International Law and the Preemptive Useof Force Against Iraq. This report will be updatedif significant events warrant.

Introduction Intellectual property (IP) law has four major branches, applicable to different types of subject matter: copyright (original artistic and literary works of authorship), patent (inventions of processes, machines, manufactures, and compositions of matter that are useful, new, and nonobvious), trademark (commercial symbols), and trade secret (confidential, commercially valuable business information). The source of federal copyright and patent law originates with the Copyright and Patent Clause of the U.S. Constitution, which authorizes Congress "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." By contrast, the Commerce Clause provides the constitutional basis for federal trademark law and trade secret law. The Copyright Act, Patent Act, and Lanham Act provide legal protection for intellectual property against unauthorized use, theft, and other violations of the rights granted by those statutes to the IP owner. The Copyright Act provides copyright owners with the exclusive right to control reproduction, distribution, public performance, and display of their copyrighted works. The Patent Act grants patent holders the right to exclude others from making, using, offering for sale, or selling their patented invention throughout the United States, or importing the invention into the United States. The Lanham Act allows sellers and producers of goods and services to prevent a competitor from (1) using any counterfeit, copy, or imitation of their trademarks (that have been registered with the U.S. Patent and Trademark Office), in connection with the sale of any goods or services in a way that is likely to cause confusion, mistake, or deception, or (2) using in commercial advertising any word, term, name, symbol, or device, or any false or misleading designation of origin or false or misleading description or representation of fact, which: (a) is likely to cause confusion, mistake, or deception as to affiliation, connection, or association, or as to origin, sponsorship, or approval, of his or her goods, services, or commercial activities by another person, or (b) misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities. In addition, the Lanham Act grants to owners of "famous" trademarks the right to seek injunctive relief against another person's use in commerce of a mark or trade name if such use causes dilution by blurring or tarnishment of the distinctive quality of the famous trademark. An alternative to patent law protection may be found in trade secret law, which grants inventors proprietary rights to particular technologies, processes, designs, or formula that may not be able to satisfy the rigorous statutory standards for patentability. Until 1996, trade secret protection was primarily governed by state law. Congress enacted the federal Economic Espionage Act of 1996 to provide criminal penalties (and authorize the Attorney General to seek injunctive relief) for the theft of trade secrets by domestic and foreign entities, in certain circumstances. The Defend Trade Secrets Act of 2016 amended the Economic Espionage Act to provide private parties with a federal civil remedy for trade secret misappropriation. Enforcement of IP rights may be accomplished by the IP owner bringing a lawsuit against an alleged infringer. The U.S. Department of Justice may also criminally prosecute particularly egregious violators of the IP laws in order to impose greater punishment and possibly deter other would-be violators. In certain circumstances, a variety of federal agencies may become involved in IP rights enforcement: for example, the U.S. Customs and Border Protection agency has the power to seize counterfeit goods upon their attempted importation in the United States; the International Trade Commission may investigate and adjudicate allegations of unfair trade practices due to the importing of goods that were produced as a result of trade secret theft or that infringe U.S. patents, trademarks, or copyrights; and the U.S. Trade Representative, the U.S. Department of Commerce's International Trade Administration, and the U.S. State Department are all involved in promoting and seeking IP rights enforcement by trading partners and other foreign countries. In copyright cases, the statute of limitations for initiating a civil action is within three years after the claim accrued, while a criminal proceeding must be commenced within five years after the cause of action arose. Although there is no express federal statute of limitations for civil trademark infringement claims, federal courts generally follow the limitations period for the most analogous state-law cause of action from the state in which the claim is heard; courts have also applied the equitable doctrine of laches (unreasonable, prejudicial delay in commencing a lawsuit) to determine whether a trademark infringement claim is untimely. One federal appellate court has determined that criminal trademark infringement prosecutions are governed by the general five-year statute of limitations for non-capital offenses under Title 18 of the U.S. Code. Although there is no statute of limitations in patent infringement actions, the Patent Act specifies a time limit on monetary relief for patent infringement claims: damages are available only for infringement that occurs within the six years prior to the filing of the complaint or counterclaim for patent infringement. Finally, federal law provides a three-year statute of limitations period for a civil action involving the misappropriation of a trade secret. The Lanham Act, Copyright Act, and Economic Espionage Act have criminal and civil provisions for violations of their respective provisions, while the Patent Act only provides civil remedies in the event of patent infringement. Federal courts determine the civil remedies in an action for infringement brought by the IP owner. If the federal government chooses to prosecute individuals or organizations for IP violations, the imprisonment terms are set forth in the substantive statutes describing the particular IP crime, while the criminal fine amount for violations of the trademark and copyright laws is determined in conjunction with 18 U.S.C. Section 3571 (which specifies the amount of the fine under Title 18 of the U.S. Code). In comparison, the criminal fine amount for economic espionage or trade secret theft is specified in the Economic Espionage Act itself. Information regarding the civil remedies and criminal penalties for violations of the copyright, trademark, patent, and trade secret laws is presented on the following pages in table-format. These penalties may be imposed upon conviction of the defendant in the case of a criminal prosecution, and the civil remedies follow a judgment of infringement reached by a federal judge or jury in a civil action. (Certain injunctive relief may be available prior to final judgment, such as temporary injunctions or impounding of infringing articles.) For any offense that provides forfeiture penalties, criminal forfeiture is available upon the conviction of the owner of the offending property; civil forfeiture is available if the government establishes that the infringing goods are subject to confiscation by a preponderance of the evidence. Restitution is available when the defendant is convicted of a criminal property offense. Civil Remedies Copyright Trademark Patent Unfair Competition Trade Secrets Criminal Penalties Copyright Trademark Trade Secrets .

This report provides information describing the federal civil remedies and criminal penalties that may be available as a consequence of violations of the federal intellectual property laws: the Copyright Act of 1976, the Patent Act of 1952, the Trademark Act of 1946 (conventionally known as the Lanham Act), and the Economic Espionage Act of 1996. The report explains the remedies and penalties for the following intellectual property offenses: 17 U.S.C. §501 (copyright infringement); 17 U.S.C. §506(a)(1)(A) and 18 U.S.C. §2319(b) (criminal copyright infringement for profit); 17 U.S.C. §506(1)(B) and 18 U.S.C. §2319(c) (criminal copyright infringement without a profit motive); 17 U.S.C. §506(a)(1)(c) and 18 U.S.C. §2319(d) (pre-release distribution of a copyrighted work over a computer network); 17 U.S.C. §1309 (infringement of a vessel hull or deck design); 17 U.S.C. §1326 (falsely marking an unprotected vessel hull or deck design with a protected design notice); 17 U.S.C. §§1203, 1204 (circumvention of copyright protection systems); 18 U.S.C. §2319A (bootleg recordings of live musical performances); 18 U.S.C. §2319B (unauthorized recording of films in movie theaters); 15 U.S.C. §1114(1) (unauthorized use in commerce of a reproduction, counterfeit, or colorable imitation of a federally registered trademark); 15 U.S.C. §1125(a) (trademark infringement due to false designation, origin, or sponsorship); 15 U.S.C. §1125(c) (dilution of famous trademarks); 15 U.S.C. §§1125(d) and 1129 (cybersquatting and cyberpiracy in connection with Internet domain names); 18 U.S.C. §2318 (counterfeit/illicit labels and counterfeit documentation and packaging for copyrighted works); 35 U.S.C. §271 (patent infringement); 35 U.S.C. §289 (infringement of a design patent); 35 U.S.C. §292 (false marking of patent-related information in connection with articles sold to the public); 28 U.S.C. §1498 (unauthorized use of a patented invention by or for the United States, or copyright infringement by the United States); 19 U.S.C. §1337 (unfair practices in import trade); 18 U.S.C. §2320 (trafficking in counterfeit trademarks); 19 U.S.C. §1526(e), 15 U.S.C. §1124 (importing merchandise bearing counterfeit marks),18 U.S.C. §2320(h) (transshipment and exportation of counterfeit goods); 18 U.S.C. §1831 (trade secret theft to benefit a foreign entity); and 18 U.S.C. §1832 (theft of trade secrets for commercial advantage).

Overview of Commerce Clause The U.S. Constitution specifies the enumerated powers of the federal government. These powers, however, have been interpreted broadly so as to create a large potential overlap with state authority. States may generally legislate on all matters within their territorial jurisdiction. Indeed, criminal law, family law, property, and contract and tort law, among others, are typical areas of law that are regulated at the state level. Accordingly, states have enacted their own laws regarding the unlawful possession and disposition of firearms, as well as the manner in which firearms may be carried. Congress, too, has enacted legislation related to firearms control. It includes, among others, the National Firearms Act of 1934, the Gun Control Act of 1968, the Firearm Owners' Protection Act of 1986, and the Brady Handgun Violence Prevention Act of 1993. Generally, Congress has relied on its authority under the Commerce Clause to enact such statutes. The Commerce Clause states: "The Congress shall have Power ... To regulate Commerce with foreign Nationals, and among the several States, and with Indian Tribes." Although a plain reading of the text might suggest that Congress has only a limited power to regulate commercial trade between persons in one state and persons of another state, the Clause has not been construed quite so narrowly, particularly in the modern era. Since the 1930s, the U.S. Supreme Court has held that Congress has the ability to protect interstate commerce from burdens and obstructions "no matter what the source of the dangers which threaten it." Over time, the Court concluded that Congress had considerable discretion in determining which commercial activities, including intrastate commercial activities, "affect" interstate commerce, as long as the legislation was "reasonably" related to achieving its goals of regulating interstate commerce. Furthermore, the Court in Wickard v. Filburn also held that an activity, "though it may not be regarded as commerce, it may still, whatever its nature," be regulated by Congress if, in the aggregate, "it exerts a substantial economic effect on interstate commerce." Under this prevailing interpretation of the Commerce Clause, the Supreme Court has upheld a variety of federal laws, including those regulating the production of wheat on farms, racial discrimination by businesses, and loan-sharking. United States v. Lopez and Progeny However, in 1995, the Supreme Court revisited the scope of the Commerce Clause in United States v. Lopez . In Lopez , the Supreme Court held that Congress had exceeded its constitutional authority when it passed the Gun-Free School Zones Act of 1990 (School Zones Act). The Court, clarifying the judiciary's traditional approach to Commerce Clause analysis, identified three broad categories of activity that Congress may regulate under its commerce power. These are 1. the channels of commerce; 2. the instrumentalities of commerce in interstate commerce, or persons or things in interstate commerce, even though the threat may come only from intrastate activities; and 3. activities which "substantially affect" interstate commerce. Under the first two categories, Lopez endorses Congress's "power to regulate all activities, persons or products that cross state boundaries. So long as a federal regulation relates to interstate transactions or interstate transportation, the federal regulation would be justified under the first two branches.... " However, in examining the School Zones Act, the Court concluded that possession of a gun in a school zone was neither a regulation of the channels nor the instrumentalities of interstate commerce. Because the conduct regulated was considered to be a wholly intrastate activity, the Court concluded that Congress could only regulate the activity if it fell within the third category and "substantially affects" interstate commerce. The Court indicated that intrastate activities have been, and could be, regulated by Congress where the activities "arise out of or are connected with a commercial transaction" and which are "part of a larger regulation of economic activity, in which the regulatory scheme could be undercut unless the intrastate activity were regulated." The Court struck down the School Zones Act, declaring that the intrastate activity—possession of a handgun near a school—was not part of a larger economic firearms regulatory scheme. Moreover, the act did not require that interstate commerce be affected, such as by requiring the gun to be transported in interstate commerce. For the same reasons identified in Lopez , the Supreme Court subsequently invalidated a part of the Violence Against Women Act (VAWA) in United States v. Morrison . The Court in Morrison concluded that the activity regulated—a federal civil remedy for gender-motivated crimes—did not fall within the first two commerce categories, or the third category, because it was not an "economic activity"; furthermore, the provision contained no "jurisdictional element establishing that the federal cause of action [was] in pursuance of Congress's power to regulate interstate commerce." In both Lopez and Morrison , the Court rejected the government's reasoning in establishing a connection between the regulated activity and its purported effect on interstate commerce, because the Court would have been required to "pile inference upon inference in a manner that would bid fair to convert congressional authority under the Commerce Clause to a general police power of the sort retained by the States." Although finding that Congress had exceeded its authority under the Commerce Clause with respect to the laws in Lopez and Morrison , the Court in Gonzales v. Raich subsequently clarified that Congress still has considerable authority under the "substantially affects" doctrine to regulate activity that is "quintessentially economic" on the intrastate level, even though the activity itself is not a part of interstate commerce. The Court stated it did not need to determine for itself whether the activities, taken in the aggregate, substantially affect interstate commerce or undercut the larger regulatory scheme. Instead, it needed only to determine whether Congress had a rational basis to make such a conclusion. Justice Scalia, in his concurring opinion, also emphasized the role of the Necessary and Proper Clause. He opined that the Clause has been inherently relied on to regulate (1) economic intrastate activities that substantially affect interstate commerce, and (2) noneconomic intrastate activities that do not themselves substantially affect interstate commerce but that are a "necessary part of a more general regulation of interstate commerce." The latter category, however, is limited by Lopez and Morrison , where the Court rejected arguments that "Congress may regulate noneconomic activity based solely on the effect that it may have on interstate commerce through a remote chain of inferences." Constitutional Limitations on Congress's Authority to Regulate Firearms Although the Commerce Clause gives Congress broad authority to enact laws, there may be other constitutional constraints on its ability to regulate firearms. One constitutional limitation may be the Tenth Amendment to the U.S. Constitution, which provides: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Although the Tenth Amendment may limit the type of legislation Congress can pass, "a valid exercise of Congress' Commerce Clause power is not a violation of the Tenth Amendment." Generally, the Supreme Court has ruled that the federal government's power over interstate commerce does not authorize it to require, or commandeer, state or local governments to take legislative acts or certain executive actions. For example, in New York v. United States , the Supreme Court held that federal legislation cannot require states to develop legislation on how to dispose of all low-level radioactive waste generated within the state, nor can it order states to take title to such waste. Although the Court held that Congress had authority under the Commerce Clause to regulate low-level radioactive waste directly, such power did not authorize them to order states to enact laws. The Court subsequently held in Printz v. United States that Congress cannot commandeer state executive branch officials from carrying out a federal program, as such an act is outside Congress's power and inconsistent with the Tenth Amendment. However, the Court has upheld federal legislation that regulated state activities with respect to information obtained from drivers' license applications, because the law at issue "does not require the states in their sovereign capacity to regulate their own citizens ... [and it] does not require [the state] legislature to enact any laws or regulations, and it does not require state officials to assist in the enforcement of federal statutes regulating private individuals." The Second Amendment to the U.S. Constitution is another constitutional provision that may limit the type of legislation Congress may pass related to firearms. The Second Amendment provides: "A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed." The Supreme Court in District of Columbia v. Heller held that the Second Amendment protects an individual right to keep a firearm, unconnected with service to the militia, and to use that firearm for lawful purposes such as self-defense in the home. Although Congress has the authority to regulate firearms under its commerce authority, it may not do so in a way that infringes upon the right guaranteed by the Second Amendment. Since Heller , several federal firearms laws have been challenged under the Second Amendment, though all have been upheld. For a discussion on how federal firearms laws are evaluated under a Second Amendment analysis, see CRS Report R43031, Second Amendment Challenges to Firearms Regulations Post-Heller , by [author name scrubbed]. In sum, Congress has the general authority to enact regulations under its Commerce Clause authority, so long as the activities or conduct regulated fall within one of the three categories established by Lopez . However, even where Congress may have direct authority to regulate, it cannot do so in a manner that would be inconsistent with other constitutional principles, such as those under the Tenth or Second Amendments to the U.S. Constitution. Commerce Clause Challenges to Federal Firearms Laws Federal firearms laws have been challenged periodically on grounds that Congress did not have authority under the Commerce Clause to pass them. This section examines lower courts' decisions regarding the constitutional validity of certain federal firearms laws, particularly the application of these laws to intrastate possession and intrastate transfer of firearms. As described above, Congress's authority under the Commerce Clause extends to regulating items that move through interstate commerce and commercial activities that affect interstate commerce. It is therefore relatively settled that Congress may regulate the manufacture and transfer of firearms. For example, the constitutionality of a federal semiautomatic assault weapons ban, which was in effect for ten years, was challenged under the Commerce Clause. In 1994, Congress passed the Violent Crime Control and Law Enforcement Act, which included a provision making it unlawful to possess, manufacture, or transfer certain types of semiautomatic pistols, rifles, and shotguns (i.e., "assault weapons"). The U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), in Navegar, Inc. v. United States , addressed the question of whether the activities regulated under this act fell within one of the three categories of activity identified in Lopez . Like the Court in Lopez , the D.C. Circuit determined that it was not required to analyze the act under the first or second categories because the "[it] readily falls within category 3 as a regulation of activities having a substantial [e]ffect on interstate commerce." The court analyzed individually the act's prohibitions on manufacture, transfer, and possession. Regarding the manufacturing prohibition, the D.C. Circuit declared that "[t]he Supreme Court has repeatedly held that the manufacture of goods which may ultimately never leave the state can still be activity which substantially affects interstate commerce." Regarding the prohibition on transfers, the court similarly remarked that "the Supreme Court precedent makes clear that the transfer of goods, even as part of an intrastate transaction, can be an activity which substantially affects interstate commerce." Based on these maxims, the court held that "it is not even arguable that the manufacture and transfer of 'semiautomatic assault weapons' for a national market cannot be regulated as activity substantially affecting interstate commerce." However, with respect to the possession of a semiautomatic assault weapon, the court in Navegar noted that the Lopez decision raised a question of whether "mere possession" can substantially affect interstate commerce. The court proceeded to analyze the purposes behind the act to determine whether "it was aimed at regulating activities which substantially affect interstate commerce." Analyzing the congressional hearings, the court determined that the ban on possession was "conceived to control and restrict the interstate commerce in 'semiautomatic assault weapons,'" and that the "ban on possession is a measure intended to reduce the demand for such weapons." The D.C. Circuit stated that the ban on possession was "necessary to allow law enforcement to effectively regulate the manufacture and transfers where the product comes to rest, in the possession of the receiver." Based on these factors, the court concluded that the "purpose of the ban on possession has an 'evident commercial nexus.'" Accordingly, the court held that the federal semiautomatic assault weapons ban was valid under Congress's commerce power. Intrastate Possession The Gun Control Act includes several provisions that criminalize possession of a firearm. For instance, 18 U.S.C. §922(o) makes it unlawful for any person to "possess a machinegun" and 18 U.S.C. §922(g) makes it unlawful for certain categories of persons to "possess in or affecting commerce, any firearm or ammunition," As demonstrated above, however, whether Congress actually has authority to regulate "mere possession" of firearms has been questioned by the courts. In particular, courts have confronted the issue of whether these provisions as applied to intrastate possession are a proper exercise of Congress's power under the Commerce Clause. Analysis regarding the validity of these federal possession provisions has varied slightly, given the development of the Supreme Court's jurisprudence on the Commerce Clause. Possession Without a Jurisdictional Hook Prior to and post- Lopez , federal courts generally upheld §922(o) as a valid exercise of Congress's commerce power, despite the absence of jurisdictional language requiring that the machinegun travel in or substantially affect interstate commerce. However, once Lopez was decided, at least one federal court of appeals held §922(o) to be unconstitutional as applied to a defendant who was convicted of possessing machineguns that had been home assembled through parts kits. In United States v. Stewart (Stewart I) , the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) held that there were limits in applying §922(o). The court rejected the argument that the statute was constitutional under either of the first two categories in Lopez , even though some of the parts of the machineguns had, at some point, moved in interstate commerce. It also found that the defendant's simple possession of homemade machineguns did not substantially affect interstate commerce as recognized by Lopez . In particular, the Ninth Circuit determined that possession of a machinegun is not, without more, economic in nature and that nothing in the legislative history indicates that the regulation itself has an economic purpose. Therefore, the court held that, as applied to the defendant's possession of homemade machineguns, §922(o) was an unlawful extension of Congress's commerce power. Stewart I , however, was decided prior to the Supreme Court's decision in Gonzales v. Raich . Upon remand, the Ninth Circuit in Stewart II held that §922(o) can be constitutionally applied to the defendant's possession of homemade machineguns in light of the Supreme Court's analysis in Raich . The statute at issue, as well as the actions and claims of the defendant, were "nearly identical" to the claims and statute at issue in Raich , where the Court rejected the argument that the federal provision criminalizing possession of marijuana could not be applied to the intrastate possession of medical marijuana. As discussed supra , the Court in Raich reaffirmed its prior holdings that Congress may regulate "purely intrastate activity that is not itself 'commercial' ... if it concludes that failure to regulate that activity would undercut the regulation of the interstate market in that commodity." Under this reasoning, the defendant in Raich was not successful in his attempt to carve out a class of intrastate activities as beyond the reach of Congress's commerce power. Relying on this analysis, the Ninth Circuit in Stewart II concluded that, like the regulation on possessing drugs in the Controlled Substances Act, the machinegun possession ban fits within a larger scheme for the regulation of interstate commerce of firearms. The court's new focus under the substantially affects doctrine post- Raich was "not [the defendant] and his homemade machine guns, but all homemade machineguns manufactured intrastate. Moreover, [the court] does not require the government to prove that those activities actually affected interstate commerce; we merely inquire whether Congress had a rational basis for so concluding." Thus, under this lens, machineguns, whether they are homemade or commercially made, are fungible commodities like marijuana, and Congress had a rational basis for concluding that "in the aggregate, possession of homemade machineguns could substantially affect interstate commerce in machineguns." The analysis in Raich , followed by the Ninth Circuit in Stewart II , has been relied upon by other courts in evaluating state legislation that purports to exempt from federal law the intrastate manufacture and sale of firearms, firearms accessories, and ammunition. This type of law is known as a Firearms Freedom Act. The United States District Court for the District of Montana, echoing the concerns in Raich and Stewart II , declared that "Montana's attempt to... excise a discrete local activity from the comprehensive regulatory framework provided by federal firearms laws cannot stand." In upholding the validity of the National Firearms Act and Gun Control Act as applied to the intrastate manufacture and sale of firearms and firearms accessories, the district court stated that Congress had a rational basis, without the need to have particularized findings, to conclude that failure to regulate intrastate manufacture and sale of firearms would leave a "gaping hole" in the federal scheme regulating firearms. Possession with a Jurisdictional Hook Individuals, who have been convicted under §922(g) for being a felon, or other prohibited person, in possession of a firearm, also have challenged whether such a provision is constitutionally valid under Congress's commerce power. For instance, the Ninth Circuit in United States v. Jones addressed the constitutional validity of §922(g)(8), which makes it unlawful for a person who is "subject to a court order that ... [meets specific requirements] ... to ... possess in or affecting commerce, any firearm or ammunition ." The Ninth Circuit distinguished §922(g)(8) from the School Zones Act in Lopez on the basis that this statute contains "a jurisdictional element explicitly requiring a nexus between the possession of firearms and interstate commerce." The court affirmed that this provision constitutes a valid exercise of Congress's power to regulate activity under the second and third categories identified under the Lopez framework. However, the jurisdictional hook—"in or affecting commerce"—relating to possession under §922(g), may not be "a talisman that wards off constitutional challenges." One reason a jurisdictional hook is employed is to make facial constitutional challenges unlikely or impossible, "and to direct litigation toward the statutory question of whether, in the particular case, the regulated conduct possesses the requisite connection to interstate commerce." Notwithstanding the jurisdictional hook that distinguishes it from the School Zones Act in Lopez , an argument could be made that a felon-in-possession statute does not fall within any of the categories identified in Lopez . The U.S. Court of Appeals for the Tenth Circuit (Tenth Circuit) examined this issue in United States v. Patton , within the context of another federal statute similar to the felon-in-possession statute. In Patton , the court analyzed whether Congress had authority to prohibit the intrastate possession by a felon of a bulletproof vest, in the absence of any commercial transaction or evidence of a connection to commercial activity other than the fact that, prior to the defendant's lawful purchase, the vest had been sold across a state line. The Tenth Circuit concluded that such a provision did not fit within any of the three categories of Lopez , as clarified and affirmed by Raich , but the court nonetheless upheld the provision under a pre- Lopez precedent from the Supreme Court. After dismissing the three categories of commerce, the Tenth Circuit turned to the Supreme Court decision Scarborough v. United States , which had analyzed the pre-Gun Control Act felon-in-possession statute. Because "in or affecting commerce" applies to the word "possess," the government, in cases of pure possession, must prove that possession of a firearm has some nexus to commerce in order to validly regulate the activity. Thus, in Scarborough the Court had to determine what proof is necessary for the government to satisfy the nexus between possession and interstate commerce. The court rejected the argument that possession of the gun have some "contemporaneous connection with commerce at the time of the offense." Instead, the Court concluded that the sensible reading, supported by the legislative history, demonstrated that "Congress intended no more than a minimal nexus requirement," which may be satisfied by proving that the firearm possessed had, at some time, traveled in interstate commerce. Applying the principles from Scarborough, the Tenth Circuit in Patton upheld the constitutional validity of the body armor statute as applied to the defendant's intrastate possession, because the item, at some point, had moved across state lines and therefore such activity could be regulated under Congress's commerce power. As discussed above, a firearms possession statute, like §922(g), may be considered a proper exercise of Congress's commerce authority under the Lopez categories. However, a reviewing court that conducts a thorough analysis of §922(g), like the Tenth Circuit in Patton did with similar regulation, could find that mere intrastate possession of a firearm, or any firearms accessory, does not fit under any of the three Lopez categories. If so, Scarborough , which appears to have been left intact by Lopez , seems to be the controlling precedent under which the federal firearms possession statute may be enforced against prohibited intrastate possessors. One court has noted that "nothing in Lopez suggests that the 'minimal nexus' test should be changed." Notably, while courts have continued to follow Scarborough , they have also expressed doubts about its continuing validity. For example, in upholding the validity of §922(g), the United States Court of Appeals for the Fifth Circuit opined: If the matter were res nova, one might well wonder how it could rationally be concluded that mere possession of a firearm in any meaningful way concerns interstate commerce simply because the firearm had, perhaps decades previously before the charged possessor was even born, fortuitously traveled in interstate commerce. It is also difficult to understand how a statute construed never to require any but such a per se nexus could "ensure, through case-by-case inquiry, that the firearm possession in question affects interstate commerce." [citation omitted] Several federal courts of appeals have noted the tension between Scarborough and the three-category approach later adopted by the Supreme Court. Should the Supreme Court revisit the potential doctrinal inconsistency between Lopez and Scarborough , it is conceivable that regulation of intrastate possession of a firearm or any other firearms accessory may be found to be beyond the reach of Congress. Alternatively, if the jurisdictional hook were interpreted so that the intrastate possession must have some contemporaneous connection with interstate commerce- e.g., the defendant is engaging in commerce at the time of the offense or possessing the gun at an interstate facility, then it would not be beyond Congress's commerce power to regulate some intrastate possession. The consequence of such an interpretation, however, would be that a subset of individuals would not be captured under Congress's commerce power (e.g., those who fall within a prohibited possessor category but who only maintain a firearm at home and never carry or possess it elsewhere). Another option could be to bring the wording of the current felon-in-possession statute in line with §922(o), which lacks a jurisdictional hook. In such case, to the extent that the Supreme Court would agree with the Ninth Circuit's application of Raich in its Stewart II decision, a felon-in-possession statute without a jurisdictional hook could constitutionally apply to intrastate possession, and would appear to remove the burden on the government to satisfy the nexus requirement between possession and interstate commerce. Intrastate Transfer of Firearms Section 922(d)(1) of title 18 of the U.S. Code makes it unlawful for any person to dispose or transfer a firearm to another individual knowing or having reasonable cause to believe that such person is under indictment for, or has been convicted in any court of, a crime punishable by more than one years' imprisonment. Individuals who have been convicted under this provision for making unlawful transfers intrastate have contended that Congress exceeded its authority under the Commerce Clause by enacting this provision. Such challenges have proven unsuccessful. For instance, the U.S. Court of Appeals for the Sixth Circuit (Sixth Circuit) in United States v. Rose held that this contention "lacks merit inasmuch as the Supreme Court precedent leaves no doubt regarding the constitutionality of §922(d)(1)." The Sixth Circuit analyzed this provision under the third Lopez category—the substantially affects doctrine—and concluded that the Raich analysis leads to the conclusion that §922(d)(1) is proper use of Congress's commerce power. The Sixth Circuit stated that guns, similar to marijuana, are a "fungible commodity" for which there is an established interstate market and that the provision at issue is a part of the larger regulatory framework. The court concluded that the relevant "legislative history supports the logical connection between the intrastate sale and disposition of firearms and interstate market in firearms." Background Checks As part of the regulatory framework for ensuring that firearms are not transferred to those persons deemed to be prohibited under federal law, Congress passed the Brady Handgun Violence Prevention Act of 1993 (Brady Act), which requires federal firearms licensees (FFLs) to conduct a background check on prospective firearms purchasers through the National Instant Criminal Background Check System (NICS). However, prior to the establishment of NICS, the Brady Act's interim provisions required the chief law enforcement officers within a state to conduct a background check on a prospective firearms purchaser within five business days. This portion of the act was invalidated on Tenth Amendment grounds in Printz v. United States under the theory that Congress was without authority to order or "commandeer" state executive branch officials. The holding in Printz indicates that although the Tenth Amendment limits the way in which Congress can implement background checks, it is not beyond its commerce power to require such checks as part of transferring a firearm. Under the current scheme, FFLs are required to conduct a background check through NICS before transferring a firearm to any non-FFL, including those who reside within the state in which the FFL is located. Currently, Congress is considering legislation that would impose a background check on transactions between non-FFLs that occur within a state. Just as Congress's authority to regulate intrastate transfers has been challenged, one might question whether Congress has the authority to require, or impose a requirement, that FFLs or non-FFLs conduct a background check on intrastate firearms transactions. Based on the Court's holdings in Lopez and Raich , discussed above, it seems that requiring a background check on intrastate firearms transactions is unlike regulating simple possession of firearms in a school zone. Although the act of conducting a background check may not be itself "commercial," it is a condition on the commercial transfer of a firearm. Therefore, if such a measure were enacted, it seems that there would be a substantial basis upon which a court could regard it as a provision supporting the larger regulatory scheme—the Gun Control Act—that Congress enacted to "keep firearms out of the hands of those not legally entitled to possess them because of age, criminal background, or incompetency, and to assist law enforcement authorities in the states and their subdivisions in combating the increasing prevalence of crime in the United States." Conclusion Congress has broad authority pursuant to the Commerce Clause to enact laws in areas that may overlap with traditional state jurisdiction. As such, Congress has passed complex statutory provisions that regulate the possession, receipt, transfer, and manufacture of firearms and ammunition. Notwithstanding this broad authority, Congress may not exceed other constitutional provisions or doctrines, such as the Tenth or Second Amendments to the U.S. Constitution. Thus, Congress may not pass legislation that infringes on the right guaranteed by the Second Amendment, nor may it pass legislation that orders state legislatures or its officials to implement and perform a federal law or program. Outside these types of limitations, exercise of Congress's commerce power appears to be proper as long as the regulated activity or conduct falls within one of the three categories established by the Supreme Court in United States v. Lopez , that is, (1) the channels of interstate commerce; (2) the instrumentalities of interstate commerce, including persons and things; and (3) activities that substantially affect interstate commerce. As explored in this report, courts have been confronted with the question of whether federal laws can be applied to intrastate possession and intrastate transfers of firearms, or whether such application exceeds the authority of Congress under its commerce power. Generally, the courts have upheld such laws under these as-applied challenges. With respect to intrastate possession, there remains noticeable tension between the Commerce Clause analysis set forth in Lopez and the pre- Lopez Supreme Court precedent that is still relied on by lower courts to uphold regulations on the possession of firearms. It is unclear how Congress's authority to regulate firearms possession would be affected should the Supreme Court resolve any perceived doctrinal inconsistency. Furthermore, the Supreme Court's analysis in Gonzales v. Raich has also buttressed the reasoning by which lower courts have concluded that Congress's authority to regulate firearms extends to intrastate manufacture and intrastate transfers and, as such, states cannot exempt themselves from federal regulation.

Congress has broad authority pursuant to the Commerce Clause to enact laws in areas that may overlap with traditional state jurisdiction. As such, Congress has passed complex statutory provisions that regulate the possession, receipt, transfer, and manufacture of firearms and ammunition. Generally, courts have upheld the validity of firearms laws pursuant to Congress's commerce power. However, courts have been confronted with the question of whether federal laws can be applied to intrastate possession and intrastate transfers of firearms, or whether such application exceeds the authority of Congress. This report explores these cases and how courts have analyzed these as-applied challenges under the Supreme Court's Commerce Clause jurisprudence primarily set forth in United States v. Lopez.

Introduction The prospect of oil development in the biologically rich ecosystem of the Arctic National Wildlife Refuge (ANWR, or the Refuge), on Alaska's North Slope, has been a focus of the American energy debate ever since oil was discovered on nearby state lands. At the heart of the debate is a part of the Refuge that has potentially significant oil and natural gas resources and also serves as habitat for numerous species, such as polar bears, caribou, waterfowl, and others. The U.S. Fish and Wildlife Service (FWS), within the Department of the Interior (DOI), manages the Refuge and has periodically updated plans to guide its management. On December 22, 2017, President Trump signed into law P.L. 115-97 , which establishes an oil and gas program in the Refuge's Coastal Plain, to be administered by DOI's Bureau of Land Management (BLM). The ANWR provisions were included in tax reform legislation enacted under the budget reconciliation process. The law requires at least two lease sales (of no fewer than 400,000 acres each) for the Coastal Plain within 10 years and contains provisions for the distribution of revenues and royalties. Surface development is limited to 2,000 acres, which need not be concentrated in a single area. The Congressional Budget Office estimated the state and federal revenue from the first two lease sales at approximately $2.2 billion over 10 years (with 50% of revenues—$1.1 billion—going to the State of Alaska and 50% to the federal government). However, once the areas for lease are determined, and depending on the market conditions at the time of the lease sales, the bids the government receives may be higher or lower. Drilling in ANWR, as elsewhere in the Arctic, is a difficult and expensive prospect. A key factor in what companies may bid for leases is the price of oil, which as of January 2018 is relatively low. After acquiring a lease, companies will have to analyze seismic data and drill exploratory wells to determine where oil may be located and estimate amounts in relation to possible revenues, in order to decide if they want to develop any discoveries and produce oil. In addition to the work on hydrocarbon discoveries, moving oil found in ANWR to market will require infrastructure, most likely new pipelines, to transport the oil to shipping terminals and eventually to refineries. The oil and gas program mandated by P.L. 115-97 is similar but not identical to ANWR oil and gas leasing programs proposed in two other bills in the 115 th Congress, H.R. 49 and S. 49 . These bills contain various provisions related to the program that were not included in P.L. 115-97 , possibly owing in part to limitations imposed by the budget reconciliation process on the matters that can be considered in reconciliation legislation. In addition to conducting oversight of the oil and gas program's implementation, Congress could choose to address some of these other issues—such as issues related to environmental compliance, judicial review, and special management areas within the Coastal Plain—in future legislation, or it could decide that the provisions of P.L. 115-97 provide sufficient guidance for the program. By contrast, two other bills in the 115 th Congress, H.R. 1889 and S. 820 , would establish the Coastal Plain as wilderness, meaning there would be no commercial development, except to meet the minimum requirements for managing the area as wilderness. Such a designation would be consistent with recommendations in the Obama Administration's Revised Comprehensive Conservation Plan and Final Environmental Impact Statement (RCCP) for ANWR, finalized in January 2015. This report discusses the Refuge's legislative history (including Native claims and congressional actions from the 109 th to the 115 th Congresses), energy resources (including relevant market forces and potential oil and gas resources), Native interests and subsistence uses, and biological resources, as well as issues for Congress related to development under P.L. 115-97 . Background ANWR, established by the Alaska National Interest Lands Conservation Act of 1980 (ANILCA; P.L. 96-487 , 43 U.S.C. §§1601 et seq.), consists of 19 million acres in northeast Alaska. It is administered by FWS within DOI. Development proponents view its 1.57-million-acre Coastal Plain—also known as the 1002 Area—as a promising onshore oil prospect. According to the U.S. Geological Survey (USGS), the mean estimate of technically recoverable oil from multiple prospects on the federally owned land in the Refuge is 7.7 billion barrels (billion bbl); there is a low probability that more than 11.8 billion bbl could be recovered on the federal lands over the life of the prospective fields. (In comparison, the United States currently uses about 7.1 billion bbl per year; see " Oil Resource Potential .") The amount that can be recovered depends, in part, on the economics of the oil market. When oil prices are high, more oil will be economic to produce; when oil prices are low, less oil will be economic to produce. Since January 2014, oil prices have dropped by almost 40%, going from an average of $94.60/bbl to $60.37/bbl in the beginning of January 2018. For all of 2017, nominal prices ranged from a high of $60.46/bbl to a low of $42.48/bbl. In 2005, in the most recent analysis available on ANWR, when oil was priced at $67.65/bbl in 2017 dollars, the mean estimate of economically recoverable oil on the federal lands in the 1002 Area was 7.1 billion bbl, and there was a small chance that the federal lands could have had more than 10.7 billion bbl of economically recoverable oil. (See box, "Old Geological Data, Old Prices, and New Interest," on use of older data.) In comparison, the single giant field at Prudhoe Bay, Alaska, discovered in 1967 on the state-owned portion of the coastal plain located west of ANWR (shown in Figure 1 ), is now estimated to have held almost 14 billion bbl of economically recoverable oil. The available information and analysis indicates that any ANWR oil would be scattered among multiple smaller fields rather than concentrated in a single large field, which would make development more expensive and potentially expand the area in which any environmental effects might occur. Congress's decision in P.L. 115-97 to open the federal lands on ANWR's Coastal Plain to energy development also opens the Coastal Plain's Native lands, based on current law. (See " Alaska Native Claims Settlement Act " and " Chandler Lake Agreement of 1983 .") In addition, development in the Coastal Plain may make nearby state lands along the coast (already legally open to development) more economically attractive to industry for exploration and development. Together, the federal, state, and Native ownerships likely have multiple individual fields with oil potential. Although only fields on the federal lands would produce federal revenue from bonus bids, royalties, and rents, the 2005 USGS figures show that when state and Native lands also are considered, the mean estimate of economically recoverable oil rises from 7.1 billion bbl to 9.7 billion bbl. In addition, there is a small chance that the three ownership areas might contain more than 14.6 billion bbl of economically recoverable oil (as opposed to the high-end estimate of 10.7 billion bbl for federal lands alone), if oil is priced at $67.65/bbl in 2017 dollars. (See box, "Old Geological Data, Old Prices, and New Interest," for a discussion of the use of old data and old prices, and see section on " Oil Resource Potential " for further discussion of prices.) The Refuge, especially the nearly undisturbed coastal plain, is home to a wide variety of plants and animals. The presence of caribou, polar bears, grizzly bears, wolves, migratory birds, and other species in this wild area has led some to call the area "America's Serengeti." (See " The Biological Resources .") Several species found in the area (including polar bears, caribou, migratory birds, and whales) are offered certain limited protections through international treaties or agreements. In the past there have been proposals that the Refuge and two neighboring parks in Canada join to form an international park, with prohibitions on oil exploration and development. The analysis below discusses the legislative history of the Refuge; the economic and geological factors that have triggered interest in development; the Native interests in the area; biological and environmental quality factors; and ongoing issues for Congress. Legislative History of the Refuge The balance between oil and natural gas development and the preservation of biological resources of northern Alaska has been controversial for decades, even before Alaska became a state. In 1943, the federal government withdrew all lands on the North Slope (the land north of the crest of the Brooks Mountain Range and between Canada and the Chukchi Sea) by Public Land Order (PLO) 82 to prevent certain types of development. In November 1957, Interior Secretary Fred Seaton filed a document protecting some of those lands (plus some additional lands south of the crest of the Brooks Range) for the benefit of wildlife and migratory birds. Alaska was admitted to the Union in 1959. In 1960, PLO 2214 reserved the 1957 segregated area as the Arctic National Wildlife Range. The PLO withdrew the lands from "all forms of appropriation ... including mining but not the mineral leasing laws," thus leaving oil and natural gas development as a possibility. Despite these withdrawals, not all of the Refuge is owned by the federal government. The history of ANWR (and its energy development restrictions) is intertwined with congressional efforts to settle land claims of Native Alaskans. As part of those efforts, some ANWR property was transferred to Native corporations. The next section provides a short history of those transfers to help explain the restrictions on development prior to enactment of P.L. 115-97 . Alaska Native Claims Settlement Act In 1971, Congress enacted the Alaska Native Claims Settlement Act (ANCSA) to resolve Native claims against the United States. One purpose of ANCSA was to distribute land to Native corporations, which were created in the act. Native village corporations (for example, the Kaktovik Inupiat Corporation, based at the northern shore of the coastal plain of the Refuge) usually were entitled under the terms of ANCSA to select the surface estate of lands; they received the surface estate of approximately 22 million acres of land that had been held by the federal government. Native regional corporations (for example, the Arctic Slope Regional Corporation, covering the area north of the Brooks Range from the Chukchi Sea to Canada) were entitled to the selected subsurface estate, meaning they got the mineral rights. Usually the regional corporations could receive the lands beneath the village corporations in their area, but subsurface lands beneath pre-1971 refuges were not available, so other lands were substituted for them. ANCSA Section 22(g) also provided that surface lands that were conveyed within a refuge created before 1971 were subject to that refuge's regulations. The restriction on subsurface selections and Section 22(g) limited Native claims regarding oil development. Alaska National Interest Lands Conservation Act In 1980, Congress enacted the Alaska National Interest Lands Conservation Act (ANILCA), which expanded the Arctic National Wildlife Range to the south and west by 9.2 million acres of public domain lands and renamed it the Arctic National Wildlife Refuge. (See Figure 2 .) ANILCA Section 702(3) designated 8 million acres of the original Wildlife Range as a wilderness area. The remainder of the original refuge, defined in Section 1002 of ANILCA as the Coastal Plain and constituting 1.57 million acres, was not included in the wilderness designation. Debate over use of the area was intense, with one group favoring wilderness designation and another group (led by Alaska's two Senators at the time) favoring energy development. Instead, Congress postponed decisions on the development or further protection of the Coastal Plain. Section 1002 of ANILCA directed that all of the resources of the Coastal Plain be studied. (This section is the reason this part of ANWR is also referred to as the 1002 Area .) That study by DOI was completed in 1987 and is known as the 1002 report or the Final Legislative Environmental Impact Statement (FLEIS). The 1002 report recommended full energy development. For the future of the 1002 Area, the most significant aspect of ANILCA was Section 1003. This section prohibited oil and natural gas production in the Refuge as a whole, as well as "leasing or other development leading to production of oil and natural gas from the range" unless authorized by an act of Congress. Chandler Lake Agreement of 1983 In 1983, a further complication was added to energy development in ANWR. As allowed by ANCSA, the Kaktovik Inupiat Corporation (KIC) previously had selected the surface estate of certain lands near the northern boundary of the Refuge. These selections amounted to three townships. Because the Refuge was created before ANCSA, the Arctic Slope Regional Corporation (ASRC) was prohibited from taking title to the subsurface estate of those lands. ANILCA, in its definition of the 1002 Area, excluded these three townships even though, in a geographic sense, they are within the coastal plain north of the Brooks Range. ANILCA further authorized KIC to select more lands within the 1002 Area, as defined. These additional lands totaled approximately 19,588 acres. Together with the three townships, the KIC surface estate in ANWR totaled more than 92,000 acres (about four townships of land), although much of the total is defined as out of the Coastal Plain. (In addition, there are at least eight individually owned Native allotments within the Coastal Plain that, together with the KIC lands, total nearly 100,000 acres.) Then, in 1983, an agreement between the United States and ASRC, known as the Chandler Lake Agreement (or sometimes the 1983 Agreement ), gave ASRC title to the subsurface estate beneath those KIC surface lands, even though the KIC lands all fall in a refuge area created before ANCSA. The 1983 Agreement prohibited development of the ASRC lands in ANWR unless Congress opened ANWR, as Congress did in December 2017 in P.L. 115-97 . The opening of ANWR for energy development could affect not only subsurface but also surface Native lands, to the extent that they may be available for storage, staging, and other development activities. The Native lands are not subject to the limitation in P.L. 115-97 on the maximum number of surface acres that may be developed (see " Size of Footprints "). Other Legislative Actions Prior to the 115th Congress This section focuses on more recent actions, beginning with the 109 th Congress. The ANWR debate in the 109 th Congress included reconciliation bills ( S. 1932 and H.R. 4241 ) under the budget process, which cannot be filibustered, and other bills ( H.R. 6 , an energy bill; H.R. 2863 , Defense appropriations; and H.R. 5429 , a bill to open the Refuge to energy development). These bills would have provided for an expedited opening of the Refuge to development to address national energy needs. Two bills ( H.R. 567 and S. 261 ) would have designated the area as wilderness. In the end, the 109 th Congress did not enact any changes to ANWR. In the 110 th Congress, a concurrent resolution ( S.Con.Res. 70 ), which was rejected by the House, would have adjusted budget levels to assume increased revenues from opening ANWR to leasing and exploration. The Senate rejected S.Amdt. 4720 to S. 2284 , which would have opened the Refuge to energy development. A number of other bills to open the 1002 Area to development also were introduced. Two bills ( H.R. 39 and S. 2316 ) would have designated the area as wilderness. In the end, the 110 th Congress did not send any bill with ANWR provisions to the President. In the 111 th Congress, 17 bills concerning the Refuge were introduced, but none was reported by committees in either the House or Senate. One bill regarding the Arctic Refuge— H.R. 3407 —was reported from committee during the 112 th Congress. Under its provisions, the Coastal Plain would have been opened to energy leasing, with BLM as the lead agency. H.R. 3407 would have required the Secretary of the Interior to administer the leasing program so as to "result in no significant adverse effect on fish and wildlife, their habitat, and the environment, [and to require] the application of the best commercially available technology" for energy exploration, development, and production. The bill also would have required that this program be administered to ensure "the receipt of fair market value by the public for the mineral resources to be leased," and would have limited the surface area covered by specified facilities to 10,000 acres per 100,000 acres of leased area. Other provisions included requirements for mitigation, limits to the venue and scope of legal challenges, stipulations regarding the development of regulations, prohibitions on public access to service roads, and other transportation restrictions. The bill would have allocated 50% of revenues from bonus bids, royalties, and rents to the U.S. Treasury. Two other bills ( H.R. 139 and S. 33 ) that would have designated the area as wilderness were not reported during the 112 th Congress. In the 113 th Congress, 15 bills relating to the Arctic Refuge were introduced, including 13 promoting development in some form and 2 promoting wilderness designation. No bills were reported by House or Senate committees during the 113 th Congress. During the 114 th Congress, the Obama Administration approved the RCCP for ANWR. The RCCP recommended that Congress designate the Coastal Plain of the Refuge as wilderness. Under the Wilderness Act, a "recommendation of the President for designation as wilderness shall become effective only if so provided by an Act of Congress." Two amendments ( H.Amdt. 577 and H.Amdt. 1355 , both to H.R. 2822 , providing for Appropriations for Interior and Related Agencies) were approved by the House to prohibit use of funds to implement the RCCP. Neither became law. An amendment ( H.Amdt. 961 to H.R. 2406 ) to designate the Coastal Plain as wilderness failed in a recorded vote. There were four other bills promoting development in some form and two promoting wilderness designation, but no bills were reported by House or Senate committees. Actions in the 115th Congress On December 22, 2017, President Trump signed into law P.L. 115-97 , which directs the Secretary of the Interior, acting through BLM, to establish and administer a competitive program for the leasing, development, production, and transportation of oil and gas in and from ANWR's Coastal Plain. The legislation amends ANILCA to provide that Section 1003, which prohibited oil and gas development in ANWR unless authorized by Congress, does not apply to the Coastal Plain. It also amends ANILCA to add, as a Refuge purpose, "to provide for an oil and gas program on the Coastal Plain." P.L. 115-97 directs BLM to manage the oil and gas program on the Coastal Plain in a manner similar to the administration of lease sales under the Naval Petroleum Reserves Production Act of 1976 (NPRPA; 42 U.S.C. §§6501 et seq.) and associated regulations, except as otherwise provided. The NPRPA provided for competitive oil and gas leasing in the National Petroleum Reserve in Alaska (NPR-A), subject to certain conditions and restrictions. The regulatory framework for the NPR-A (43 C.F.R. §§3130, 3137, 3150, 3152, and 3160) includes requirements for leasing terms, bonding, environmental obligations, and many other activities associated with oil and gas development. The law requires at least two area-wide lease sales in the Coastal Plain. An initial lease sale is required within four years of the bill's enactment, and a second lease sale is required within seven years of enactment. Separately, other bill provisions require that these two lease sales be conducted within 10 years of the bill's enactment. Each ANWR lease sale must offer at least 400,000 acres and must include those areas with the highest potential for discovery of hydrocarbons. The law sets the royalty rate for ANWR oil and gas leases at 16.67%. It directs that 50% of revenues derived from oil and gas leases on the Coastal Plain (including royalties, rents, and bonus bids) are to be distributed to the State of Alaska, with the remaining 50% deposited into the U.S. Treasury as miscellaneous receipts. This split differs from the standard revenue arrangement for Alaska established by the Mineral Leasing Act of 1920 (MLA), under which the State of Alaska typically receives 90% of the revenue from federal onshore oil and gas leases within the state, with 10% deposited in the Treasury as miscellaneous receipts. H.Rept. 115-97 authorizes up to 2,000 surface acres of federal land on the Coastal Plain to be covered by production and support facilities. For further discussion, see the section of this report on " Size of Footprints ." Other bills to promote development in the 1002 Area ( H.R. 49 and S. 49 ) have been introduced in the 115 th Congress, but have not received floor consideration. Two bills that would designate the 1002 Area as wilderness— H.R. 1889 and S. 820 —have also been introduced. The Energy Resources The developed parts of Alaska's North Slope suggest promise for energy prospects in the adjoining ANWR. Petroleum-bearing strata extend eastward from structures in the National Petroleum Reserve-Alaska through the Prudhoe Bay field, and they may continue into and through ANWR's 1002 Area. (See Figure 3 and Figure 5 .) Both changing prices and changing costs affect oil and natural gas prospects. New technologies may help alleviate some environmental concerns. However, production issues in some North Slope fields have raised doubts about ANWR's potential for oil and natural gas resource development. Any ANWR resources would be expensive to produce and would require construction of new infrastructure, such as pipelines and processing units, due to location and environmental conditions. Current Market Conditions: Low Oil Prices Hinder Project Economics The United States consumed approximately 19.8 million barrels per day (million bbl/day) of oil in the first 10 months of 2017, which includes petroleum products that may have been exported. Of that, 10.6 million bbl/day came from imported sources of oil and 9.2 million bbl/day was produced domestically, with the difference being made up by the refining process. Production from Alaska accounted for about 0.49 million bbl/day, or 2.4% of U.S. consumption. Alaskan oil production, the bulk of which is from the North Slope, has been in decline since peaking in 1989. Whether oil is produced domestically or imported, it is traded in a global market, and any one part of the market can affect other parts. The result is that oil prices are set by world markets. Figure 4 shows the interconnectedness of crude oil prices in the United States and international markets. Starting in 2010, the demand for oil increased as the global economy improved and put upward pressure on oil prices. Political unrest in the Middle East and North Africa also pushed prices up for a time, though short of an earlier peak in 2008. However, since May 2014, world oil prices have dropped significantly, and companies have been cutting back on capital expenditures and postponing the development of some relatively more expensive projects. Some oil companies' interest in ANWR likely decreases as oil prices are low, whereas other companies may maintain capital budgets for exploration and development in high-cost areas. Sustained low oil prices make development of more expensive oil resources less economically feasible. Even the outlook of sustained low oil prices will prompt companies to reconsider their resource development plans and capital budgets, as has been seen with current oil prices. Additionally, the smaller fields thought to be present in the 1002 Area might be less attractive if prices are low. Oil Resource Potential Estimates of ANWR's oil potential are based on limited data and numerous assumptions about geology, economics and, in part, climate. Early attention focused on the northern and eastern parts of the 1002 Area. Since the 1990s, interest has shifted to parts of the 1002 Area west and north of the Marsh Creek anticline, roughly a third of the 1002 Area. (See Figure 5 .) The shift was driven mainly by a reevaluation of geological data from nearby formations. The amount that would be economically recoverable depends in part on the price of oil. In its last economic assessment in 2005, USGS estimated that, at $67.65/bbl in 2017 dollars, there is a 95% chance that 4.0 billion bbl or more could be economically recovered and a small (5%) chance that 10.9 billion bbl or more could be economically recovered on the federal lands on the Coastal Plain; the mean was 7.3 billion bbl. These estimates reflected newer field development practices and cost and price changes, since USGS's 1998 assessment. Prices in January 2017 averaged between $50 and $55/bbl. If low prices are sustained over the long term, the estimates of economically recoverable oil could be less than the 2005 estimate. About one-third more oil may be under adjacent state waters and Native lands than is available in the 1002 Area alone. The state waters adjacent to the 1002 Area are far from any support system or land-based development, and any oil or natural gas that may be under them currently likely would not be economic to produce at current prices. To the extent that onshore development occurs under P.L. 115-97 , leases in state waters could benefit from onshore transportation systems (airstrips, haul roads, pipelines, etc.) and supply bases (gravel mines, water treatment plants, staging areas, etc.), and these areas might become more attractive to industry. In addition, lifting the statutory prohibition on oil and natural gas development in the Refuge not only lifts the ban on Native lands but also may make smaller fields on Native lands more attractive, if they are able to share facilities with nearby development or if they become preferred locations for support facilities due to fewer restrictions on surface development. Prices Unlikely to Support Natural Gas Development USGS has projected that in addition to oil, large quantities of natural gas may be found in the Coastal Plain, as in other areas on the North Slope. Unlike oil, the United States imports very little natural gas (about 12% of consumption in 2016, mostly from Canada). Prices for natural gas are more regionally based than oil, and with ample supplies, the United States has experienced relatively low prices over the last nine years compared to other parts of the world. Current North American natural gas prices likely would not support building the infrastructure, including a pipeline that would be required to transport ANWR natural gas to the lower 48 states or Canada. Globally, natural gas prices tend to be linked to oil prices, which have fallen since July 2014 by about 40%, making additional U.S. exports of liquefied natural gas (LNG) less economically attractive. Low prices present an economic obstacle to developing ANWR's natural gas resources as well as those in the rest of northern Alaska. Natural gas prices in the United States, on average, are projected to stay relatively low compared to most other fuels for the rest of the decade and beyond. The State of Alaska, through the Alaska Gasline Development Corp., has taken over as the lead developer of a project to export North Slope natural gas after partners Exxon Mobil, BP, and ConocoPhillips backed out. If completed, the project, which is in its early stages of development, would consist of gas processing facilities on the North Slope, an 800-mile pipeline, and a liquefaction facility for export. The estimated cost is between $45 billion and $60 billion. Advanced Technologies in Development and Production The cost of operating oil and natural gas facilities in Arctic conditions is higher than the industry costs in other parts of the United States, in part due to the remoteness of the area. According to the American Petroleum Institute, in 2014 the average cost per well onshore and offshore in Alaska was 38% higher than the average cost per well onshore and offshore in the lower 48 states. This cost differential highlights the difficulties and challenges of producing oil and natural gas in Arctic conditions and the need for substantial finds of oil and natural gas to cover the higher costs. The presumed dispersed nature of ANWR's oil and natural gas resources may make development especially costly to pursue. Environmental concerns also have prompted companies to reduce their footprint in the region, which has resulted in smaller production sites, among other changes. Reducing the footprints of development has been a major goal of industry, partly in an effort to reduce environmental impacts and associated costs. As North Slope development proceeded after the initial discovery at Prudhoe Bay, oil field operators developed less environmentally intrusive ways to develop Arctic oil, primarily through innovations in technology. New drill bits and fluids and advanced forms of drilling—such as extended reach, horizontal, and "designer" wells—permit drilling to reach laterally far beyond a drill platform. Advanced drilling technologies are commonly more costly than simpler techniques. In the 1002 Area, ice-based transportation infrastructure may be modified or limited because of safety concerns resulting from the rolling terrain. Normally, ice-based infrastructure can serve remote areas during the exploratory drilling phase on ice roads and on insulated ice pads at the drill site. During exploration, drilling pads made of ice are approximately 3-10 acres in size. During the production phase, pads are built of gravel and can double in area. Pads are not regularly staffed during the production phase, and they are feasible when linked to larger pads providing worker housing, equipment storage and maintenance facilities, airfields, and other production support. The linkage may be by road or small airfields, which provide access for periodic maintenance or servicing. Although oil and natural gas development is becoming more dependent on ice roads and pads in some areas of Alaska, by 2007 warming trends in Arctic latitudes shortened heavy equipment winter access across the tundra by more than 50% and led to changes in the standards for use of ice roads. Industry has responded by creating new technologies to begin construction of ice roads earlier in the winter, using different kinds of vehicles. Over the long term, if warming trends continue, heavy reliance on ice technology could be reduced further and might force greater reliance on gravel structures, with inherently longer-lasting impacts and higher costs. Rigid adherence to ice technology (instead of more expensive gravel construction) might put some marginal fields out of reach due to the shorter drilling season, or difficult terrain. Companies have taken steps to adapt to the changing conditions, in some cases using two drilling rigs, starting ice road construction from both ends simultaneously, using aircraft to reach remote sites, and prepositioning equipment and materials so that tasks can be accomplished more quickly during the shorter winter season. Nevertheless, it is expected that projects such as the development of ANWR would need to adapt to a shorter development and maintenance season. Better development and operating technologies compared to older technologies could reduce or mitigate some environmental impacts of petroleum operations, although they would not eliminate them entirely. Advocates of wilderness protection maintain that facilities of any size will still be industrial sites and will change the character of the Coastal Plain, in part because the sites will be spread out in the 1002 Area and connected by pipelines and probably roads. Native Interests and Subsistence Uses The Native community, both between and within its villages and organizations, is divided on the question of energy development in the Refuge, but some patterns can be discerned. Generally, the Alaska Natives along the North Slope (Inuit) have supported ANWR development, whereas the Natives of interior Alaska (Gwich'in) have opposed it, though neither group is unanimous. Some parts of the Native community are heavily dependent for their subsistence uses on the caribou herd that calves in the 1002 Area, and because of the lengthy migration of the caribou herds, this dependency is an important factor for them even if they live at a considerable distances from the coastal plain. Seeing energy development as a threat to the safety or success of calving season, these groups have opposed drilling the Refuge. Among these opponents are most members of the Gwich'in tribe, whose members are found both south and east of the Refuge in Alaska and Canada. Among the Native groups supporting ANWR development are the Arctic Slope Regional Corporation (ASRC) and Doyon Limited (both Native regional corporations) and the Native Village of Kaktovik (a Native organization in Kaktovik, the only town within the coastal plain of ANWR). The chief arguments cited by these groups are the increases in both North Slope employment and revenues from increased business activity. According to ASRC, Chevron Texaco and BP currently hold leases to all of the ASRC/KIC acreage within the ANWR coastal plain. Many Native supporters argue that development and production practices can be carried out so as to avoid damage to the caribou that calve in the area. The Biological Resources The 1002 report, issued in 1987, rated the Refuge's biological resources highly—"The Arctic Refuge is the only conservation system unit that protects, in an undisturbed condition, a complete spectrum of the Arctic ecosystems in North America." It also stated that "[t]he 1002 area is the most biologically productive part of the Arctic Refuge for wildlife and is the center of wildlife activity." The biological value of the 1002 Area rests on intense productivity in the short Arctic summer; many species arrive or awake from dormancy to take advantage of this biological richness and leave or become dormant during the remainder of the year. Caribou have long been the center of the debate over the biological impacts of Refuge development. Among the other species most frequently mentioned are polar bears (which were listed under the Endangered Species Act [ESA] as threatened in 2008), musk oxen, and the 135 species of migratory birds that breed or feed there. In addition, the effects of energy development on marine mammals (many of which are protected under the ESA and all of which are protected under the Marine Mammal Protection Act) could become an issue if expanded infrastructure development onshore made nearby offshore development more economically attractive. Research The Biological Resources Division of USGS published an assessment of the array of biological resources in the coastal plain in 2002. The report analyzed information about caribou, musk oxen, snow geese, and other species in the Refuge, and it concluded that development impacts on wildlife would be significant. A subsequent memorandum on caribou by one of the assessment's authors clarified that if development were restricted to the western portion of the Refuge (an option being considered at that time by the George W. Bush Administration), the Porcupine caribou herd would not be affected during the early calving period, since the herd is not normally found in the area at that time. A 2017 update of the 2002 report analyzed new research on caribou, polar bears, musk oxen, and environmental conditions, among other topics. Research in the last 15 years has shown a continued warming trend with associated effects on wildlife, though no significant changes in vegetation quality and quantity. Research on specific species has shown that polar bears have become more dependent on onshore habitat for denning purposes and that the number of musk oxen has decreased in the 1002 Area. Caribou herds, including the Porcupine and Central Arctic herds, have continued to be documented to use the calving grounds in the 1002 Area, but this use has been variable between years. Separately, a 2003 report by the National Research Council (NRC) highlighted impacts of existing development at Prudhoe Bay on Arctic ecosystems. NRC noted harmful environmental impacts, including changes in the migration of bowhead whales, in distribution and reproduction of caribou, and in populations of predators and scavengers that prey on birds. NRC also credited industry for its strides in decreasing or mitigating environmental impacts. NRC cited some beneficial economic and social effects of oil development in northern Alaska, although it also said that some social and economic impacts have been harmful. The NRC report specifically avoided determining whether beneficial effects were outweighed by harmful effects. Industry supporters contend that impacts on wildlife can be reduced or mitigated by various measures. Among these are (1) restricting activities at the exploration phase to the winter season, with maximum use of ice roads and ice platforms; (2) careful placement of gravel roads and platforms to minimize wetlands disturbance; (3) re-injection of wastes below the permafrost layer; (4) limiting human access to the oil field; (5) management of garbage to avoid build-up of scavenger populations; (6) reducing the footprint of development; and (7) other measures already in effect in current oil fields. Supporters also contend that improvements in production technology will result in significantly reduced environmental impacts, helping to minimize the footprint of oil and gas production activities. Under P.L. 115-97 , oil and gas activity in the 1002 Area will still be subject to environmental regulations, including NEPA. Polar Bears In 2008, FWS listed polar bears as threatened under the ESA. The primary factors in listing the species were the effect of accelerated polar climate change on polar bears and their prey (primarily seals) and the effects of oil and natural gas development. The ESA prohibits activities that harass or harm listed species. The listing of polar bears could have a significant impact on energy development in ANWR, because the 1002 report stressed the unusual importance of the 1002 Area as a location for dens of pregnant female polar bears. (See Figure 6 .) Female polar bears are known to abandon their dens when disturbed. If the cubs are young and unable to maintain their body temperature, abandonment of a den would probably be fatal. The arguments against listing, as cited by FWS in the final rule to list the species, included observations that the species was increasing in population in some parts of the Arctic; the possibility that some species of seals (a common prey for polar bears) might increase; questions concerning the accuracy of climate models as they might affect population levels of the species; and claims that existing regulations were adequate to maintain population levels. FWS analyzed these arguments, holding that, on balance, the species warranted listing as threatened throughout its range. In 2010, FWS established a wide area in northern Alaska, including the 1002 Area and a considerable area offshore, as critical habitat under ESA for polar bears. The designation could provide a stronger role for the ESA in shaping any federal agency activities, such as energy development, that may take place in critical habitat. Under ESA, federal agencies must avoid actions that jeopardize listed species or that destroy or adversely modify their designated critical habitat. The action agency must consult with FWS (or the National Marine Fisheries Service for some species) to determine whether such jeopardy or destruction might occur. If there is such a risk, the action agency must modify the action to reduce the risk. Scientists also cite research on the risk to polar bears from changing sea ice conditions off the coast of Alaska: many female polar bears have responded to thinning or vanishing offshore ice by moving more of their dens to locations onshore, and many females that historically denned on land to the west of Prudhoe Bay have moved their dens to the east, into or nearer the Refuge. This shift could increase the importance of the Refuge's coastal plain to the polar bear population and add to the significance of consultation under ESA in any federal action related to exploration. Issues for Congress The basic and most contentious ANWR question for Congress has been whether to permit energy development in the Coastal Plain. P.L. 115-97 addressed the question by establishing an oil and gas program for this area (see " Actions in the 115th Congress "). Earlier legislative proposals had ranged from those to designate the Coastal Plain as wilderness or a national monument to those to allow partial or full development. In the context of oversight of the implementation of the ANWR provisions in P.L. 115-97 , or in the context of debate over other bills that would address ANWR, Congress may continue to be interested in key aspects of the ANWR debate that have been raised previously. These could include issues related to limits on the footprint of development, other environmental protections, compliance with the National Environmental Policy Act (NEPA), judicial review of legal challenges, and treatment of special areas within the Coastal Plain, among other matters. P.L. 115-97 addressed some of these issues and not others, possibly owing in part to limitations imposed by the budget reconciliation process on the matters that can be considered in reconciliation legislation. Congress could choose to address some of these issues in future legislation and oversight or could decide that the provisions of P.L. 115-97 already provide sufficient guidance for the program. Size of Footprints Newer technologies permit greater consolidation of leasing operations, which tends to reduce the size and environmental impacts of development. Since the 1980s, an element of the ANWR debate in Congress has been the size of the footprints—or physical area—in the development and production phases of energy leasing. For over a decade, development bills for ANWR have proposed a 2,000-acre limit on the acreage of surface disturbance. Development proponents contend that the limited footprint will preserve the Coastal Plain's environment and wildlife, while opponents express concern that even with the limitation, drilling infrastructure and associated human activity will have adverse wildlife impacts, such as deterring caribou cows from calving in the area. Similar to earlier bills, P.L. 115-97 directs the Secretary to authorize up to 2,000 surface acres of federal land on the Coastal Plain to be covered by production and support facilities. (This 2,000-acre limit does not appear to apply to Native surface lands on the Coastal Plain owned by the Kaktovik Inupiat Corporation or through individual Native allotments.) Bill provisions specify that "airstrips and any area covered by gravel berms or piers in support of pipelines" are included in the 2,000-acre limit. It is unclear whether other potential disturbances—for instance, temporary roads or areas under a pipeline that might be temporarily disturbed during construction—would be included within the limit. The law does not require the development facilities to be concentrated in a single 2,000-acre area. Development facilities likely would have to be dispersed, because one single consolidated facility of 2,000 acres (3.1 square miles) would not permit full development of the 1002 Area. Dispersal is necessary due to the limits of lateral (or extended-reach) drilling. However, the location and dispersal of any potential oil and natural gas in ANWR is unknown. Although the cost of lateral drilling has declined somewhat, it remains more expensive than simpler methods. As a result, adherence to the 2,000-acre limit could make some marginal fields uneconomic or inaccessible. If so, a future policy choice could be between not developing such fields and expanding the allowed limit on the footprint of development. Other Environmental Protections Both H.R. 49 and S. 49 in the 115 th Congress would provide environmental protections in addition to the 2,000-acre surface development limitation. These include, among others, requirements to ensure, to the maximum extent practicable, that oil and gas exploration, development, and production activities on the Coastal Plain will result in no significant adverse effect on fish and wildlife, their habitat, subsistence resources, and the environment; requirements for site-specific analyses of the probable environmental effects of individual drilling proposals and for mitigation plans to avoid significant adverse effects; and requirements to apply the best commercially available technology for all new exploration, development, and production operations. These provisions were not part of P.L. 115-97 . NEPA Compliance and Compatibility Determinations NEPA requires the preparation of an environmental impact statement (EIS) to examine major federal actions with significant effects on the environment and to provide the opportunity for public involvement in agency decisions. The last full EIS examining the effects of development in ANWR was the 1002 report, which was completed in 1987. NEPA requires an EIS to analyze an array of alternatives, including a no-action alternative—a process that can take years for complex or controversial actions. To hasten development in ANWR, some bills, including H.R. 49 in the 115 th Congress, have stipulated that the 1002 report of 1987 would be considered as satisfying NEPA requirements. Other bills, including S. 49 in the 115 th Congress, have provided that prelease and initial leasing activities would not be considered as major federal actions requiring NEPA review, or have made other provisions to expedite NEPA review for all or part of the program. P.L. 115-97 did not contain provisions explicitly addressing NEPA review. P.L. 115-97 did address a separate issue—that of the compatibility of oil and gas activities with refuge purposes. Under authorities for the management of national wildlife refuges in general and Alaskan refuges specifically, an activity may be allowed in a refuge only if it is compatible with the purposes of the particular refuge and with those of the National Wildlife Refuge System as a whole. Some past bills have stated that the energy leasing program and activities in the 1002 Area would be deemed to be compatible with the purposes for which ANWR was established and that no further findings or decisions would be required to implement this determination. P.L. 115-97 does not contain such language but amends ANILCA to add, as a purpose of the Refuge, "to provide for an oil and gas program on the Coastal Plain." Judicial Review The expediting, curtailing, or prohibiting of judicial review could help to achieve the goal of putting an ANWR leasing program in place promptly. The counterargument raised in such discussions is that the prospect of judicial review leads to better decisionmaking by the agency and that judicial review provides the opportunity to correct any errors. H.R. 49 and S. 49 in the 115 th Congress would expedite judicial review by reducing the time limits within which suits must be filed and limiting the venue and scope of the review. P.L. 115-97 does not contain provisions concerning judicial review. Oil Export Restrictions Export of North Slope oil in general, and any ANWR oil in particular, has been an issue, beginning with the authorization of the Trans Alaska Pipeline System. The Trans Alaska Pipeline Authorization Act specified that oil shipped through the pipeline could be exported internationally, but only under restrictive conditions. In the mid-1990s, high volumes of Alaskan oil that could legally be shipped only to the four Pacific states resulted in falling oil prices on the West Coast. As California prices fell below the world market in the mid-1990s, there were complaints from both North Slope and California producers. Congress responded by amending the Mineral Leasing Act to provide that oil transported through the pipeline may be exported unless the President finds, after considering specified criteria, that exports are not in the national interest. North Slope exports rose to a peak of 74,000 bbl per day in 1999, or 7% of North Slope production. These exports ceased voluntarily in May 2000 as West Coast buyers had to pay world prices to compete with foreign buyers for Alaskan oil. The first crude export cargo from the North Slope in a decade left Alaska in September 2014 destined for South Korea. Since 2014, additional cargos of Alaskan crude oil have been exported, with total Alaskan crude exports for 2016 at about 3 million barrels or 8,400 bbl per day. In the 115 th Congress, H.R. 49 would prohibit the export of oil and gas produced under ANWR leases. No such provision was included in P.L. 115-97 . Special Areas Within the context of development, and beginning with the 1002 report, there has been consideration of setting aside certain small portions of the 1002 Area to protect specific ecological or cultural values. This could be done by designating the areas specifically in legislation or by authorizing the Secretary of the Interior to set aside areas to be selected after enactment. The 1002 report identified four special areas that together total more than 52,000 acres (about 3% of the 1002 Area). Both H.R. 49 and S. 49 in the 115 th Congress would authorize the Secretary to designate up to 45,000 acres of the Coastal Plain as special areas that could be excluded from leasing. P.L. 115-97 does not contain such provisions. Other Protection Options While P.L. 115-97 authorizes an oil and gas program for the 1002 Area, other bills in the 115 th Congress— H.R. 1889 and S. 820 —would take a contrasting approach by designating the area as wilderness. FWS's Revised Comprehensive Conservation Plan (RCCP), approved in January 2015, recommended this protection. Wilderness designation generally prohibits commercial activities, including energy development. In the past, some groups also have sought to preserve the 1002 Area as a national monument, using the President's power under the Antiquities Act. (However, ANILCA's Section 1326 limits withdrawals from the public lands in Alaska to 5,000 acres unless Congress passes a joint resolution to approve the withdrawal within one year of the President's proclamation. ) Congressional opponents of ANWR development have indicated that they will continue to advocate for protective designations for the Coastal Plain that would prohibit exploitation of oil and gas resources in the Refuge, aiming to reverse the policy enacted in P.L. 115-97 . Conclusion Enactment of P.L. 115-97 in December 2017 culminated a decades-long debate over whether to allow oil and gas development in ANWR in northeastern Alaska. The law established an oil and gas program for the Refuge's Coastal Plain, with at least two oil and gas lease sales required in the next 10 years. Development proponents contend that the sales will generate economic activity, contribute to U.S. energy security, and result in royalty revenues for both the federal government and the State of Alaska, while opponents express concern that development will detrimentally impact the unique biological resources of the Refuge. P.L. 115-97 requires the first ANWR lease sale within four years of the law's enactment. Activities preparatory to the lease sale include identifying lands to be leased, conducting sale-specific environmental reviews, issuing notices of sales, and other "prelease" activities. Activities could also include new geological and geophysical (G&G) surveys to determine the extent and location of hydrocarbon resources. Congress could potentially take additional action related to ANWR oil and gas leasing, including through further legislation or through oversight of DOI's implementation of the provisions of P.L. 115-97 . A number of development issues addressed in earlier ANWR bills were not addressed in P.L. 115-97 , possibly owing in part to limitations imposed by the budget reconciliation process. Congress could choose to address some of these issues in future legislation amending the oil and gas program or could decide that the provisions of P.L. 115-97 already provide sufficient guidance for the program. Alternatively, Congress could decide to end the program, for example by designating the Refuge's Coastal Plain as wilderness, as is proposed in some 115 th Congress bills. The Congressional Budget Office estimated the state and federal revenue from the first two lease sales in ANWR at approximately $2.2 billion over 10 years. Actual bids will depend on many factors, including market conditions at the time of the lease sales. Development and transportation of oil in the Refuge, as elsewhere in the Arctic, is a difficult and expensive prospect, and a key factor in industry bids will be the price of oil.

In the ongoing energy debate in Congress, one recurring issue has been whether to allow oil and gas development in the Arctic National Wildlife Refuge (ANWR, or the Refuge) in northeastern Alaska. ANWR is rich in fauna and flora and also has significant oil and natural gas potential. Energy development in the Refuge has been debated for more than 50 years. On December 22, 2017, President Trump signed into law P.L. 115-97, which provides for an oil and gas program on ANWR's Coastal Plain. The Congressional Budget Office estimated federal revenue from the program's first two lease sales at $1.1 billion, but actual revenues may be higher or lower depending on market conditions and other factors. This report discusses the oil and gas program in the context of the Refuge's history, its energy and biological resources, Native interests and subsistence uses, energy market conditions, and debates over protection and development. ANWR is managed by the U.S. Fish and Wildlife Service (FWS) in the Department of the Interior (DOI). Under P.L. 115-97, DOI's Bureau of Land Management (BLM) is to administer the oil and gas program in a portion of the 19-million-acre Refuge: the 1.57-million-acre Coastal Plain, also known as the 1002 Area. This area is viewed as a promising onshore oil prospect and is also a center of activity for caribou and other wildlife. It is designated as critical habitat for polar bears under the Endangered Species Act (16 U.S.C. §§1531-1544). A 1987 study of the area by DOI had recommended energy development, but the Alaska National Interest Lands Conservation Act of 1980 (ANILCA; 43 U.S.C. §§1601 et seq.) prohibited development unless authorized by an act of Congress. (Development was thus barred prior to the December 2017 enactment of P.L. 115-97.) The conflict between oil and natural gas potential and valued natural habitat in the Refuge has created dilemmas for Congress, with the most contentious question being whether to permit energy development in the 1002 Area. Previous legislative proposals ranged from those to designate the 1002 Area as wilderness or a national monument (with energy development prohibited) to those to allow partial or full development. Related questions have concerned the extent to which Congress should legislate special management to guide the manner of any development—for example, by limiting the footprint of energy activities. Under P.L. 115-97, surface development is limited to 2,000 acres, which need not be concentrated in a single area. Some contend that newer technologies will help to consolidate oil and gas operations and reduce the environmental impacts of development, whereas others maintain that facilities will likely spread out in the 1002 Area and significantly change the character of the Coastal Plain. The history of ANWR is intertwined with congressional efforts to settle land claims of Native Alaskans. As part of those efforts, some property in the Refuge was transferred to Native corporations, including surface lands and subsurface rights within the 1002 Area. The opening of federal lands in ANWR to development under P.L. 115-97 also opens adjacent Native lands. The Native community, both between and within its villages and organizations, is divided on the question of energy development in the Refuge. Other legislation related to ANWR's Coastal Plain was introduced in the 115th Congress prior to the enactment of P.L. 115-97. H.R. 1889 and S. 820 would establish the Coastal Plain as wilderness, meaning there would be no commercial development, except to meet the minimum requirements for managing the area as wilderness. Such a designation would be consistent with recommendations made by the Obama Administration in its planning documents for the Refuge. By contrast, H.R. 49 and S. 49 proposed oil and gas leasing programs for the Coastal Plain, which are similar but not identical to the program mandated by P.L. 115-97. These bills address some issues that were not addressed in P.L. 115-97, such as environmental compliance, judicial review, and exports of ANWR oil. Congress could choose to consider some of these other issues in future legislation and oversight.

Introduction In the 2010 census, as in prior decennial censuses, the total population of the United States was counted, including U.S. citizens, lawfully present aliens, and unauthorized aliens. Some have asked whether aliens, particularly those in the country unlawfully, should be excluded from the census count. It appears one concern is that these individuals are included in the data used to apportion House seats among the states and determine voting districts within them, which some perceive as unfair to states or districts with small alien populations. One question raised by this idea is whether the exclusion of aliens could be done by amending the federal census statutes (Title 13 of the U.S. Code ), or whether such action would require an amendment to the Constitution. The Constitution requires a decennial census to determine the "actual Enumeration" of the "whole number of persons" in the United States. The data must be used to apportion the number of House seats among the states. While not required by the Constitution, the data are used for other purposes as well, including by the states to determine voting districts within a state. The Constitution expressly vests Congress with the authority to conduct the census "in such Manner as they shall by Law direct." Congress has delegated this responsibility to the Secretary of Commerce and, within the Department of Commerce, to the Bureau of the Census. The Census Bureau counts the total resident population of the states, with each individual counted at his or her "usual residence." This includes both citizens and aliens. There is no legal requirement that the Census Bureau collect information regarding citizenship status. The 2010 census form sent to all households did not include questions regarding citizenship status or place of birth. The Commerce Secretary has used his discretion to ask for such information on the American Community Survey (ACS), which is sent monthly to a sampling of households. Historically, questions regarding citizenship status have not been consistently included in the census population surveys. At least two early censuses (1820 and 1830) included a category for foreigners not naturalized, and later censuses asked about place of birth. In modern times, the census questionnaire sent to all households has not included such questions, although the questionnaire sent to a sampling of households (the "long form," which has been replaced by the ACS) has asked for such information. Legislation in Recent Congresses From time to time, Congress has considered legislation that would exclude all aliens or only unauthorized aliens from being included in the census to apportion House seats among the states. A discussion of selected legislation from Congresses before the 112 th and 111 th Congresses is included in the Appendix . As of the date of this report, no legislation regarding the exclusion of aliens from the census data for House apportionment has been introduced in the 112 th Congress. Since the data for the House apportionment among the states had to be submitted to Congress and certified by December 31, 2010, legislation addressing the most recent apportionment would be moot. However, in the event that the ongoing issue of the presence of unauthorized aliens in the United States remains unresolved by congressional legislation or executive agency action, the issue of whether to exclude unauthorized aliens from census data for apportionment may arise with regard to guidelines for future decennial censuses and apportionments. Legislation from the 111 th may provide models for future legislation. In the 111 th Congress, several bills were introduced that would have amended the federal census statutes to explicitly address the treatment of unauthorized aliens. The Fairness in Representation Act ( H.R. 3797 and S. 1688 ) would have required the Commerce Secretary to include some means (e.g., a checkbox) for respondents to indicate they are U.S. citizens or lawfully present in the country on the census forms sent to all households. Additionally, the Commerce Secretary would have been required to make adjustments to the data to prevent unauthorized aliens from being counted for apportioning House seats among the states. An amendment introduced by Senator Vitter to the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2010 ( S.Amdt. 2644 to H.R. 2847 ) would have cut off funding for the census unless the census form included questions on U.S. citizenship and immigration status. The amendment would not have required the information be used for any purpose (i.e., to disregard certain individuals from the apportionment calculation). The amendment was subsequently ruled to be non-germane. H.J.Res. 11 proposed an amendment to the Constitution so that only U.S. citizens would be counted in the apportionment calculation. Specifically, it would have amended the Constitution to read "Representatives shall be apportioned among the several States according to their respective numbers, which shall be determined by counting the number of persons in each State who are citizens of the United States." On the other side of the issue, the Every Person Counts Act ( H.R. 3855 ) would have prohibited the Census Bureau from asking about U.S. citizenship or immigration status. Constitutional Analysis While the Constitution permits Congress to conduct the census "in such Manner as they shall by Law direct," the census cannot be done in a way that is constitutionally impermissible. Thus, one question raised by the above legislation is whether it is consistent with the constitutional requirements for the decennial census. It seems clear that Congress could, under its broad constitutional authority to conduct the census, statutorily require the Commerce Secretary to collect information regarding citizenship status. The constitutionality of the other provisions in the legislation would appear to depend on whether the Constitution requires that all aliens must be included in the census count for any reason. If so, then it would appear that any exclusion would have to be done by constitutional amendment. On the other hand, if the Constitution requires such individuals to be excluded from the census count, then Congress could not prohibit the Commerce Secretary from asking questions about citizenship and immigration status. As mentioned above, it appears some are concerned that aliens, particularly those individuals in the country unlawfully, are included in the data used to apportion House seats among the states and determine voting districts within the states. The next section analyzes whether Congress could statutorily exclude aliens from the census count for these purposes or whether any such exclusion would have to be done by constitutional amendment. Data for Apportionment Purposes Constitutional issues could arise if aliens were excluded by statute from the census count for purposes of apportioning House seats among the states. This is because it appears the term "persons" in the original Apportionment Clause and Fourteenth Amendment was intended to have a broad interpretation that is likely expansive enough to include unauthorized aliens. If true, any proposal to generally exclude unauthorized aliens would have to be in the form of a constitutional amendment. The term "persons/people" appears throughout the Constitution, with its meaning evaluated in the context of each provision. On its face, the term's plain language meaning refers to individuals. However, it has been held to have a less obvious meaning in certain contexts; that is, to include corporations for the Fourteenth Amendment's due process and equal protection guarantees. Here, the question is whether the term refers to only a subset of individuals, U.S. citizens, for purposes of apportioning House seats among the states. It seems that "persons" is not limited to "citizens," as the Framers would have likely used that term instead had it been their intent. The Constitution uses both the terms "persons/people" and "citizens of the United States," and the terms do not seem intended to be interpreted identically; rather, "citizens of the United States" appears to be a subset of "persons/people." Courts have generally held that aliens, including unauthorized aliens, are "persons" in the context of other constitutional provisions, including other parts of the Fourteenth Amendment. While it does not appear that any court has decided the meaning of the term "persons" for apportionment purposes, a federal district court did state in dicta that the term clearly includes unauthorized aliens. It could be argued that certain aliens should not be included in the category of "persons" for purposes of apportionment because of their legal or voting status. On the other hand, historically, those without the right to vote or with inferior legal status, including women, children, and convicts, have been included. It should also be noted that some states have historically permitted aliens to vote under certain circumstances. Furthermore, the fact that slaves were to be partially counted when they enjoyed few rights seems to suggest the Apportionment Clause language was intended to be broadly inclusive. Similarly, the fact that the Framers felt compelled to specify the exclusion of "Indians not taxed" may suggest "persons" was understood to otherwise include individuals residing within a state, regardless of legal status. Thus, it can be argued that "[b]y making express provisions for Indians and slaves, the Framers demonstrated their awareness that without such provisions, the language chosen would be all-inclusive." The debates surrounding the original Apportionment Clause and the Fourteenth Amendment appear to add further support for the conclusion that the term "persons" was intended to be broadly interpreted. The Framers adopted without comment or debate the term "persons" in place of the phrase "free citizens and inhabitants" as the basis for the apportionment of the House, thus suggesting the term "persons" includes free citizens and any other individuals who would be considered "inhabitants." According to James Madison, apportionment was to be "founded on the aggregate number of [the states'] inhabitants." During the debate on the Fourteenth Amendment, Congress specifically considered whether the count was to be limited to persons, citizens, or voters. The term "persons" was used instead of "citizens" due, in part, to concern that states with large alien populations would oppose the amendment since it would decrease their representation. Another concern with using the term "citizen" was that it "would narrow the basis of taxation and cause considerable inequalities in this respect." Congress may also have been influenced by the fact that aliens could vote in some states. Congress has subsequently considered excluding aliens from the apportionment calculation on several occasions, and at least some Members have indicated that any such exclusion would have to be done through constitutional amendment since the Constitution otherwise requires total population as the basis for apportionment. Furthermore, while the Constitution expressly grants Congress the authority to grant citizenship, it can be argued there is no indication that Congress was given similar power to grant the status of being a "person." Thus, under this argument, Congress would not have the authority to statutorily exclude certain groups of individuals from the definition of "persons" and any such change would have to be done by amending the Constitution. On the other hand, it could be argued that Congress's broad constitutional authority over the census, apportionment, and immigration permits it to exclude certain aliens, particularly undocumented aliens. The argument could be made that counting aliens as "persons" for apportionment purposes dilutes the voting power of citizens in states without significant numbers of aliens and, therefore, is inconsistent with the Supreme Court's decision in Wesberry v. Sanders that requires congressional districts be drawn equal in population to the extent practicable (i.e., "one person, one vote"). However, Wesberry and its progeny involve intrastate, as opposed to interstate, disparities, and the Court has indicated in another line of cases that the Wesberry standard does not apply to interstate apportionment. Because each state must have at least one House district and a fixed number of Representatives must be allocated among all states, votes in states with populations less than the ideal district are "more valuable than the national average," and it is "virtually impossible to have the same size district in any pair of States, let alone in all 50." Therefore, while the goal of "complete equality for each voter" under the Wesberry standard is "realistic and appropriate for state districting decisions," the Court has explained that it is "illusory for the Nation as a whole." While this second line of cases does not address the specific issue of whether aliens must be counted for apportionment purposes, the cases do seem to undermine the argument that Wesberry and its progeny require their exclusion. Some have pointed to the fact that the census has historically included questions about citizenship, thus perhaps suggesting that a distinction has been made between citizens and aliens for purposes of counting individuals. It is true that at least two early censuses (1820 and 1830) included a category for foreigners not naturalized and later censuses asked about place of birth. However, such information was not used to exclude any aliens from the census count. Rather, it is clear that such individuals were included in the total count, and it appears the data were collected for informational purposes (similar to how information was collected about age, occupation, etc). It does not appear that aliens have been excluded from any census. Data Used for Intrastate Redistricting The U.S. Constitution does not require the use of federal decennial census data for intrastate congressional and state legislative redistricting. It only provides for the use of census data for apportionment among the states, not for redistricting and reapportionment within them. Federal courts have held that states are not required to use federal census data for redistricting, and therefore states can determine what data will be used for redistricting within a state. Federal courts have considered cases where state legislatures did not use federal decennial census data or even total population data as the basis for redistricting activities. Depending on the factual circumstances, the courts have upheld or invalidated the use of alternatives to official federal decennial data or total population data. For example, in the 1969 decision Kirkpatrick v. Preisler involving Missouri's congressional redistricting plan, the Supreme Court, while invalidating the plan, nevertheless indicated that the use of projected population figures was not per se unconstitutional and that states may properly consider such statistical data if such data would have a high degree of accuracy (however, the Court also stated that the federal decennial census data were the best data available). In Kirkpatrick , the state legislature apparently performed rather haphazard adjustments and projections based on total population and the Court found that the legislature had not justified its methodology. In Burns v. Richardson , the Supreme Court held that, in state legislative redistricting cases, the Constitution "does not require the states to use total population figures derived from the federal census as the standard" of measurement. The Court noted that in earlier cases it was careful to leave open the question of what population basis was appropriate in redistricting activities, even though in several cases total population figures were in fact the basis for comparison when determining whether the Equal Protection Clause of the Constitution had been violated. The Court recognized that, in a particular case, total population might not be the appropriate basis for redistricting plans. In the Burns case, Hawaii had used the number of registered voters as the basis for redistricting the state senate. The Court found that the redistricting plan "satisfies the Equal Protection Clause only because on this record it was found to have produced a distribution of legislators not substantially different from that which would have resulted from the use of a permissible population basis." Hawaii was found to have a unique situation, wherein the significant number of tourists, military personnel, and other transient population segments distorted the distribution of actual state citizens. The redistricting plan that would have resulted from a total population basis would not have reflected the true state population distribution as accurately as a state citizen population basis. Since a registered voter population basis was the closest approximation of a state citizen population basis, the use of the registered voter population basis was deemed consistent with the Equal Protection Clause. However, the Court was careful to note that the ruling in the Burns case did not establish the validity of the unique redistricting population basis for all times or circumstances. Although the federal decennial census figures need not be used as the basis for state redistricting, any alternate figures used must be shown to be the best data available or to be justified by particular circumstances as resulting in a more accurate redistricting plan than one based on federal decennial census total population figures. The U.S. Supreme Court has not ruled on the constitutionality or propriety of using total population versus voting population as the basis for intrastate redistricting in a circumstance where the use of total population results in a disparity in voter strength in one district over another, although there is total population equality between the districts. In Garza v. County of Los Angeles , the U.S. Court of Appeals for the Ninth Circuit held that redistricting based on voting populations instead of the total population would have been unconstitutional. Total population had been used as the basis of a court-ordered redistricting plan that was disputed by the County of Los Angeles. Justice Thomas, in his dissent from a denial of a writ of certiorari in Chen v. City of Houston , contrasts the decision of the Ninth Circuit in Garza with those in which the U.S. Courts of Appeals for the Fourth and Fifth Circuits have held that the decision about whether to use total population versus voting population as the basis for redistricting within a state is a choice left to the legislative and political process. Since, under the Federal Constitution, the states arguably can and should use data other than the official apportionment census data in their own redistricting process if they know the other data to be the best available data, one must look at each state's laws to determine whether the states themselves require the use of official federal decennial census data in the redistricting processes. Although it appears that generally states prescribe a redistricting procedure by statute for state legislative redistricting, many do not have a statutory procedure for congressional redistricting. The state legislatures in such states conduct the congressional redistricting on an ad hoc basis after a federal decennial census. This means that in such states there may be no explicit statutory requirement to use official federal decennial census data for congressional redistricting, although there may be such an explicit requirement for state legislative redistricting. To the extent that a state's own laws do not explicitly require the use of official federal decennial census data for intrastate redistricting, the state is free to use any other data. It might be suggested that the federal government release two official sets of data, one for apportionment of the House of Representatives among the states and the other for other purposes. In such a situation, it could be unclear what a reference in state law to official federal decennial census data would mean. Arguably, the second data set could still be considered official federal decennial census data, even though not used for apportionment purposes. However, it should be noted that the Court's holding on standing for the plaintiffs in Department of Commerce v. U.S. House of Representatives indicates that a majority of the Court considers the references to official federal decennial census data to be a reference to the apportionment data. At the time of the decision in Department of Commerce v. U.S. House of Representatives , there was a flurry of state legislative activity concerning the type of federal decennial census data to be used in intrastate redistricting because of the absence of sufficiently clear and explicit statutory guidelines concerning the appropriate data to be used in intrastate congressional and state legislative redistricting activities. Although there apparently has been no recent congressional activity concerning state redistricting census data, there is a potential role for Congress in determining what data should be used by the states. Although Congress has not explicitly required states to use federal decennial census data in congressional redistricting, it could arguably do so under the same constitutional powers which give Congress the authority to establish other redistricting guidelines if it chooses, Article I, Section 2, clause 1, which provides that the Members of the House of Representatives shall be chosen "by the People" and Article I, Section 4, clause 1, giving Congress the authority to determine the times, places, and manner of holding elections for Members of Congress. Where it is not clear that one data set is more accurate than the other and the constitutional goal of equal representation is not implicated, arguably, Congress could require that a particular type of data, including citizens only or including aliens, must be used in congressional redistricting. However, it could not do so with regard to the redrawing of state legislative or municipal districts, which remain the prerogative of the states as long as no constitutional voting rights are violated. Conclusion The Constitution requires a decennial census to determine the "actual enumeration" of the "whole number of persons" in the United States. The data must be used to apportion the House seats among the states, although there is no constitutional requirement it be used to determine voting districts within the states. The term "whole number of persons" appears broad enough to include all individuals, regardless of citizenship status, and thus would appear to require the entire population be included in the apportionment calculation. As such, a constitutional amendment, such as that found in H.J.Res. 11 in the 111 th Congress, would likely be necessary in order to exclude any individuals from the census count for the purpose of apportioning House seats. Appendix. Selected Legislation to Exclude Aliens from the Census From time to time, Congress has considered legislation that would exclude all aliens or only unauthorized aliens from being included in the census to apportion the House seats among the states. Such legislation would have either amended the Census Clause of the Constitution or enacted or amended federal census statutes. Generally, the legislation providing only for statutory exclusions of aliens from the census failed because Members recognized the potential unconstitutionality of these statutory restrictions. However, Congress has also consistently not adopted resolutions to amend the Constitution to exclude aliens, with Members citing various reasons, including the reversal of constitutional tradition. Some proponents of excluding aliens from the apportionment census have asserted that the framers of the Constitution did not understand the term "persons" necessarily to include aliens and point to the first census statute in 1790, which refers to "inhabitants," to support this contention. Since some of the Members of the first Congress had been Members of the Constitutional Convention a few years earlier, proponents argue that they must have known the intent of the Constitutional Convention in the Census Clause and would not have enacted an unconstitutional census statute. The proponents further argue that the term "inhabitants" in the first census statute was understood to refer to U.S. citizens only and not to foreigners/aliens, citing contemporaneous dictionary definitions. However, there is no direct evidence that this was the intention and, in fact, the early censuses apparently included aliens. The 1790, 1800, and 1810 censuses included categories for free white males, free white females, other free persons, and slaves. Free white persons were categorized further by age. The 1820 census was the first to include a subcategory for "foreigners not naturalized." Instructions to the federal marshals conducting the 1820 census noted that the data for this subcategory was not supposed to be added to the total data for free persons subcategorized by race and age, because they were already included as free persons. These instructions appear to imply that the earlier censuses included free foreigners as well as free citizens in the data for free persons and that the new subcategory of information was not adding persons who would not have been counted under existing subcategories in earlier censuses. In 1866, Congress considered constitutional amendments that would have limited the apportionment and census to voters or citizens. Such amendments were considered in the context of the civil rights amendments (ultimately resulting in the Thirteenth, Fourteenth and Fifteenth Amendments) being debated after the Civil War. The Fourteenth Amendment revised the apportionment clause, deleting the phrase counting three-fifths of slaves and instead requiring that the whole number of persons in each state must be counted, excluding Indians not taxed. However, if male inhabitants who were 21 years old and U.S. citizens were disenfranchised by a state for reasons other than participation in the Confederate rebellion or a crime, the population count of that state for purposes of apportionment would be reduced by the ratio of these disenfranchised male citizens to the total number of male citizens in that state. This was intended to discourage former slave states from disenfranchising former slaves and other African Americans. A similar proposal would have counted the "whole number of persons except those to whom civil or political rights or privileges are denied or abridged by the constitution or laws of any State on account of race or color." Some versions of this type of proposal would not have excluded Indians not taxed, while others kept the language excluding Indians not taxed. During consideration of the civil rights amendments, an alternate type of proposal to amend the constitutional requirements for apportionment and the census would have counted only voters in each state to discourage former slave states from disenfranchising former slaves and other African Americans. However, this proposal was deemed flawed because it would also penalize other states by not including aliens/non-citizens in the census count for apportionment, since generally aliens were not permitted to vote in most states. Opponents also noted that this proposal would depart radically from the counting of all persons required by the original census clause. Another criticism was that suffrage would be cheapened because states would reduce or eliminate legitimate conditions for voter eligibility in an attempt to increase the number of voters. Some proposals to count voters or electors would have excluded citizens who had been disenfranchised as former Confederate rebels, while others would have included such citizens. Some voter-based apportionment census proposals were brought up for floor votes and failed. For proponents, the type of proposals that evolved into the Fourteenth Amendment had the advantage of not penalizing states that were not former slave states, but had high numbers of aliens. Meanwhile, this type of legislation would still effectively discourage former slave states from disenfranchising former slaves, since such disenfranchised persons would not be counted at all, a significant reduction from being counted at a three-fifths ratio. In the late 1920s and early 1930s, the issue of counting aliens was raised as Congress considered legislation for the 1930 census and related apportionment of the House of Representatives. Apportionment was such a contentious issue following the 1920 census that the requisite decennial apportionment of the House of Representatives was never completed. The apportionment had been directly legislated by Congress until the 1920 census. After the breakdown in the process, Congress legislated a formula for calculating and allocating the Representatives among the states, thus eliminating the partisan negotiations that had hampered earlier apportionments and impeded/prevented apportionment in the 1920s. As Congress considered the appropriate apportionment formula, it debated whether to amend the Constitution to exclude aliens from the census data used for the apportionment. A 1929 Senate Legislative Counsel opinion analyzing such proposals concluded that "there is no constitutional authority for the enactment of legislation excluding aliens from enumeration for purposes of apportionment of Representatives among the States." While acknowledging that no case law had ruled on the issue of the meaning of "persons" in the Census Clause, the opinion found that according to rules of statutory construction, "persons" had at all times been understood to include aliens. Additionally, the reference in the Fourteenth Amendment to excluding Indians not taxed would be unnecessary if "persons" referred only to citizens, and the Fourteenth Amendment would not have explicitly referred later in the same clause to the number of male inhabitants who were citizens and 21 years old. With regard to the original apportionment and census language, the opinion contrasted the use of the word "person" with the use of the word "citizen" for particular reasons in other parts of the original Constitution. Proposals to exclude aliens by statute alone failed as unconstitutional. Proposals to amend the constitutional language also failed. In 1940, when asked by a colleague whether the census for apportionment must count aliens unlawfully present in the United States, Representative Celler asserted that a constitutional amendment would be required to exclude even unlawfully present aliens from the census. Earlier congressional debates apparently do not discuss unauthorized aliens, but rather consider the constitutionality and/or policy of excluding lawful aliens. In the late 1970s and the 1980s, Congress considered immigration legislation that became the Immigration Reform and Control Act of 1986, which legalized certain unauthorized aliens and strengthened immigration laws to prevent immigration fraud, provide greater protections for temporary foreign workers and prevent displacement of U.S. workers, etc. In the period before and after the enactment of this legislation, Congress also considered proposals to exclude aliens from the census, including proposals specifically to exclude unauthorized aliens. The latter proposals appear to be related to the proposals to legalize or strengthen enforcement against unauthorized aliens. Some Members noted that unauthorized aliens needed to be included in the census in order to assess the potential impact of legalization. A key legislative proposal in the late 1980s resembled the Vitter amendment in the 111 th Congress to prohibit the use of funds to include illegal aliens in the census for apportionment of the House of Representatives. This provision was sponsored by Senator Shelby as amendments to the bill for appropriations to the Departments of Commerce, Justice, and State (CJS appropriations bill) and the Senate-passed version of the Immigration Act of 1990. Although such provisions were passed by the Senate in these bills, they ultimately were not enacted. House proponents of this proposal failed in their attempt to have the House instruct its conferees for the CJS appropriations bill to retain the Senate provision in their negotiations; there had been no such provision in the House-passed version. The House conferees objected to the provision and it was dropped. However, the House floor debate on instructions to the conferees was echoed by the debates in the 111 th Congress.

In the 2010 decennial census, the Census Bureau counted the total population of the United States. This included, as in previous censuses, all U.S. citizens, lawfully present aliens, and unauthorized aliens. Some have suggested excluding aliens, particularly those who are in the country unlawfully, from the census count, in part so that they would not be included in the data used to apportion House seats among the states and determine voting districts within them. One question raised by this idea is whether the exclusion of aliens could be done by amending the federal census statutes, or whether such action would require an amendment to the Constitution. The Constitution requires a decennial census to determine the "actual enumeration" of the "whole number of persons" in the United States. The data must be used to apportion the House seats among the states, although there is no constitutional requirement it be used to determine intrastate districts. It appears the term "whole number of persons" is broad enough to include all individuals, regardless of citizenship status, and thus would appear to require the entire population be included in the apportionment calculation. As such, it appears a constitutional amendment would be necessary to exclude any individuals from the census count for the purpose of apportioning House seats. From time to time, Congress has considered legislation that would exclude all aliens or prevent only unauthorized aliens from being included in the census for purposes of apportioning House seats among the states. Such legislation would have either amended the Census Clause of the Constitution or enacted or amended federal census statutes. Although such legislation has yet to be introduced in the 112th Congress, in the 111th Congress, legislation was introduced that used both approaches. The Fairness in Representation Act would have statutorily excluded aliens from the population count for apportionment purposes (H.R. 3797 and S. 1688). Under the above analysis, it would not appear to be constitutionally sufficient for Congress to amend the federal census statutes in such manner. Meanwhile, H.J.Res. 11 would take the other approach and amend the Constitution so that only U.S. citizens would be counted in the apportionment calculation. Other legislation in the 111th Congress would not have raised the same constitutional issues since it would not appear to require the exclusion of any individuals for apportionment purposes. An amendment introduced by Senator Vitter to the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2010 (S.Amdt. 2644 to H.R. 2847), would have cut off funding for the census unless the census form included questions regarding citizenship and immigration status. The amendment was subsequently ruled to be non-germane. On the other side of the issue, the Every Person Counts Act (H.R. 3855) would have prohibited the Census Bureau from asking about U.S. citizenship or immigration status.

Oversight of Major Capital Investments For the federal government, capital investments include development and acquisition of major capital assets, such as equipment (e.g., hardware for weapons systems, satellites, and information technology (IT)); structures (e.g., the Capitol Visitor Center); intellectual property (e.g., software); and combinations thereof. A capital investment can play a critical role, therefore, in the accomplishment of agency missions and the success of public policies. Congress has often taken a strong interest in the performance, cost, and schedule of major capital investments. In addition, Congress has taken a strong interest in establishing and maintaining accountability mechanisms to ensure that the President, Office of Management and Budget (OMB), and agencies fulfill statutory duties, accomplish prescribed public policy goals, report transparently and fully, and act as careful stewards of public resources. Earned Value Management (EVM), which is the subject of this report, is a management technique that provides metrics to help inform assessments of whether a capital investment is "on track" from three perspectives: planned cost, time schedule, and functionality (the latter concept often referred to as "performance," "technical performance," "capability," "scope of work," or "planned value"). Using these three perspectives, EVM compares the planned cost, schedule, and functionality against an (ideally) accurate measurement of what is actually happening. Frequently, EVM metrics serve to raise potential issues that require further investigation or study, rather than provide the full picture of a project's progress and status. EVM may be of increasing salience in executive branch practices and, implicitly or explicitly, in presentations to Congress. EVM might also be used as an oversight tool for Congress. This report provides an overview of EVM terminology and concepts by using a hypothetical example and illustrating a few potential oversight issues. To place EVM in context, however, it is necessary to discuss first the risks associated with major capital investments, how capital investments are often evaluated and monitored throughout their life cycles, and how EVM appears to be increasingly adopted by executive branch agencies. After providing the hypothetical EVM example and some related caveats, the report concludes with potential oversight questions for Congress regarding EVM. Managing Risks and Evaluating Projects Managing Risks of Adverse Events and Forgone Opportunities The planning and implementation of a major capital investment are not simple tasks. Consequently, major capital projects in both the public and private sectors are considered to be inherently risky. For purposes of capital asset investment, risk might be described as the probability that adverse events will occur or favorable opportunities will not be exploited. Unless a project is carefully managed, risk might increase substantially in both of these senses. Adverse events that might occur include schedule delays, cost overruns, and performance shortfalls or failures. Favorable opportunities that might not be pursued (or noticed) could include chances to complete a project more quickly, at less cost, and with better than planned performance in achieving the mission or one or more goals. In response, agencies must make substantial efforts to plan effectively and manage risk in order to achieve successful outcomes. Given the complexity and inherent risk of major capital investments, however, it should be noted that problems cannot always be avoided, even in well-planned and implemented projects. Many stakeholders—including Congress, the President, agency employees, and the public—often take a strong interest in the performance, cost, and schedule of major capital investments. The interest stems directly from the mission-critical nature of many investments. Furthermore, interest in specific capital investments can become heightened when something has gone wrong. Indeed, the consequences of a poorly managed capital investment project can be significant, and when investments in major capital assets fail, they can fail spectacularly. Journalists, inspectors general (IGs), and the Government Accountability Office (GAO) are sometimes the first actors to disclose publicly that a major capital investment by the U.S. government has gone awry. Nonetheless, such disclosures are often lagging indicators of problems, rather than leading or coinciding indicators. Furthermore, capital investment problems themselves can be lagging indicators of more fundamental problems with management capacity, transparency, and accountability. Monitoring and Evaluating Capital Investments In tracking the planned versus actual progress regarding the planned cost, schedule, and functionality of a major capital asset, EVM attempts to address several significant monitoring and evaluation issues. EVM does not, however, address all important monitoring and evaluation issues that could contribute to an assessment of an investment's status and progress. Therefore, EVM's use as a management and oversight tool for major capital investments arguably should be considered within a larger context. A variety of techniques can be used to monitor and evaluate major capital investments prospectively, concurrently, and retrospectively. Furthermore, these activities can occur throughout the life cycle of a capital asset—that is, during initial planning, the acquisition or development process, and operational use, as well as after disposal. Because EVM is intended to inform assessments of whether a capital investment is on track with respect to planned cost, schedule, and functionality, EVM takes place primarily during the acquisition process for a new asset (or modification of an existing asset), but can also occur during planning. Figure 1 provides illustrative lists of capital planning and programming activities that agencies often undertake during each of the four phases of a capital investment's life cycle. The figure also shows corresponding lists of the monitoring and evaluation activities, including EVM, that are often used to support the agency activities. Increasing Executive Branch Adoption of EVM for Budgeting, Management, and Reporting Related Statutory Directives and Requirements Concerns about project risks are not new, nor are efforts to mitigate risks of major capital investments and prevent failures. For example, the first edition of OMB's Capital Programming Guide for agencies was published in 1997. Before then, Congress had enacted statutory provisions that were related to major capital investments, including, among others, a provision amending the Federal Property and Administrative Services Act of 1949 (41 U.S.C. § 263(a)), which now declares that "[i]t is the policy of Congress that the head of each executive agency should achieve, on average, 90 percent of the cost, performance, and schedule goals established for major acquisition programs of the agency"; provisions to require the Secretary of Defense and heads of all executive agencies to establish cost, performance, and schedule goals for major acquisition programs; and the Clinger-Cohen Act of 1996 ( P.L. 104-106 , later codified and amended), which gave OMB and agencies explicit duties for monitoring the progress of information system investments. The duties included a requirement for agencies to provide the means for senior management personnel of the executive agency to obtain timely information regarding the progress of an investment in an information system, including a system of milestones for measuring progress, on an independently verifiable basis, in terms of cost, capability of the system to meet specified requirements, timeliness, and quality[.] Budget Formulation, Management, and Contract Management OMB has issued a number of requirements and directions to executive agencies that specifically concern EVM. For example, OMB included in its Circular A-11 —an annual document that communicates budget formulation and execution requirements to agencies—detailed directions for agencies to use EVM for major capital assets (Part 7). Among other things, the circular directed agencies to submit an "exhibit 300" ("Capital Asset Plan and Business Case Summary") for each "major investment" as part of their annual budget submissions to OMB, for the White House's use when formulating the President's annual budget proposal for congressional consideration. The circular also said that an exhibit 300 is "designed to coordinate OMB's collection of agency information for its reports to the Congress required by the Federal Acquisition Streamlining Act of 1994 (FASA Title V) and the Clinger-Cohen Act of 1996." The circular defined EVM as follows, citing an industry standard to which agencies would be expected to adhere: Earned value management (EVM) is a project (investment) management tool that effectively integrates the investment scope of work with schedule and cost elements for optimum investment planning and control. The qualities and operating characteristics of earned value management systems are described in American National Standards Institute (ANSI)/Electronic Industries Alliance (EIA) Standard—748—1998, Earned Value Management Systems, approved May 19, 1998. It was reaffirmed on August 28, 2002. A copy of Standard 748 is available from Global Engineering Documents (1-800-854-7179). Information on earned value management systems is available at http://www.acq.osd.mil/pm . Citing "room for improvement in the execution of our IT projects," OMB has also provided directions concerning major IT capital investments to agency Chief Information Officers in an August 2005 memorandum. The memorandum stated that, at the time, agencies were "already required to meet four principal criteria" for IT capital investments. The criteria included, along with two others, (1) the establishment and validation of a performance measurement baseline with clear cost, schedule, and performance goals; and (2) the management and measurement of projects to within 10% of baseline goals through the use of an earned value management system compliant with the ANSI standard cited in Circular A-11 . The memorandum also added new expectations for agencies, including directions to (1) ensure that cost, schedule, and performance goals for new major IT projects are "independently validated for reasonableness" before beginning development; and (2) provide, for all ongoing major IT projects with development efforts, for independent validations of then-current cost, schedule, and performance baselines by March 31, 2006, and submission of proposed changes of baselines for OMB approval. EVM requirements have also been added to executive branch acquisition regulations. On July 5, 2006, three agencies promulgated a final rule on behalf of the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council to amend the Federal Acquisition Regulation (FAR). The stated purpose of the change was, among other things, to "implement earned value management system (EVMS) policy in accordance with OMB Circular A-11, Part 7 and the supplement to Part 7, the Capital Planning [sic] Guide" and "help standardize the use of EVMS across the Government" for "those parts of [an] acquisition where developmental effort is required." The FAR changes required agencies to use an EVMS for certain major acquisitions for development, in accordance with Circular A-11 , and potentially also for other acquisitions, in accordance with individual agency procedures. The new regulations also specified that "[t]he qualities and operating characteristics of an earned value management system are described" in the ANSI/EIA Standard 748 that was cited by Circular A-11 (see the extended Circular A-11 quotation, above). Under the regulations, agency contracting officers were directed to, "at a minimum," "require contractors to submit EVMS monthly reports for those contracts for which an EVMS applies." In addition, OMB says it has used EVM data to determine agency scores under the George W. Bush Administration's initiative concerning the management of agencies in the executive branch—the President's Management Agenda (PMA). Although the PMA's standards are publicly available, PMA evaluation practices have not been fully transparent outside of OMB and the executive agencies. Detailed rationales and worksheets behind PMA scores are created, but not publicly available or independently validated. Illustrative and Hypothetical Example of EVM Measurements and Issues Purpose of Example Based on published requirements, it appears that the Bush Administration and most executive branch agencies are widely adopting EVM for major capital assets for purposes of budgeting, management, and reporting. Specifically, as noted above, EVM has been formally adopted in requirements for preparation of the President's annual budget proposal, agency contract management, and formal scoring criteria under the Administration's PMA initiative. It appears, therefore, that EVM metrics will be presented either implicitly or explicitly to Congress in a variety of venues, sometimes packaged along with the President's views and representations about budgetary and management priorities. Due to the substantially public nature of the budget process, the metrics will similarly be presented either implicitly or explicitly to the public at large, some of whom play a significant role in the budget process through provision of information and opinions to elected officials. It appears, therefore, that a potential ongoing issue for Congress will be judging whether underlying EVM metrics are fully, forthrightly, timely, and transparently reported. In addition, it appears that a corresponding issue for Congress might be understanding, interpreting, and scrutinizing EVM metrics, as potential inputs to congressional oversight, appropriations of funds, and authorization (or reauthorization) of agency and presidential activities. In each of these situations, EVM information might be relevant to informing Congress's assessments of whether acquisitions of major capital assets are on track with respect to planned cost, schedule, and functionality and, in turn, inform subsequent decision making. With these considerations in mind, the following tables and corresponding text present a hypothetical example of EVM metrics being applied to the development and acquisition of a major capital asset. The purpose of explaining how EVM works through an example, here, is to give concrete illustrations of the types of basic analyses that can be performed with EVM, as well as to illustrate how EVM can be used to identify potential topics for follow-up investigation and study (e.g., perhaps with congressional oversight or complementary evaluations included in Figure 1 ). The type of asset described here could be any of those described at the beginning of this report, including a weapons system, satellite, structure, IT system, etc. The example presented here is adapted from an example that has been published in a variety of forms for a number of years in federal government websites and publications, but also draws on other resources, as noted below. Some EVM-related terms are italicized and explained as they are introduced. Hypothetical Example: EVM for "Project B" Explanation of Planned Value For this hypothetical example, Congress has been presented with EVM data about a major capital investment called "Project B." The project has six work units , represented by the letters "A" through "F," which are interrelated, but distinct subcomponents of the project. For a simple example relating to a structure, work units might include concrete, framing, roofing, electrical, plumbing, and interior. Collectively, work units A through F are also referred to as the project's work breakdown structure (WBS). In this example, Project B has been underway for a period of time already, and all the work units were planned to be successfully completed by the time of this EVM report. The original plan for Project B's costs, schedule for completion, and functionality is referred to as the project's baseline , identified here as B 1 (see Table 1 ). Later in the life of the project, it is possible that the project could be "re-baselined" (baselined again with new cost, schedule, and functionality plans, in order to, for example, conform to a management decision or reflect new circumstances). To summarize the contents of Table 1 , the baseline plan B 1 for Project B shows that six work units (A-F) are planned to be completed at an overall cost of $100 for the time period covered by this report. Each work unit is listed with its own planned budget—that is, the amount of money that is planned to be spent to successfully build and complete the functionality planned for the work unit. Work unit D, therefore, is planned to be successfully completed within the time period covered by this EVM report at a cost of $25, and work unit E is similarly planned to be completed at a cost of $20. These numbers have a special name, planned value , that this report will also generically call a metric . (Other metrics will be introduced as this section progresses.) In a sense, when the agency that is paying for Project B and the agency's contractor agree to plan that $25 will be spent to successfully complete work unit D, it could be said that the functionality that corresponds to work unit D has taken a monetary value of $25. Assigning work unit D's functionality a quantitative value (denominated in dollars according to the planned budget for that functionality), in turn, will allow a quantitative representation of how much of work unit D may have been completed at any given point in time, as explained below. Explanation of Earned Value and Schedule Variance Table 2 adds two rows of EVM data, with two new metrics, to the previous table The first row of data in Table 2 shows the same planned value that was portrayed in Table 1 for Project B and its constituent work units, according to the project's planned baseline B 1 . Note that the planned value for Project B's various work units continues to sum to $100, the overall cost of the contract to the agency. The second row is new. This row is intended to show how much functionality has actually been successfully developed by the date this EVM report was produced. Work unit A, for example, is shown with an "earned" value (denominated in dollars) of $10. This means that the functionality that was planned for work unit A has been successfully completed or earned, and becomes earned value , not merely value that was planned. As work is successfully performed, therefore, it is earned on the same basis as it was planned. Stated differently, work unit A has earned the full functionality that was planned, and the work unit and overall project are, therefore, credited with $10 of value that has been earned for purposes of work unit A. Looking across the table, one sees similar situations with work units B, C, and E. In each case, the functionality that was planned for these work units has been successfully and fully developed, or earned. Work units D and F, however, are another story. Table 2 shows that work unit D was partially, but not fully, completed, and also that work unit F was never started. Only $10 worth of functionality, out of work unit D's planned value of $25, has been accomplished. In other words, only 40% of the work associated with work unit D has been successfully completed, and 60% of the work has not been successfully completed. As a result, work unit D is said to have a schedule variance of -$15 ($10 earned value minus $25 planned value equals -$15 schedule variance). With EVM, the term variance , therefore, implicitly means difference from the relevant plan (or baseline). The variance is denominated in dollar terms, because dollars (i.e., dollars of planned value) represent the functionality that is planned to be developed and, eventually, either delivered or not delivered. With only $10 of earned value, work unit D is $15 behind schedule, compared with the baseline B 1 planned value of $25. Or, equivalently expressed in percentage terms, work unit D is 60% behind schedule. Because work unit F was never started, work unit F has a schedule variance of -$20, and is 100% behind schedule. When work units A through F are summed, out of the planned value of $100 for Project B, only $65 of the planned functionality has been successfully developed, thanks to work units D and F falling behind schedule. Overall, Project B is therefore said to have an earned value of $65, $35 lower than the project's planned value, and is said to have a schedule variance of -$35, or in percentage terms, a 35% schedule variance (i.e., 35% behind schedule compared to what was planned to be accomplished). The 35% schedule variance might also be understood as a shortfall in the functionality that had been planned to be delivered within the time period of the EVM report. An explanation of why work units D and F were not successfully completed, however, is not captured with EVM data. To construct such an explanation, other evaluation and monitoring methods from Figure 1 might need to be explored. In addition, it would probably be possible to use qualitative and quantitative information from individuals involved in the project, and potentially also from stakeholders, to construct interpretations of what might have caused the slip in schedule. As GAO has cautioned, "[i]t is important to understand that variances are neither good nor bad. They are merely measures that indicate that work is not being performed according to plan and that it must be assessed further to understand why." The schedule variance metric discussed above (i.e., the difference between planned value and earned value) only captures part of the overall story of Project B: whether the project is on schedule or behind schedule. One has yet to look at whether the project is on track with regard to its actual cost, in comparison to the baseline B 1 . The question of whether Project B is on track with its planned cost is the subject of Table 3 , below. Explanation of Actual Cost and Cost Variance Table 3 presents two additional EVM metrics that are necessary to assess whether a project is experiencing cost overruns or coming in under budget compared to the baseline. For each work unit, the table compares the value of the functionality that was successfully delivered (earned value, which was discussed above) with the amount of money that was actually spent to achieve that functionality ( actual cost , the first of the two new metrics). By subtracting the actual cost from the earned value, one calculates the second new metric: cost variance . Some illustrations provide intuition for understanding cost variance for individual work units and also the overall project. In Table 3 , the first row of EVM data shows that work unit A was successfully delivered, creating earned value of $10. The second row of EVM data shows that the actual cost of work unit A was only $9, or $1 under the earned value. Subtracting the $9 actual cost from the $10 earned value results in a $1 cost variance. A positive number for cost variance, therefore, means something was delivered under budget. Work unit C similarly came in under budget, as shown by its positive cost variance. Work units B, D, and E, by contrast, show that cost overruns have occurred. A negative cost variance means that a work unit (or portion of a work unit) was delivered over budget: more money was spent for the work successfully accomplished than was planned. To achieve the full functionality that was delivered for work unit B (represented by the work unit's earned value), the actual cost was $22, considerably higher than the original budget (planned value). The cost variance for work unit B is -$7, representing a cost overrun. In percentage terms, the cost overrun can be calculated by dividing the cost variance (i.e., -$7, the excess amount spent over the budgeted amount) by the earned value (i.e., $15, the value of the functionality that was delivered). The cost overrun was, therefore, nearly -47%. For work unit D, the picture looks even worse. In developing the functionality represented by $10 of earned value (only a portion of the hoped-for functionality represented by $25 in planned value), the actual cost was $30. That is, only 40% of work unit D's planned functionality was delivered successfully, but at a cost that exceeded the budget for the entire work unit. Work unit D's cost variance is -$20 ($10 earned value minus $30 actual cost), or -200%. The intuition behind the -200% figure is as follows. Only a portion of work unit D was successfully delivered (i.e., $10 out of work unit D's overall planned value of $25 was successfully delivered, becoming $10 in earned value). Looking at work unit D, overall, the portion of the work unit's functionality that was delivered successfully ended up costing three times more than what was planned ($30 actual cost instead of $10), which is a 200% overrun for that portion of work unit D that was successfully completed. Finally, one might assess work unit F. Because work unit F was not started, no money was spent on the work unit, resulting in a cost variance of zero. Looking at Project B overall, in terms of its B 1 baseline, the earned value for the major capital investment is $65 (nearly two-thirds of the planned functionality). In achieving $65 in earned value, however, $91 was spent. Stated differently, the portion of the overall project that was performed successfully (i.e, the $65 earned value) was, by definition, originally planned to cost $65 (i.e., the portion had a planned value of $65), but in the end, was completed at an actual, overall cost of $91. These metrics result in an overall cost variance for the project of -$26 (earned value of $65 minus an actual cost of $91), or exactly -40% (-$26 cost variance divided by the earned value of $65). Project B, therefore, could be said to have experienced a 40% cost overrun on the capability that has been successfully delivered. The capability that was successfully delivered in the time period of the EVM report, in turn, was substantially less than the capability that was planned to be delivered in the time period (-35%, the schedule variance, which shows a schedule slip and corresponding functionality shortfall). EVM as More Useful Tool than Simple Spend Comparisons EVM tutorials often compare EVM metrics with an oversight tool that is often considered not useful: the "spend comparison." The typical spend comparison approach, whereby contractors report actual expenditures against planned expenditures, is unrelated to the functionality that was successfully delivered (see Table 4 ). Table 4 shows a simple comparison of planned spending and actual spending, which is unrelated to work performed and, therefore, potentially misleading and not a very useful comparison. The fact that the overall amount spent was $9 less than planned for this period is not useful for most purposes, because the metrics lack comparisons of spending with the functionality that was successfully delivered. In Sum: EVM Metrics as Oversight Tools Considered together, Tables 1 , 2 , and 3 cover central aspects of EVM: comparing the planned cost, time schedule, and functionality for a major capital investment against the actual cost, time schedule, and functionality of what was successfully delivered. Many observers emphasize that EVM might help facilitate the correction of problems during the investment process. For example, as one prominent federal agency website asserts, from a practitioner perspective, "[t]he benefits to project management of the earned value approach come from the disciplined planning conducted and the availability of metrics which show real variances from plan in order to generate necessary corrective actions." Another potential benefit of EVM, from an oversight perspective, is to provide a picture of the status of a major capital investment at a "snapshot" in time. EVM calculations might enable project managers, contractors, program managers, overseers, and outside stakeholders to see quickly and simply whether or not a project is "on track" with its baseline plan. A negative schedule variance or cost variance indicates a schedule slip or cost overrun, whereas positive variances indicate a project is ahead of schedule or under budget. EVM metrics might, thereby, suggest the need for additional analysis in targeted ways to explain the root causes of problems and what could be done, if anything, to get a project back on track, or even provide evidence of more fundamental management, resource, and oversight problems. EVM metrics do not, however, necessarily tell the whole story, as discussed below. Caveat: EVM Metrics Might Tell Only Part of the Story The story that EVM tells can be a significant one. Once the basic jargon and concepts of EVM are understood, EVM provides a visually simple picture, on a periodic basis, of whether or not a project is on track with plans. For oversight purposes, EVM can thereby "flag" outliers and signal the potential need to ask further questions. The prospect of this scrutiny might, in turn, provide incentives to OMB and agencies to, among other things (1) closely monitor the progress of major capital investments; and, more fundamentally, (2) build the capacity (e.g., resources, staff, skills, management attention and discipline, and processes) for OMB and agencies to properly manage investment-related activities and evaluations. Nonetheless, without further evaluation of a project, EVM metrics might tell only a partial story. For example, even when EVM metrics are accurately captured and portrayed, the metrics typically will not reveal why a project might be experiencing schedule or cost variances. A process or implementation evaluation might be necessary to address such questions (e.g., to verify and complement explanations that are provided by contractors). In addition, other evaluation methods (see Figure 1 ) are typically used to assess other significant and, sometimes, more fundamental questions, including (1) whether a project is worth undertaking (or continuing); and (2) after the investment process is completed, what impact an investment might be having on achievement of an agency's mission or the success of a public policy, compared to what would have happened without the investment. In addition, a project's baseline plan and corresponding EVM data might not accurately represent the cost and schedule that are most likely necessary for a project to achieve a particular functionality. Cost, schedule, and functionality plans are, of course, made in the context of complexity and uncertainty, which oftentimes can guarantee that a capital investment project will not proceed according to plan. Alternatively, estimates of a project's costs, schedule, functionality, and benefits might be based on insufficient research and analysis. Furthermore, the use of metrics can create powerful incentives, including perverse incentives. One project management reference presents a humorous and skeptical, albeit seriously intended, scenario to caution against too quickly accepting EVM metrics at face value as accurate representations of the full picture. The scenario is worth excerpting at length—not as a portrayal of what is typical—but rather as an illustration of an overseer interpreting EVM metrics; thinking about incentives; and confronting the issue of what a "reasonable" plan should be for a project's cost, schedule, and functionality. Specifically, the author posits a scenario showing a project is [quite substantially] ahead of schedule and underspent.... At first glance, this looks wonderful. But ask yourself how the variance happened. There are three possible explanations for how this project manager achieved the results shown: 1. Actual labor [costs] were considerably lower than expected and/or the people were more efficient than anticipated. 2. The project team had a "lucky break." The team had expected to have to work really hard to solve a problem, but it turned out to be very easy. 3. The project manager "sandbagged" his estimates. He padded everything, playing it safe. If you believe situation 1, you will believe anything. It is unlikely that both variances would happen at the same time. Situation 2 happens occasionally. When all the planets are aligned—about once in a zillion years, you say. You bet! Situation 3 is the most likely explanation. The project manager was playing it safe. And he would tell you that there is no problem. After all, if he continues along this course, the project will come in ahead of schedule and underspent, which means a manager will give money back to the company. No problem. But is that true? First of all, I can almost guarantee that the project manager won't give any money back. He will find a way to spend it—by adding bells and whistles to the project, by buying unplanned equipment and supplies, or by throwing one huge party! No sane project manager wants to give the money back, because he knows that his next project will be cut. However, suppose the manager did give back the money. Would that be okay? No. The reason is that the organization would have lost the opportunity to use the money to fund some other project.... But the money is available. It is tied up in the under-budget project. If that project were rescheduled and rebudgeted, the money would be available to keep the other project going, assuming that the [return on investment] is still justified. The question is, naturally, "What is reasonable?" We certainly cannot expect to have zero variances in a project. And this is true. It all depends on the nature of our [commercial sector] business. Well-defined construction projects can be held to very small tolerances—as small as plus-or-minus 3 to 5 percent. Research and development projects are likely to run higher tolerances, perhaps in the range of 15 to 25 percent. Each organization has to develop acceptable tolerances from experience. Whether the author's scenario and rules of thumb are fully applicable to federal government projects generally, much less in specific policy and technology domains, is debatable. Nevertheless, his scenario illustrates some of the psychological and implementation phenomena that might be at play in the context of major capital investments. In a federal government context, phenomena like these might be at play with any participating actor (e.g., advocate, critic, project manager, funder, contractor, overseer) at any point in the process of researching, proposing, funding, executing, operating, and evaluating major capital investments. For example, who says the budget and planned functionality corresponding to a proposed project are accurate? What analyses are the judgments based upon? Are cost and benefit estimates reasonable? Who might have the capacity and independence to make such an assessment? Do agencies, inspectors general, or OMB have the staff resources to perform adequately the necessary analytical and monitoring tasks for major capital investments? Are the President, political appointees, and career civil service executives making decisions based on, or in spite of, reasonable and objective analysis and monitoring? What are the real reasons a project is under or over budget, or ahead of or behind schedule? How much scrutiny is too much? What perverse incentives and consequences might be created when project managers make good faith attempts to estimate costs, schedules, and functionality, but variances inevitably occur, perhaps due to uncertainty or bad luck, bringing high levels of distracting scrutiny to a project and its sponsoring agency or agencies? Questions such as these are difficult to answer, but suggest that answers and corresponding lessons might be learned for specific policy areas and types of investments over time and with experience. This observation raises two further questions. For each type of actor involved in planning, funding, implementing, evaluating, and overseeing major capital investments (e.g., project managers, program managers, political appointees, career executives, congressional staff, Members of Congress, and the President), what are the necessary prerequisites to learning these lessons from experience? That is, what capacities and processes need to be in place in order to learn from experience? How many of these prerequisite capacities and processes are currently in place? Potential Oversight Questions for Congress Major capital investments give rise to many actual or potential issues for Congress. Issues that are potentially related to EVM are a significant subset of this larger picture. With the increasing emergence of EVM as a tool for gauging the status and progress of major capital investments, potential congressional oversight issues appear likely to continue emerging, as well. This report culminates with a sampling of potential oversight questions for Congress that draw on the report and other resources, as noted. In light of what appears to be more widespread adoption of EVM practices for major capital investments by executive agencies and their contractors, what might be the advantages, disadvantages, costs, and benefits of legislatively requiring more formal, periodic, and publicly accessible agency reporting of EVM metrics for some, most, or all major capital investments? To what extent might recent congressional efforts to increase budget and financial transparency—for example, the establishment of a searchable website for federal contracts and grants required by the Federal Funding Accountability and Transparency Act of 2006 (FFATA; P.L. 109-282 ; 120 Stat. 1186)—be viewed as an illustration of what could be done with EVM information? What would be the advantages and disadvantages? The usefulness of EVM metrics depends upon the quality and reliability of the cost, schedule, and functionality data that underlie both a project's baseline plan and its reports on work performed. Given concerns that have been raised about the quality of agency capital investment business cases that are used to justify budget requests, as well as concerns that have been raised about the quality of agency project management, what might be options for Congress to cause OMB and agencies to improve any deficiencies in the underlying analyses and data that support capital investment decision making and reporting? What might be the advantages and disadvantages of requiring independent, publicly accessible assessments—including verification and validation, as appropriate—of the underlying quality of EVM data, including cost estimates and assessments of the functionality that is delivered in comparison with what was planned? What might be the advantages and disadvantages of requiring independent, publicly accessible assessments of the capacity of agencies to manage the capital planning and investment control (CPIC) process (e.g., agency capacity to research, formulate, plan, propose, develop, report on, operate, and evaluate major capital investments), which is arguably more fundamental as a driver of EVM data quality? Would assessments of key capabilities be amenable to systematic oversight through the use of "scorecards," similar to those used under the Bush Administration's President's Management Agenda, albeit with transparency outside the executive branch and independent validation? To the extent that OMB currently identifies gaps in agency capabilities, to what extent do annual budget requests (submitted to Congress by the President) and performance plans (produced by agencies under the Government Performance and Results Act of 1993, or GPRA; P.L. 103-62 ) address the gaps? Processes that support the capital investment process—including development of capital investment business cases, project management, EVM, contract oversight, management auditing, and evaluation—depend for success, in large part, upon adequate staff and skill resources in agencies. Have agencies allocated sufficient staff and financial resources to successfully undertake major capital investments? How might such judgments be made? Also, do agencies have sufficient ability to recruit, retain, and train personnel in disciplines including project management, risk management, contract management and oversight, information technology, and program evaluation? If so, what are their track records in recruiting, retaining, training, and allocating staff in sufficient number and competency in the management and oversight of major capital investments? If not, what could be done? What might be the advantages, disadvantages, costs, and benefits of applying EVM-related requirements to major capital investments, as appropriate, pursued by agencies in the legislative and judicial branches?

This report focuses on a technique—earned value management (EVM)—for overseeing the cost, schedule, and performance of major capital investments during the investment process (e.g., information technology systems, structures, weapons systems). EVM provides metrics to help inform assessments of whether capital investments are "on track" from three perspectives: the investment's planned cost, time schedule, and functionality. Variance from a project's planned cost, schedule, and functionality might occur due to the inherent complexity and uncertainty of a project, poor planning or implementation, or, sometimes, simply bad luck. Although EVM attempts to address several significant monitoring and evaluation issues, other evaluation techniques are typically necessary in order to understand why variance from the planned cost, schedule, or functionality might be occurring. In addition, other evaluation methods are typically more useful in assessing other significant questions, such as whether a project is worth undertaking (or continuing) and, after the investment process is completed, whether an investment might be having an impact on achievement of an agency's mission or the success of a public policy, compared with what would have happened without the investment. EVM may be of increasing salience in executive branch practices and, implicitly or explicitly, in presentations to Congress. This report begins by putting EVM within a broader context of risk management and how capital investments are often evaluated and monitored throughout their life cycles. Next, the report provides an overview of EVM terminology and concepts by using an example and illustrating a few potential oversight issues and caveats. The report concludes with some potential oversight questions for Congress. The report will be updated periodically.

Introduction Public pension plans, also referred to as governmental plans, are generally plans that provide retirement or deferred income to employees of the U.S. government, a state government or its political subdivision, or any agency or instrumentality of those governments. According to a 2010 GAO report, approximately 20 million employees and over 7 million retirees and survivors are covered by state and local government pension plans, typically through a traditional defined-benefit plan. Recently, questions have been raised about the funded status of many public pension plans, as it has been reported that many of these plans are facing substantial future funding shortfalls. Concerns have been raised that these liabilities could jeopardize the fiscal stability of some state and local governments. There is considerable debate over whether this is a problem that needs to be addressed and if so, the cause and the extent of public pension plan underfunding. While it has been reported that public pension funds experienced recent gains, some of the estimates have placed the combined unfunded liabilities anywhere from hundreds of billions of dollars to over $3 trillion. In an effort to address these issues, some legislators and others have argued to reform public pension plans and the benefits they offer. In 2011 alone, over 20 states introduced or passed legislation aimed to reduce or otherwise modify pension plan benefits for current or future retirees, and more proposals have been introduced this year. This report provides an overview of how public pension plans are regulated at the federal and state levels. It discusses selected legal issues that may arise if attempts are made to remedy or prevent public pension plan underfunding, in particular, by changing plan benefits. This report will also briefly address possible federal regulation of state and local public pension plans. Regulation of Public Pension Plans Employment-based retirement benefits are governed at the federal level by two main laws, the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. In general, these two laws address two types of pension plans: defined benefit and defined contribution plans. Under a defined benefit plan, an employee is promised a specified future benefit, traditionally an annuity beginning at retirement. Benefits often are based on average pay and years of service. To fund the plan, an employer makes contributions to the common pension fund that are actuarially expected to grow through investment to cover the promised benefits. Under the terms of the plan, employees may make contributions as well. Most public pension plans are traditional defined benefit plans. A defined contribution plan (e.g., a 401(k) plan) is one in which the contributions are specified, but not the benefits. A defined contribution plan (also called "an individual account" plan) is one that provides an individual account for each participant that accrues benefits based solely on the amount contributed to the account and any income, expenses, and investment gains or losses to the account. The employee bears the investment risk in a defined contribution plan. Some state and local governments maintain defined contribution plans, and there have been proposals in various states to switch from a defined benefit to a defined contribution plan. Enacted in 1974, ERISA provides a comprehensive federal scheme for the regulation of pension and other employee benefit plans offered by private-sector employers. While ERISA does not require an employer to offer employee benefits, it does mandate compliance with its provisions if such benefits are offered. Title I of ERISA imposes various federal standards aimed at protecting the interests of plan participants and beneficiaries, including reporting and disclosure, vesting, participation, funding, fiduciary duty, and civil enforcement requirements. Title IV of ERISA created a plan termination insurance program, under which pension benefits are paid to plan participants and beneficiaries up to a statutory maximum if the benefits cannot be paid by the employer. Public pension plans are generally exempt from these provisions of ERISA, but may be subject to federal regulation under the Internal Revenue Code. The Internal Revenue Code grants certain tax benefits to "qualified" retirement plans. Among these tax advantages, employer contributions to a qualified plan on behalf of its employees are tax deductible for the employer. In addition, qualified retirement plan participants do not pay tax on employer contributions or the benefits they accrue in the pension plan until the participant (or beneficiary) takes a distribution. Given that state and local governments do not pay federal taxes, the tax benefit for employer contributions is irrelevant to them. However, public pension plans must be qualified so that the plan participants can avoid paying taxes on their pension benefits until the benefits are actually received. In order to be a qualified plan under the Internal Revenue Code, pension plans must meet several requirements. Governmental plans, however, are only subject to a subset of the qualification requirements that private-sector pension plans must meet. In many cases, public pension plans are subject to different requirements under the Internal Revenue Code than private-sector plans, including certain less stringent pre-ERISA requirements for vesting and funding. Aside from the requirements set out in the Internal Revenue Code, public pension plans are primarily regulated under state statutes, local ordinances, and state constitutions. These laws typically address the basic features of public pension plans, including eligibility, contributions, and types of benefits provided, and the laws vary widely from jurisdiction to jurisdiction. While public pension plans have no guarantor of plan benefits, states generally have constitutional or statutory provisions that dictate how pension plans are to be funded, protected, managed, or governed. Benefit Accrual and Vesting Requirements In evaluating whether pension plan benefits may be modified, requirements for benefit accrual and vesting are implicated. Under federal law, both ERISA and the Internal Revenue Code provide requirements for benefit accrual, which generally refers to the rate at which benefits are earned by a plan participant. Both federal laws prohibit private-sector pension plan amendments that eliminate or reduce benefits already accrued by plan participants. This prohibition is commonly referred to as the "anti-cutback rule." However, private-sector pension plans may be free to freeze accrued benefits, reduce the rate at which benefits will accrue in the future, or eliminate future benefit accruals altogether. In other words, under the anti-cutback rule, past benefit accruals are protected, but future benefits accruals can be modified. Governmental plans are exempt from the anti-cutback rule. Therefore, analysis of the changes that may be made to accrued benefits under a public plan is a state-by-state inquiry. While accrued benefit refers to the amount of benefits earned, vesting occurs under federal law when a plan participant's accrued benefit is considered to be non-forfeitable. ERISA and the Internal Revenue Code impose two general vesting requirements on private-sector defined benefit pension plans: one depending on age and one depending on length of service. Governmental plans are exempt from these federal vesting requirements. However, in order to be qualified, governmental plans must meet pre-ERISA vesting standards under the Internal Revenue Code, which include the requirement that upon plan termination or complete discontinuance of contributions, employees' rights to benefits accrued as of the date of the termination or discontinuance are non-forfeitable, but only to the extent that the benefits are funded. States may also impose additional vesting requirements for pension benefits, and these can vary by state. Can State and Local Governments Modify Pension Benefits? Recently, in an effort to alleviate pension plan underfunding and protect state and local government budgets, governors and legislators in several states have proposed and enacted various modifications to their pension plans. Over the past few years, almost two-thirds of states have made some form of benefit and/or contribution change to their plans (e.g., reducing benefit levels, requiring higher employee contributions, or amending age and service requirements to lengthen the accumulation and shorten the distribution period of pension benefits). While the majority of changes are directed at future participants and/or benefit accruals, some of the changes affect current employees and retirees. Although states may not face obstacles in changing the pension benefits available for new employees, the issue is not as clear with respect to existing ones. As discussed below, certain legal parameters may affect the ability of state and local governments to amend their pension plans. These parameters vary by state and depend on each state's laws and constitutional provisions governing its retirement system, what these laws provide with respect to the protection of an individual's pension benefits, and when any right to a pension benefit attaches. Courts have conceptualized the legislative modification of public employee pension plan benefits in different ways. Historically, most courts viewed public pensions as gratuities that could be amended at any time. Although it may not be controlling in the interpretation of a state law, the Supreme Court has historically found that statutes providing retirement benefits to pensioners create a mere "expectancy" that may be modified, revoked, or suspended by the authority granting it through subsequent legislation. However, this view has now been abandoned in most states, and public employee pension benefits are generally afforded greater protection under current state and constitutional law. This is, at least in part, because many courts now characterize public plan pensions as deferred compensation—that an employee is entitled to these benefits for work that has already been performed. Public Pension as a Contractual Right26 In rejecting the gratuity approach to public pensions, many state courts have found that based on common law, state statute, or state constitution, public pension benefit plans create a contract between the state and plan participant. If a contract is found to exist between the state or local government and pension plan participants, then this can limit the ability of a state to amend its pension plans. In some states, there is a specific constitutional provision addressing protection for public pensions as contractual obligations. At least six states have a constitutional provision that, in general, explicitly provides that membership in, or accrued benefits from, a state's retirement system creates a contract between the state and its employees that cannot be impaired. One lawsuit demonstrating the effect of this type of pension protection is McDermott v. Regan . In this case the New York legislature, in response to a state fiscal crisis, changed the funding method for the state's retirement systems. The change had the effect of reducing the government's contribution to the system. In finding that the state law violated the New York constitution, the court explained that the amendment depleted money in the fund and arguably destabilized the retirement system. Thus, it was an unconstitutional impairment of the pension funds. In the absence of a state constitutional provision expressly prohibiting the modification of pension benefits, a state's statutes or case law may be found to provide contractual rights for state and local government employees to their pension benefits. As noted above, if a contract is found to exist between the state or local government and pension plan participants, then this can limit the ability of a state to amend its pension plans. A public employee's contractual right to an unaltered pension benefit may be protected under the Contract Clause of the U.S. Constitution or an analogous state constitutional provision. The Federal Contract Clause provides, "No state shall ... pass any ... Law impairing the Obligation of Contracts." Although the language of the Contract Clause appears straightforward, its prohibition against state impairment of contracts is not absolute but rather "must be accommodated to the inherent police power of the state 'to safeguard the vital interests of its people.'" The Contract Clause applies to contracts between private parties, as well as those where the state is a party to the contract. However, in general, instances where the state is impairing a contract for its own benefit invite more judicial scrutiny. Based on Supreme Court jurisprudence, courts typically evaluate whether a state law violates the Contract Clause under a multi-pronged test. With respect to a public contracts, as a preliminary matter, courts may look at whether there is a contractual obligation that has been impaired. In order to determine whether a contractual relationship exists, a court may look to legislative intent to create a contract between the state and a private party. As the Supreme Court has explained, In determining whether a law tenders a contract to a citizen it is of first importance to examine the language of the statute. If it provides for the execution of a written contract on behalf of the state the case for an obligation binding upon the state is clear…. The presumption is that such a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise. He who asserts the creation of a contract with the state in such a case has the burden of overcoming the presumption. State statutes that establish retirement plans generally do not address whether a contract is created; thus, ascertaining whether a contract exists for a public plan pensioner can, in some cases, be difficult. However, if it is established that a contract exists, one must then ascertain whether a plaintiff's contractual rights are "substantially impaired." Factors that courts have taken into account in determining whether a substantial impairment exists include whether a statute applies prospectively, or retroactively; disrupts a party's "reasonable expectations" regarding an agreement; or "alters its terms, imposes new conditions, or lessens [a contract's] value." In the context of public pensions, benefit formula changes, changes in plan funding sources or methodology, and the elimination of cost of living supplement payments have all been found by courts in certain instances to be substantial impairments of the pension contract. But, in general, state law amendments that were not anticipated to have an effect on pension benefits or on employer rights and responsibilities may not be considered impairments. If a substantial impairment exists, however, the state law may still be constitutional if "it is reasonable and necessary to serve an important public purpose." This rule ensures that in impairing a contract, the state is protecting the broad public interest, rather than its own self-interest. As the Supreme Court has explained with respect to the impairment of public contracts, reasonableness must be considered "in light of the surrounding circumstances." Necessity depends upon two considerations: first, whether the impairment was essential or whether a less "drastic modification" was available, and also whether a state could have adopted an alternative means to bring about the desired end without impairing contract obligations. As the Supreme Court noted in U.S. v . New Jersey , "a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives. Similarly, a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well." While some courts have found that a state's desire to reduce spending and avoid financial crisis is an important public purpose under which a modification of a contractual right is acceptable under the Contract Clause, others have found to the contrary. In addition, a number of state courts, such as in California, permit reasonable modifications to an individual's pension benefits. However, "the modification must bear some material relationship to the purpose of the pension system and its successful operation; and any disadvantage to employees must be accompanied by comparable new advantages" (e.g., an increased pension amount). Thus, as explained by one commentator, the idea is that public employees are not entitled to any particular terms of a pension, but of the substance of the benefit which they could reasonably expect to receive. It should be noted that courts may reach varying conclusions as to whether a more financially sound pension plan is a comparable advantage that may accompany a modification of pension benefits. Attachment of Pension Rights While states that protect public pensions under contract principles typically evaluate a case under the legal standard discussed above, they reach varying conclusions based on when the contract is deemed to be formed, and what terms and conditions the contract includes. While courts generally find that the pension benefits of individuals who have already retired may not be diminished or impaired, this outcome is not as clear for current employees. The ability of states to modify their pension plans for current employees varies depending upon when a contract is deemed to exist, and this varies from state to state. For example, in some states, courts have held that an employee's right to a pension cannot be changed in any way that reduced the benefit that would be payable upon the day of hire or the first day the employee could participate in the plan. This view entitles plan participants to the most generous amount of protection for their pension benefits, as employees have a right to accrue benefits in the future. States may, however, alter the benefits available to new hires. In other states, reductions in pension plan benefits could be prohibited when, under the terms of a state statute, a participant is eligible to receive a pension (e.g., the employee has fulfilled the plan's service requirement). This approach is in line with federal requirements for private sector pension benefits. Under this view, retirement benefits must be provided for service already performed, but prospective plan modifications may still be acceptable. It is also possible that based on interpretation of a state statute, contractual rights to a pension take effect at other times. For example, interpreting an Ohio statute, one court found that the right to a pension benefit attached at retirement. Despite the variation in when a contractual right to a public plan pension benefit begins, as noted above, state courts generally find that the benefits of individuals who have already retired may not be diminished or impaired. However, modifications affecting post-retirement benefits have recently been challenged by retired state workers. For example, litigation in Minnesota, North Dakota, and Colorado was initiated based on adjustments that the state legislatures made to post-retirement cost of living adjustments (COLA) in an attempt to address pension plan underfunding. Plaintiffs have claimed, among other things, that they have a contractual right to a certain level of future post-retirement increases. On the other hand, the state defendants have argued that nothing supports the idea that the public employees are entitled to a specific cost of living adjustment formula. So far, these plaintiffs' claims in the Colorado and Minnesota cases have been dismissed by lower courts, finding no contractual right to a specific COLA level. Federal Legislation Affecting State and Local Governmental Pension Plans In order to address the issue of public pension plan underfunding, some have called for federal action. In the past, there have been efforts to regulate public pension plans similar to ERISA. In particular, following enactment of ERISA, various proposals were introduced that would have required public plans to meet various federal standards, such as reporting, disclosure, and fiduciary duty requirements. Legislative history indicates that Congress intentionally exempted these plans from ERISA for various reasons, most of which center around the differences inherent in regulating a private pension plan versus one sponsored by a state or local government. Because of these differences, it was concluded that additional data and study were necessary before attempting to regulate public plans. Federalism concerns were also raised, based on the idea that regulating state and local pension plans would constitute impermissible federal interference in the affairs of state and local government. However, the legal landscape has changed due to Supreme Court decisions issued after ERISA's enactment in 1974. While it appears that to date no proposals have been introduced in the 112 th Congress to comprehensively regulate public pension plans, there had been discussion of possible federal legislation to allow states to declare bankruptcy, something that states cannot currently do, in order to avoid or reduce certain financial obligations, such as pension obligations. Another proposal addressing public pension plans, the Public Employee Pension Transparency Act, would require public pension plan sponsors to file various plan financial data with the Treasury Secretary, including plan assets at fair market value and plan liabilities at an interest rate based on the U.S. Treasury obligation yield curve. The bonds issued by governmental entities that did not comply with the disclosure requirements would lose their federal tax exemption. Among other things, the legislation also states that the federal government would not be liable for any obligation related to a shortfall in any public pension plan.

Controversy has arisen over the funded status of some state and local government pension plans. It has been reported that several of these plans have not fully funded their future obligations and they could face substantial future shortfalls. While there is considerable debate over whether this is a problem that needs to be addressed, and if so, the extent and the possible causes of these shortfalls, some estimates have placed the combined unfunded liabilities anywhere from hundreds of billions of dollars to over $3 trillion. Governments facing investment losses combined with lower revenues are looking at ways to address these shortfalls and protect their fiscal stability. State governors and legislators in several states have proposed and enacted various modifications to their pension plans. There have been calls for modification of federal, state, and local laws affecting these pension plans and the benefits provided to participants and beneficiaries. This report provides an overview of how public pension plans are regulated at the federal and state levels, discusses selected legal issues that may arise if attempts are made to remedy or prevent public pension plan underfunding by modifying public pension plan benefits, and addresses possible federal regulation of state and local public pension plans.

Appendix 1. Revenue Accounts That Constitute the Medical CareCollections Fund (MCCF) for FY2004 Pharmacy Co-payments (formerly collected in theHealth Services Improvement Fund -- HSIF). In FY2002, Congresscreated a new fund (Health Services Improvement Fund) to collect increases inpharmacy copayments (from $2 to $7 for a 30-day supply of outpatient medication)that went into effect on February 4, 2002. The Consolidated AppropriationsResolution, 2003 ( P.L.108-7 ) granted VA the authority to consolidate the HSIF withMCCF and granted permanent authority to recover copayments for outpatientmedications. Long-Term Care Co-payment Account (formerlythe Veterans' Extended Care Revolving Fund). The MillenniumHealth Care and Benefits Act ( P.L.106-117 ) provided VA authority to collectlong-term care copayments. These out-of- pocket payments include per diemamounts and copayments from certain veteran patients receiving extended careservices. These funds are used to provide extended care services, which accordingto the Administration's budget documents, are defined as geriatric evaluation, nursinghome care, domiciliary services, respite care, adult day health care, and othernoninstitutional alternatives to nursing home care. (29) Compensated Work Therapy Program (formerlythe Special Therapeutic and Rehabilitation Activities Fund). Theprogram was created by the Veterans' Omnibus Health Care Act of 1976 ( P.L.94-581 ) to provide rehabilitative services to certain veteran beneficiaries receivingmedical care and treatment from VA. Funds collected in this program are derivedfrom goods and services produced and sold by patients and members in VA healthcare facilities. Compensation and Pension Living ExpensesProgram (formerly the Medical Facilities Revolving Fund). Theprogram was established by the Veterans' Benefits Act of 1992 ( P.L.102-568 ). Underthis program, veterans who do not have either a spouse or child may have theirmonthly pension reduced to $90 after the third month a veteran is admitted for nursing home care. The difference between the veteran's pension and the $90 is usedfor the operation of the VA medical facility. Parking Program (formerly the Parking RevolvingFund). The program provides funds for construction and acquisitionof parking garages at VA medical facilities. VA collects fees for use of these parkingfacilities. The Consolidated Appropriations Act, 2004 authorized collections fromthe Parking Program to be deposited in MCCF and be used for medical services. Funds for construction or alterations of parking facilities will now be included underthe construction major projects and construction minor projects accounts. (30) Sale of Assets (formerly the Nursing HomeRevolving Fund). This fund provides for construction, alteration,and acquisition (including site acquisition) of nursing home facilities as provided forin appropriation acts. Collections to this revolving fund are realized from the transferon any interest in real property that is owned by VA and has an estimated value inexcess of $50,000. No budget authority is required for this revolving fund, and fundsare available without fiscal year limitation. Appendix 2. VHA's New Account Structure Medical Services. Provides fundsfor treatment of veterans and eligible beneficiaries in VA medical centers, nursinghomes, outpatient clinic facilities, and contract hospitals. Hospital and outpatientcare is also provided by the private sector for certain dependents and survivors ofveterans under the Civilian Health and Medical Program of VA (CHAMPVA). Funds are also used to train medical residents, interns, and other professional,paramedical and administrative personnel in health science fields to support VA'smedical programs. Overhead costs associated with medical and prosthetic researchis also funded by this account. Medical Administration. Providesfunds for the management and administration of VA's health care system. Funds areused for the costs associated with the operation of VA medical centers, otherfacilities, VHA headquarters, costs of Veterans Integrated Service Network (VISN)offices, billing and coding activities, and procurement. (31) Medical Facilities. Provides fundsfor the operation and maintenance of VHA's infrastructure. Funds are used for costsassociated with utilities, engineering, capital planning, leases, laundry, food services,groundskeeping, garbage disposal, facility repair, and selling and buying of property. Medical and Prosthetic Research. Provides funds for medical, rehabilitative, and health services research. The medicaland prosthetic research program is an intermural program. In addition to funds fromthis appropriation, reimbursements from the Department of Defense (DOD), grantsfrom the National Institutes of Health (NIH), and private sources supports VAresearches. Medical research supports basic and clinical studies that advancesknowledge so that efficient, and rational interventions can be made to prevent, carefor, or alleviate disease. The prosthetic research program is involved in thedevelopment of prosthetic, orthopedic and sensory aids to improve the lives ofdisabled veterans. The health services research program focuses on improving theoutcome effectiveness and cost-efficiency of health care delivery for the populationof veterans. Overhead costs associated with medical and prosthetic research are alsofunded by the medical services account. Appendix 3. VHA's Appropriation for Capital Investments Medical Administration. Providesfunds for costs associated with operation of medical centers, other facilities and VHAheadquarters as well as VISN offices. It also funds all the medical informationtechnology, including patient records, computer equipment and softwaredevelopment, which are considered capital assets by VA. Medical Facilities. Provides fundsfor the operation and maintenance of VHA's infrastructure. Funds are used for costsassociated with utilities, engineering, capital planning, leases, laundry, food services,groundskeeping, garbage disposal, facility repair, and selling and buying of property. Construction Major. Providesfunds for capital projects costing $7 million or more that are intended to design,build, alter, extend or improve a VHA facility. As part of VA's budget process,Congress reviews, approves, and funds major construction on a project by projectbasis. Typical major construction projects are replacements of hospital buildings,addition of large ambulatory care centers, and new hospitals or nursing homes. Construction Minor Projects. Provides funds for capital projects costing $500,000 or more and less than $7 millionthat are intended to design, build, alter, extend or improve a VHA facility. Minorconstruction projects are approved at the Veterans Integrated Service Network(VISN) level. Grants for Construction of State Extended CareFacilities. Provides grants to states for construction or acquisitionof state home facilities, including funds to remodel, modify or alter existing buildingsused for furnishing domiciliary, nursing home or hospital care to veterans. A grantmay not exceed 65% of the total cost of the project. Appendix 4. Priority Groups and Their Eligibility Criteria

The Department of Veterans Affairs (VA) provides services and benefits such as hospital andmedical care, rehabilitation services, and pensions, among other things, to veterans who meet certaineligibility criteria. VA provides these benefits and services through four administrative units: theVeterans Health Administration (VHA), the Veterans Benefits Administration (VBA), the NationalCemetery Administration (NCA), and the Board of Veterans' Appeals. VHA is primarily a directservice provider of primary care, specialized care, and related medical and social support servicesto veterans through an integrated health care system. Funding for VHA is an issue of perennial interest to Congress, especially with the increasingdemand for VA medical services and with some veterans increasingly having to wait more than sixmonths for a primary care or speciality care appointment. VHA is funded through multipleappropriation accounts, which are supplemented by other sources of revenue. Over the past decade,the composition of VHA's funding has changed. Not only has VA's appropriation account structurebeen modified, but also VA's ability to retain nonappropriated funds has increased. These changespresent challenges in comparing VHA funding over a period of time. Between FY1995 and FY2004, appropriations for VA medical care grew by 63%. For thefirst four years of this time period, from FY1995 through FY1999, appropriations for VA medicalcare grew by 6.7%, from $16.2 billion in FY1995 to $17.3 billion in FY1999. In comparison, duringthe last five years of this time period, from FY1999 through FY2004, VA medical careappropriations grew by 52.7%, from $17.3 billion in FY1999 to $26.4 billion in FY2004. Theseamounts do not include appropriations for medical research, medical administration andmiscellaneous operating expenses (MAMOE), and funds from nonappropriated funding sources. The total number of veteran enrollees has grown by 76.9% from FY1999, the first year VHAinstituted an enrollment system, to FY2004. During this same period the number of veteransreceiving medical care has grown by almost 50%, from 3.2 million veterans in FY1999 to anestimated 4.7 million veterans in FY2004. This report will not be updated.

Introduction On March 23, 2010, President Obama signed into law a comprehensive health care reform bill, the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 ). The Act contains numerous provisions affecting Medicare payments, payment rules, covered benefits, and the delivery of care. The U.S. House of Representatives also passed an amendment in the nature of a substitute to H.R. 4872 , the Health Care and Education Affordability Reconciliation Act of 2010, on March 21, 2010. The Reconciliation bill would amend PPACA and would make changes to a number of Medicare-related provisions in that Act. The Reconciliation bill includes two titles. The first title contains provisions related to health care and revenues. Subtitle B of Title I contains provisions that would modify provisions in the PPACA related to Medicare fee-for-service, Medicare Advantage, and Medicare outpatient prescription drug programs. Subtitle D contains provisions related to reducing waste, fraud and abuse in Medicare. Subtitle E contains revenue related provisions including a provision that would make changes to the Medicare tax provision in PPACA. The second title includes amendments to the Higher Education Act of 1965, which authorizes most of the federal programs involving postsecondary education. Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) Scores On March 20, 2010, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) issued cost estimates of the PPACA as amended by the Reconciliation bill. Their analyses provide estimates of the direct spending and revenue effects of the combined bills. CBO estimated that total mandatory annual expenditures for Medicare prior to PPACA would grow from $501 billion in 2009 to $943 billion in 2019. Cumulative spending for the years 2010 to 2019 was expected to exceed $7 trillion. CBO estimates that the provisions in the PPACA as amended by the Reconciliation bill that would affect the Medicare, Medicaid, Children's Health Insurance and other federal programs would reduce direct spending by $511 billion over the FY2010-FY2019 period. Medicare (absent interaction effects) accounts for approximately $390 billion of the reduction. Total Medicare reductions in direct spending over the 10-year period are estimated to be about $460 billion, but these reductions would be offset by Medicare payment increases of close to $70 billion. The estimated Medicare savings from the PPACA as amended by the Reconciliation bill are about $10 billion less than the estimated Medicare savings of $400 billion for PPACA alone. The differences in projected Medicare savings are primarily due to changes that led to reductions in cost savings estimates for provisions related to disproportionate share hospitals and the Independent Payment Advisory Board together with cost increases associated with closing the coverage gap in the outpatient prescription drug benefit. A portion of the projected cost increases is offset by increases in savings estimates of provisions related to the Medicare Advantage program, productivity adjustments for certain inpatient services, and advanced imaging services. Changes by the Reconciliation bill to the Medicare tax provision in PPACA are estimated to raise an additional $123 billion above the $87 billion raised in PPACA, for a total of $210 billion in added revenue over 10 years. Key Changes Made to PPACA by the Reconciliation Bill The Medicare provisions in Subtitles B, D and E of Title I in the Reconciliation bill would make modifications to certain Medicare provisions in PPACA, as well as add several new provisions. Below are summaries of how the Reconciliation bill, H.R. 4872 , would change, or add to, Medicare-related provisions in PPACA together with descriptions of applicable law in effect prior to the enactment of PPACA. Changes Affecting Medicare Fee-For-Service Providers Medicare Disproportionate Share Hospital (DSH) Payments Provisions in the PPACA (Sec. 3133 as modified by Sec. 10316) reduce the amount of disproportionate share hospital (DSH) payments that are provided to hospitals by 75% (which represents an empirically justified amount) starting in FY2015. Hospitals are to receive additional payments based on a formula that incorporates certain factors including the reduction in their DSH funds, the percentage change in the uninsured under-65 population, and the relative share of uncompensated care provided by the hospital. The Reconciliation bill (Sec. 1104) would implement the DSH changes in FY2014 and modify one of the factors in the formula (regarding the change in the uninsured under-65 population) used to distribute the additional DSH payments. Specifically, under the PPACA provision, from FY2015 through FY2018, hospital payments will reflect the difference in the percentage change in the uninsured under-65 population from 2013 to the most recent period minus 1.5 percentage points; in subsequent years, the payments would be based on the percentage difference in the uninsured (without the subtraction). Under reconciliation language, the percentage subtraction would be 0.1 percentage points in FY2014, and 0.2 percentage points in FY2015 through FY2019. According to CBO's estimate, the Reconciliation bill would incr ease DSH spending by $3 billion over 10 years— the score for the combined bills is -$22.2 billion for FY2010-FY2019 compared to a score of - $25 billion for PPACA alone. Revisions to Certain Market Basket Reductions Provisions in the PPACA (Sec. 3401 as modified by Sec. 10319) implement a full productivity adjustment for inpatient and outpatient hospital services (IPPS and OPPS respectively), inpatient psychiatric facilities (IPFs), inpatient rehabilitation (IRFs), and long term care hospital (LTCHs) services (and other providers) beginning in FY2012. The update factors for Medicare providers and suppliers will also be subject to additional adjustments. The Reconciliation bill (Sec. 1105) would revise the additional adjustments to the market basket (MB) updates for the IPPS, OPPS, IPF, IRF and LTCH payment systems. Instead of reducing the MB updates by 0.2 percentage points each year from 2014 through 2019 depending upon the level of the insured nonelderly population in relationship to the estimated level of insured, the MB would be reduced by 0.3 percentage points in FY2014, by 0.2 percentage points in FY2015 and FY2016, and by 0.75 percentage points in FY2017 through FY2019 . CB O estimates that this change would decrease Medicare spending by $9.9 billion over 10 years— from a score of - $146.7 billion over FY2010-FY2019 for the PPACA to - $156.6 billion for PPACA and H.R. 4872 combined . Physician Ownership-Referral Physicians are generally prohibited from referring Medicare patients for certain services to facilities in which they (or their immediate family members) have an ownership or investment interest. However, among other exceptions, this prohibition does not apply to physicians with ownership or investment interests in a whole hospital. Provisions in the PPACA (Sec. 6001 as modified by Sec. 10601) exempt only those physician-owned hospitals meeting certain requirements from the self-referral prohibition beginning no later than 18 months after the date of enactment. Specifically, hospitals that have physician ownership and a provider agreement in operation on August 1, 2010, and that met other specified requirements will be exempt from this self-referral ban. The Reconciliation bill (Sec. 1106) would change the target date to December 31, 2010, along with certain conforming changes. The PPACA provisions also establish a process to allow certain physician-owned hospitals to expand in a limited fashion. The reconciliation provision would allow grandfathered physician-owned hospitals that are not the only hospital in their county that treat the highest percentage of Medicaid patients in their county to expand . CBO estimates that this change would increase Medicare spending by $0.1 billion over 10 year s — from a score of -$0.5 billion for the PPACA for FY2010-FY2019 to - $ 0.5 billion for the PPACA and H.R. 4872 combined . Payment for Qualifying Hospitals The Reconciliation bill as modified by the manager's amendment (Sec. 1109) would provide $400 million for two years (FY2011 and FY2012) to increase Medicare's payments to acute care hospitals in low-cost counties. The qualifying hospitals are located in counties ranked in the lowest quartile of adjusted Medicare Part A and B spending (adjusted by age, sex, and race). Additional payments to each qualifying hospital would be in proportion to its Medicare inpatient hospital payments relative to Medicare inpatient hospital payments for all qualifying hospitals. CBO e stimates that this provision would increase Medicare spending by a total of $400 million from FY2011 through FY2012 . Payment for Imaging Services The 2010 final rule for payments to providers under the Medicare fee schedule as published in the Federal Register on November 25, 2009, uses an assumption that advanced imaging equipment (such as MRIs) is being used 90% of the time (up from 50% in prior years), following a MedPAC recommendation based on studies that surveyed the actual use of the equipment. Section 3135 of the PPACA changes the utilization rate assumption for calculating the payment for advanced imaging equipment from 50% to 65% for 2010 through 2012. The rate will be further increased to 70% for services provided in 2013 and 75% for services provided in 2014. Sec. 1107 of the Reconciliation bill would set the utilization rate at 75% in 2011 and in subsequent years. CBO estimates that th is change to Section 3135 would increase cost savings by $1.2 billion over 10 years— from -$1.1 billion over 10 years for PPACA to -$2.3 billion over 10  years for PPACA and H.R. 4872 combined. Physician Fee Schedule: Geographic Cost Indices The Medicare physician fee schedule is adjusted geographically for three factors to reflect differences in the cost of resources needed to produce physician services: physician work, practice expense, and medical malpractice insurance. The geographic adjustments are indices—known as Geographic Practice Cost Indices (GPCIs)—that reflect how each area compares to the national average in a "market basket" of goods. A value of 1.00 represents an average across all areas. A series of bills set a temporary floor value of 1.00 on the physician work index beginning January 2004; most recently, Section 134 of the MIPPA extended the application of this floor when calculating Medicare physician reimbursement through December 2009. Section 3102 of PPACA directs the Secretary to adjust the practice expense GPCI for 2010 to reflect three-fourths of the difference between the relative costs of employee wages and rents in each of the different fee schedule areas and the national averages (i.e., a blend of three-fourths local and one-fourth national) instead of the full difference under prior law. For 2011, the adjustment is to reflect one-half of the difference between the relative costs of employee wages and rents in each of the different fee schedule areas and the national averages (i.e., a blend of one-half local and one-half national). The manager's amendment to the Reconciliation bill (Sec. 1108) modifies the adjustment for 2010 so that the PE GPCI would reflect one-half of the difference for both 2010 and for 2011. CBO estimates that this change to Section 3102 of PPACA would increase 10-year costs by $0.4 billion — from a score of $1.8 billion for PPACA over 10 years to a score of $2.2 billion for PPACA and H.R. 4872 combined. Changes Affecting the Medicare Advantage (MA) Program The Reconciliation bill would change the way payments to MA plans are calculated, tying the maximum possible payment (the MA benchmark) to a percentage of spending in original Medicare—a provision which may reduce benchmarks in many areas. However, the bill would also increase benchmarks and vary plan rebates by plan quality. The Reconciliation bill would also repeal the Comparative Cost Adjustment (CCA) program, and would require plans to spend a minimum amount of revenue on patient care, or pay a fine. MA payments are determined by comparing a plan's cost of providing required Medicare benefits ( bid ) to the maximum amount Medicare will pay for those benefits in each area ( benchmark ). If a plan bid is below the benchmark, the plan is paid its bid plus a rebate equal to 75% of the difference between the bid and the benchmark. If a plan bids above the benchmark, the plan is paid the benchmark and must charge each enrollee a premium equal to the difference between the bid and the benchmark. Historically, Congress has increased the benchmarks through statutorily specified formulas, in part, to encourage plan participation throughout the country. As a result, the benchmarks in some areas are higher than average spending in original fee-for-service Medicare. Section 1102 of the Reconciliation bill would repeal Section 3201 of PPACA and replace it with a different methodology for determining MA payments. Under the Reconciliation bill, the benchmarks in 2011 would be held at the 2010 levels. In 2012, the Reconciliation bill would begin to phase in blended benchmarks based on a percentage (95%, 100%, 107.5%, or 115%) of a base amount. In 2012, the base amount would be set at per-capita spending in original Medicare; after 2012, the base amount would be either the previous year's base amount increased by the growth in overall Medicare, or per capita spending in original Medicare in that county. The percentage adjustment to the base amount would be lower (95%) in counties where spending in original Medicare is the highest, and higher (115%) in counties where spending in original Medicare is the lowest. The phase-in schedule for the new benchmarks would vary over two, four, or six years depending on the size of the benchmark reduction, with a longer phase-in schedule for areas where the benchmark decreases by larger amounts. The new blended benchmarks would not apply to PACE plans. Under current law, MA plans are required to have quality improvement programs; however, MA payments are not contingent on plan quality. Under the Reconciliation bill, starting in 2012, qualifying plans would receive an increase in their blended benchmark, with larger increases for qualifying plans in qualifying areas. A qualifying plan would be one with a 4-star or higher rating on a 5-star rating scale established by the Secretary. Plans with low enrollment or new plans could also be qualifying plans. A qualifying county would be a county with (1) lower than average per capita spending in original Medicare, (2) 25% or more beneficiaries enrolled in MA, as of December 2009, and (3) a Medicare payment rate to private plans based on the minimum payment for a metropolitan statistical area (urban floor rate) in 2004, based on the payment methodology at the time. Under the Reconciliation bill, a plan's quality rating would also affect the size of the rebate it could receive; plans with higher quality ratings would receive higher rebates, with new rebates ranging from 50% to 70% of the difference between the bid and the benchmark. The change in rebate percentages would be phased in over three years. The Reconciliation bill would repeal Section 3203 of PPACA, a provision that would grant the Secretary the authority to expand the use of coding intensity adjustments beyond 2010, and replace it with an alternative provision. A coding intensity adjustment is an adjustment to plan payments to account for the way diagnosis coding of patients differs between MA plans and original Medicare. The Reconciliation bill (Section 1102e) would instead require the Secretary to apply coding intensity adjustments after 2010. The bill would also set minimum adjustments starting in 2014, to be applied until the Secretary implements risk adjustment using MA diagnostic, cost, and use data. The requirement for a six-year program to examine comparative cost adjustment (CCA) in designated CCA areas would be repealed by the Reconciliation bill. Specifically this program requires that payments to local MA plans in CCA areas would, in part, be based on competitive bids (similar to payments for regional MA plans), and Part B premiums for individuals enrolled in traditional Medicare may be adjusted, either up or down. A Medical Loss Ratio (MLR) identifies the proportion of a plan's premium revenue that the plan devotes to the provision of health care services. The remaining proportion represents the amount spent on managing the plan, including administrative costs, advertising, and profits. Beginning in 2014, Section 1103 of the Reconciliation bill would require plans that have an MLR of less than .85 to remit to the Secretary a payment equal to their total revenue multiplied by the difference between .85 and their MLR. The Secretary would be required to restrict enrollment in an MA plan if its MLR was below .85 for three consecutive years and terminate the plan's contract if the plan failed to meet the MLR requirements for five consecutive years. CBO estimates that the changes to the MA program included in the Reconciliation bill would decrease 10-year costs by $17.0 billion relative to the MA provisions included in PPACA alone—from -$118.1 billion over 10 years for PPACA to -$135.6 billion over 10 years for the combined bills . Changes to the Medicare Part D Outpatient Prescription Drug Benefit Medicare law sets out a defined standard benefit structure under the Part D prescription drug benefit that includes a gap in coverage, commonly referred to as the "doughnut hole." In 2010, the standard benefit includes a $310 deductible and a 25% coinsurance until the enrollee reaches $2,830 in total covered drug spending (Medicare and beneficiary spending combined). After this initial coverage limit is reached, the enrollee is responsible for the full cost of the drugs until total costs hit the catastrophic threshold, $6,440 in 2010. In general, in 2010, Part D enrollees who do not receive assistance in the form of the Part D low-income subsidy would be responsible for a total of $4,550 in out-of-pocket costs before reaching the catastrophic phase ($310 deductible, $630 in co-insurance in the initial coverage phase, and $3,610 in the coverage gap). PPACA makes a number of changes to the Medicare Part D program including requiring, consistent with a voluntary agreement with the pharmaceutical industry, that beginning July 1, 2010, drug manufacturers provide certain Part D enrollees with discounts of 50% for brand name drugs during the coverage gap (Section 3301). Plan enrollees receiving the low income subsidy enrolled in an employee–sponsored retiree drug plan, or with annual incomes that exceed the Part B income thresholds as determined under current law, will not be eligible for the discount. PPACA also would increase the initial coverage limit by $500 in 2010 (Section 3315). The Reconciliation bill (Section 1101) would repeal Section 3315 of PPACA, and, instead of increasing the coverage limit by $500, the bill would provide rebates of $250 to Part D enrollees who enter the coverage gap in 2010. Additionally, under the Reconciliation bill the discount would begin January 1, 2011, instead of July 1, 2010, and higher income enrollees would be eligible to receive the discount. The Reconciliation bill would also phase out the Part D coverage gap. Specifically, the bill would gradually reduce the amount of enrollee cost sharing for both generic and brand name drugs through the coverage gap; in 2020 and beyond, beneficiary cost sharing would equal or be actuarially equivalent to 25% (similar to cost sharing during the initial coverage phase). Additionally, the bill would slow the rate of growth of the catastrophic coverage limit from 2014 through 2019. The beneficiary co-payments and the value of the manufacturer discount for brand name drugs would count towards the calculation of Part D enrollees' out-of-pocket costs in determining when the catastrophic threshold would be reached; the Medicare covered portion would not be included in this calculation. CBO estimates that changes made by the Reconciliation bill to Sections 3301 and 3315 of PPACA would increase costs by $24.8  billion over 10 years— from a score of $17.8 billion over 10 years for PPACA alone to $42.6  billion for PPACA and the Reconciliation bill combined . Changes to Address Fraud and Abuse In an effort to further reduce Medicare fraud, waste, and abuse, the Reconciliation bill, as modified by the March 20, 2010, manager's amendment, adds two new provisions related to community mental health centers (Sec. 1301) and Medicare's claims review processes (Sec. 1302), and modifies two other provisions included in PPACA. Under current law, community mental health centers (CMHCs) must meet certain requirements in order to receive payment under Medicare. For example, CMHCs must demonstrate that they can provide the core mental health services described in the Public Health Service Act and that they are licensed in the state in which they are operating. Section 1301 of the Reconciliation bill would require that a CMHC also demonstrate that it provides at least 40% of its service to individuals not eligible for Medicare. Section 1301 would also restrict Medicare reimbursement for mental health services delivered in an individual's home or in an inpatient or residential setting. To protect the Medicare program from improper payments and fraudulent billing, Medicare contractors have the authority to review a provider's claims prior to payment. This is referred to as prepayment medical review. Under Medicare statute, contractors can only conduct prepayment review of a provider's claims under certain circumstances: (1) to develop a claims payment error rate and (2) only in instances where there is a likelihood of a sustained or high level of improper billing. Section 1302 of the Reconciliation bill would repeal these statutory limitations on prepayment review. Activities to fight health care fraud, waste, and abuse are funded by the Health Care Fraud and Abuse Control (HCFAC) account. The total mandatory and discretionary funding level for HCFAC for FY2010 is approximately $1.5 billion. The PPACA appropriates an additional $10 million in mandatory funding for HCFAC for fiscal years 2011 through 2020. Section 1303 of the Reconciliation bill would appropriate an additional $250 million to HCFAC over fiscal years 2011 through 2016. The annual amount of the appropriation would begin at $95 million in FY2011 and decrease to $20 million by FY2015 and FY2016. Lastly, PPACA includes a provision that provides the Secretary with the authority to impose enhanced screening and oversight measures on providers enrolling and re-enrolling in Medicare. Sec. 1304 of the Reconciliation bill would require the Secretary to withhold payment to DME suppliers for 90 days in instances when the Secretary determines that there is a significant risk of fraud. CBO estimates that combined changes made by these provisions would lead to an additional savings of $0.6 billion over 10 years ( combined Sections 6402 of PPACA and 1301-130 4 of the Reconciliation bill) — from -$3.2 billion over 10 years for PPACA to -$3.8 billion for the combined bills. Changes to Medicare Taxes20 Both PPACA and the Reconciliation bill include additional hospital insurance taxes on high-income taxpayers. Medicare Payroll Tax Under current law, employers and employees each pay a payroll tax of 1.45% to finance Medicare Part A. PPACA imposes an additional payroll tax of 0.9% on high-income workers with wages over $200,000 for single filers and $250,000 for joint filers effective for taxable years after December 31, 2012. The additional tax applies only to wages above these thresholds. For these workers, the payroll tax will increase to a total of 2.35% for wage income over the thresholds noted above. These additional revenues will go to the Medicare Hospital Insurance Trust Fund (often called Part A). The Reconciliation bill (Sec. 1402) would amend this to clarify that married taxpayers filing separately are subject to a $125,000 threshold. According to the Joint Committee on Taxation, the score for the revenue provisions under PPACA would not be changed by the Reconciliation bill and would still be expected to raise $86.8 billion over a 10-year period. Unearned Income Medicare Contribution The Reconciliation bill (Sec. 1402) would also impose an additional tax on net investment income. The Reconciliation bill defines net investment income to be interest, dividends, annuities, royalties, rents and taxable net capital gains. It excludes distributions from a qualified annuity from a pension plan. Households with modified adjusted gross income under these thresholds would not be subject to the investment income tax. Specifically, effective for taxable years after December 31, 2012, the bill would impose a tax equal to 3.8% of the lesser of: Net investment income for such taxable year; or The excess of modified adjusted gross income (MAGI) over $250,000 for joint filers ($125,000 for married filing separately and $200,000 for all other returns). This tax is also applicable to income from estates and trusts. The active income from trade for self-employed and S-corporations would not be subject to the tax. For these entities, the tax would apply only to passive income and trade income related to commodity trading. There is also a special provision for the application of the tax to S. Corporations that sell their businesses. According to JCT, the investment income provision in the Reconciliation bill would raise an additional $123.4 billion in revenues over a 10-year period.

On March 23, 2010, President Obama signed into law a comprehensive health care reform bill, the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148), which would, among other changes, make statutory changes to the Medicare program. The U.S. House of Representatives also passed an amendment in the nature of a substitute to H.R. 4872, the Health Care and Education Affordability Reconciliation Act of 2010, on March 21, 2010 (referred to hereafter as the Reconciliation bill), which would amend the PPACA. The Reconciliation bill includes two titles. The first title contains provisions related to health care and revenues, including modifications to PPACA's Medicare provisions. The second title includes amendments to the Higher Education Act of 1965, which authorizes most of the federal programs involving postsecondary education. Medicare changes that would be made by the Reconciliation bill, as passed by the House on March 21, 2010, to the PPACA are summarized in this report. Among other changes, the Reconciliation bill would: phase out the coverage gap under the Medicare prescription drug benefit and close it by 2020; change the methodology used to determine Medicare Advantage payments, and create an incentive system to reward high quality plans with higher payments; move up reductions in payments to disproportionate share hospitals to 2014, and reduce the cuts; revise the adjustments to annual updates for certain providers; change the qualifying date whereby an existing physician-owned hospital would be exempt from the self-referral prohibition; change the assumptions used to calculate Medicare reimbursement for advanced imaging services; and increase funding for the Health Care Fraud Abuse Control program and provide for enhanced oversight of DME suppliers. This report will be updated as legislative activity warrants.

Background Across-the-board funding reductions (sequestration) have reduced most discretionary appropriations and direct spending within the federal budget in FY2013. While much of the congressional debate on sequestration has focused on defense budget cuts, some Members of Congress, Secretary of State John Kerry, and foreign aid advocates are concerned about the effect sequestration could have over time on foreign affairs (150 budget function). They express concern about a possible lack of funding for activities that promote U.S. interests overseas. That could include providing humanitarian assistance, promoting regional stability abroad, as well as economic and security support for U.S. strategic partners, export promotion and market development programs that benefit American job creation. In contrast, other Members and many polled Americans, according to a Pew survey, consider foreign affairs funding, particularly foreign aid, as spending that should be cut to reduce the deficit. The Budget Control Act of 2011 (BCA, P.L. 112-25 ), signed into law on August 2, 2011, was the result of negotiations between the President and Congress to raise the debt ceiling by at least $2.1 trillion and reduce spending by that amount over a 10-year period between FY2012 and FY2021. It established the Joint Select Committee on Deficit Reduction to develop legislation to reduce the deficit for Congress and the President to enact by January 15, 2012. The committee failed to do this by November 23, 2011, and Congress did not approve a deal by its deadline of December 23, 2011. This failure triggered an automatic spending reduction process consisting of a combination of sequestration in 2013 and lower statutory limits on discretionary spending through FY2021 to meet the required $1.2 trillion in total savings. Section 302 of the BCA amended the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), requiring the Office of Management and Budget (OMB) to allocate half of the total reduction to discretionary appropriations and direct spending accounts within function 050 (defense) and half to all others in order to meet the $1.2 trillion reduction. Spending limits for each were established for FY2013 through FY2021. The spending reductions are to be achieved for direct spending (mandatory spending) through a combination of sequestration and the regular appropriation process. For discretionary spending like the foreign affairs budget, reductions were achieved through sequestration in FY2013 and through downward adjustment of statutory limits to be met in the appropriation process for FY2014 to FY2021. If spending caps are not met within the appropriations process in FY2014 and beyond, sequestration again would occur. The BCA originally required about $109 billion in automatic budget reductions to be applied equally between defense and nondefense spending and to each program, project, and activity (PPA) within every non-exempt budget account on January 2, 2013. It also designated that OMB would calculate and implement the sequestration using specific procedures provided in the BCA. The Sequestration Transparency Act of 2012 (STA, P.L. 112-155 ; signed August 7, 2012) required OMB to submit a report to Congress no later than 30 days after enactment of the act outlining the potential impact of sequestration triggered by the failure of the Joint Select Committee on Deficit Reduction. The OMB Report Pursuant to the Sequestration Transparency Act of 2012 , September 14, 2012, presents the methodology, identifies sequestrable and exempt funds, and estimates sequestration at the account-level. Sequestration of the Department of State and Foreign Operations Appropriations The State-Foreign Operations (SFOP) appropriations, typically representing about 1% to 1.5% of the total federal budget in recent years, supports most programs and activities within the international affairs budget account, known as the 150 budget function. SFOP appropriations include foreign economic and security assistance, contributions to international organizations and multilateral financial institutions, State Department and U.S. Agency for International Development (USAID) operations, public diplomacy, and international broadcasting programs. A few 150 function activities, such as foreign food aid (P.L. 480), are not included. How the FY2013 Foreign Affairs Sequestration Was Implemented The Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 / H.R. 8 , signed into law January 2, 2013), required $85.3 billion in automatic cuts to be applied equally ($42.65 billion for each) between defense and nondefense accounts in FY2013. It defined defense as spending under the 050 budget function and nondefense as spending under most other budget functions. Foreign affairs appropriations was considered nondefense. OMB calculated that, based on the CR funding levels, a 5% reduction for nondefense discretionary funding and a 5.1% reduction for nondefense mandatory programs was necessary between March and September 30, 2013. The approximately 5% reduction was to be applied to the annualized level of the budgetary resources provided under the FY2013 CR. The Continuing Resolution Appropriation, 2013 (CR, P.L. 112-175 ), provided appropriations for foreign affairs spending at the FY2012 appropriation act levels plus an increase of .0612% for most accounts through March 27, 2013. On March 21, 2013, Congress approved legislation ( H.R. 933 ) to fund the federal government through the end of the fiscal year. The Consolidated and Further Continuing appropriations Act, 2013 ( P.L. 113-6 , signed into law on March 26, 2013), funded the State Department, Foreign Operations and Related Programs through the CR mostly at the same rate as in FY2012, with a few anomalies spelled out in the law. Sequestration, together with an additional 0.032% across-the-board rescission required by Division G, Section 3004, of the new CR if appropriations exceeded spending limits, reduced FY2013 Department of State and Foreign Operations discretionary funding by an estimated 2% from the enacted level. The BCA required that all sequestration cuts be made at the PPA level. According to State Department officials, for State Department operations, reductions were calculated at the PPA levels as defined in the most recent appropriations and authorization acts or related report language. For foreign operations, the FY2012 appropriation act defined some PPAs, particularly foreign aid programs. In some cases that is the account level or the country allocation level. Section 7023 of P.L. 112-74 , the Consolidated Appropriations Act, 2012, states that for Foreign Operations ''program, project, and activity'' shall be defined at the appropriations Act account level and shall include all appropriations and authorizations Acts funding directives, ceilings, and limitations with the exception that for the following accounts: ''Economic Support Fund'' and ''Foreign Military Financing Program'', ''program, project, and activity'' shall also be considered to include country, regional, and central program level funding within each such account; for the development assistance accounts of the United States Agency for International Development ''program, project, and activity'' shall also be considered to include central, country, regional, and program level funding, either as: (1) justified to the Congress; or (2) allocated by the executive branch in accordance with a report, to be provided to the Committees on Appropriations within 30 days of the enactment of this Act, as required by section 653(a) of the Foreign Assistance Act of 1961. According to State Department's F Bureau, sequestration was applied at the account level for International Disaster Assistance, Transition Initiatives (TI), Complex Crises Fund (CCF), USAID's Capital Investment Fund (CIF), USAID's Inspector General (IG), Administrative expenses of the Development Credit Authority (DCA), U.S. Emergency Refugee and Migration Assistance (ERMA), International Military Education and Training (IMET), Assistance for Europe, Eurasia, and Central Asia (AEECA), and the Pakistan Counterinsurgency Capability Fund (PCCF). Sequestration was applied at the account level and to funding directives for Peacekeeping Operations (PKO), International Organizations and Programs (IO&P), USAID Operating Expenses (USAID OE), Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR), Democracy Fund (DF) split between State and USAID, Migration and Refugee Assistance (MRA), and International Narcotics Control and Law Enforcement (INCLE). Sequestration was applied at the country allocation level and to funding directives for Development Assistance (DA), Economic Support Fund (ESF), Global Health Programs (GHP), and Foreign Military Financing (FMF). Under sequestration, the Department of State and USAID had the authority to reprogram certain funds to protect a particular country or activity, subject to regular notification procedures. That meant, however, that other PPAs within those accounts had to be further reduced. Transfer authority was also available as defined by Section 7009, Title VII, Division I of the Consolidated Appropriations Act, 2012, P.L. 112-74 . In addition, Section 3004 of the FY2013 CR ( P.L. 113-6 ) required an additional 0.032% across-the-board rescission to all foreign affairs discretionary accounts in order to meet the BCA spending limits. Foreign Affairs Exemptions According to OMB's September 2012 report, certain foreign affairs funds are exempt from sequestration. Exemptions within the Department of State, Foreign Operations and Related Programs appropriations include mandatory funds , such as the Foreign Service Retirement and Disability Fund; intragovernmental payments , such as other agencies' contributions to the Capital Security Cost Sharing Program (CSCS), the Working Capital Fund, or the International Cooperative Administrative Support Services (ICASS), because those funds would be sequestered at the paying agency; and voluntary payments , such as the sale of property back to host countries; user fees, such as for passports; or rent paid by other entities to use the International Chancery Center. FY2013 Sequestration Funding and Impact OMB's early calculations suggested the need for about a 5% sequestration reduction for nondefense discretionary funding in FY2013; however, the second CR for FY2013 ( P.L. 113-6 ), which provided full-year appropriations, combined with sequestration and rescissions, resulted in about a 1.9% reduction from the overall FY2012 level foreign affairs funding level. The FY2013 State Department operations and related agency total was reduced by 0.9% and the foreign operations total was reduced by 2.4%, compared with FY2012 levels. (See Table 1 below.) Department of State officials say that within the FY2013 CR, Congress and the Administration agreed to increase some funding accounts with respect to the Syria crisis, Middle East transitions, and embassy security. At the account level, spending changes in relation to FY2012 levels varied. While funding for many foreign affairs accounts declined by about 5.1%, some declined by much more, including Conflict Stabilization Operations (-73.4%), Transition Initiatives (-42.5%), Complex Crises Fund (-24%), and Peacekeeping Operations (-28.5%). In contrast, FY2013 funding increased for other accounts, including State Department's Embassy, Security, Construction, and Maintenance (+70.6%), International Disaster and Famine Assistance (+41.6%), Migration and Refugee Assistance (+36.9%), International Narcotics Control and Law enforcement (+18.5%), World Bank Global Environment Facility (+39.0%), International Bank for Reconstruction and Development (+54.2%), Inter-American Development (+43.1%), and State's Contributions to International Peacekeeping. As compared with FY2011actual funding levels, the post-sequestration estimates represent a significant increase. State Department officials caution against comparing FY2013 post-sequestration funding with FY2011 funding levels, however, since FY2011 levels were uniquely low and it was the only fiscal year in the past decade that did not include supplementals or Overseas Contingency Operations (OCO) funds. State-Foreign Operations FY2013 post-rescission and sequestration overall funding represents a 6.5% increase over FY2011 actuals. State Department operations and related agencies funding was 12.1% higher than in FY2011, and Foreign Operations funding was 3.8% higher. In addition, certain specific accounts continue after sequestration to be greater than what they were in FY2011. For example, State's Diplomatic and Consular Programs FY2013 post-sequestration/post-rescission funding was nearly 11% greater than it was in FY2011. Foreign Military Financing FY2013 post-reduction funding was higher than FY2011 levels by 11.5%; Peacekeeping Operations was higher by 19.7%, and the Global Food Security Fund was 28.4% over FY2011 funding. According to the Department of State, a primary concern regarding sequestration is how it will affect long-term foreign affairs programs and foreign policy goals. They state that Our ability to influence and shape world events, protect U.S. interests, increase job-creating opportunities for American business, prevent conflict, and defeat terrorism before it reaches our shores depends on robust and strategically allocated operations and assistance levels. By indiscriminately cutting our funding levels, sequestration challenges these fundamental goals of the U.S. government. Foreign aid proponents, in particular, respond that most U.S. foreign aid benefits the United States in promoting national security, exports, American jobs to support those exports, and regional stability around the world. They contend that foreign aid achieves a lot for a small amount of funds that represent about 1% of the total U.S. government budget. By restricting funding and the ability of the U.S. government to be engaged with many countries trying to transition toward democracy would likely leave a void that could be filled by unfriendly countries. Others concerned with balancing the budget question the importance of foreign aid programs at a time when they say the deficit is hurting the U.S. economy and the priority should be directed more toward funding for defense and domestic programs. Despite differing views of the importance of foreign affairs spending (specifically foreign aid) and whether cuts happen via the appropriations process or sequestration, the ability for current and future Administrations to do more overseas with less will be crucial as budget reductions continue to FY2021 and perhaps beyond.

Congress has an interest in the cost and effectiveness of foreign affairs activities that promote U.S. interests overseas. The Budget Control Act of 2011 (BCA, P.L. 112-25), as amended by the American Taxpayer Relief Act of 2012 (P.L. 112-240/H.R. 8, signed into law on January 2, 2013) required across-the-board reductions (sequestration) in most federal defense and nondefense discretionary programs, projects, and activities including those in foreign affairs for FY2013, and additional spending reductions each year through FY2021. These automatic cuts for FY2013 were ordered on March 1, 2013. Of ongoing interest will be the impact of these cuts and potential future reductions in State Department operations, foreign aid programs, and their ability to protect Americans and promote U.S. interests overseas. Currently, for FY2014 the government is operating under a continuing resolution (CR, P.L. 113-46) that provides stop-gap funding through January 15, 2014. Subsequent legislation will be necessary to extend, or provide full-year, funding past this date. In December 2013, the House and Senate agreed to the Bipartisan Budget Act (BBA, H.J.Res. 59), which is expected to ease spending reductions for FY2014 and FY2015. Even with the BBA in law, Congress must pass FY2014 appropriations that are within the revised statutory limits to avoid sequestration. In addition to the FY2014 budget, the Administration's FY2015 budget request will be of interest when it is submitted to Congress in 2014. It will indicate President Obama's foreign affairs priorities and plans for meeting the BCA caps in FY2015. According to a February 22, 2013 Pew Research Center survey, Americans surveyed support cuts in foreign aid spending more than any other government activity mentioned. Although still not the majority, 48% of those polled prefer a decrease in foreign aid, while 49% prefer it remain at the current level or is increased. When asked about the Department of State, 34% said they prefer the Department of State funding be decreased, while 60% support maintaining current State Department funding or increasing it. At the same time, when asked, most Americans believe that international spending comprises 10% of the budget, although it is actually around 1%. This report discusses sequestration and the foreign affairs (150) budget function and presents FY2013 estimates by account. For background on the current foreign affairs budget, see CRS Report R43043, State, Foreign Operations, and Related Programs: FY2014 Budget and Appropriations. This report will be updated as changes occur.

Political Situation Bulgaria is a parliamentary democracy that has held generally free and fair elections since the overthrow of the Communist regime in 1989. Bulgaria held its most recent parliamentary elections on June 25, 2005. The winner of the vote was a coalition led by the left-of-center Bulgarian Socialist Party (BSP), which received 82 seats in the 240-seat National Assembly, Bulgaria's unicameral parliament. The National Movement for Stability and Progress (NMSP), a centrist group, finished second with 63 seats. The Movement for Rights and Freedoms (MRF), representing the country's ethnic Turkish minority, won 34 seats. Ataka (Attack!), a group that mixes far-right xenophobia with leftist economic populism, won a surprising 21 seats. Three center-right groups won the remaining seats: the Union of Democratic Forces (20); Democrats for a Strong Bulgaria (17); and the Bulgarian National Union Coalition (13). In an effort to boost turnout, the government introduced a lottery in which voters could win televisions, cars, and other prizes. Nevertheless, turnout was only 55%, the lowest since the end of communism. All parties pledged to exclude Ataka from the government. Nevertheless, analysts were concerned about the group's electoral success, which shows significant public dissatisfaction with Bulgaria's political class. Experts note that it has been a common phenomenon in Central and Eastern Europe that when a former Communist Party (such as the BSP) moves to the center, often as part of European integration efforts, its place in the political spectrum is often taken over by populist and nationalist groups. The process of forming a new government proved difficult, in part because of the scattered distribution of the vote and personal animosity among party leaders, including within the center-right portion of the political spectrum. The stalemate was finally resolved on August 15, when the parliament approved a new coalition government. It is composed of the BSP, MRF, and NMSP, with BSP leader Sergei Stanishev as Prime Minister. Critics claim that Stanishev is a relatively weak leader and that real power rests in the hands of party barons, particularly in the BSP and MRF. This situation, they say, has hindered reform implementation and the fight against corruption. Despite the defection of some NMSP deputies to the opposition in 2007, the government retains a majority and appears determined to stay in power until 2009, when new elections must be held. A new party, Citizens for the European Development of Bulgaria (CEDB), is not currently represented in parliament, but could win a large number of seats in new elections. The CEDB, led by Sofia mayor Boiko Borisov, espouses pro-EU and pro-law-and-order policies. The current coalition could face a serious challenge if a number of small center-right parties in the current parliament can form an alliance with the CEDB. President Georgi Purvanov, backed by the BSP, won re-election in 2006. Although Purvanov is one of Bulgaria's most popular political figures, most political power is held by the Prime Minister and government; the Bulgarian presidency is relatively weak. Economic Situation Bulgaria is one of the poorest countries in Europe. According to the World Bank, its per capita income is only 56% of that of the eight central and eastern European countries that joined the EU in 2004. As in many other transition countries, Sofia and other urban areas are more prosperous than rural ones, which have suffered an exodus of young people. Bulgaria is also battling a rapidly shrinking and aging population, due partly to a low birth rate and partly to the emigration of large numbers of young Bulgarians to better-paying jobs in Western Europe. Mistakes and fitful reforms made by previous governments, culminating in disastrous policies pursued by a previous BSP government in 1995-1996, were serious setbacks. However, Bulgaria's economic situation has improved substantially since 1997, when the country's currency was pegged to the euro under a currency board arrangement, which gives the Bulgarian central bank little discretion in setting monetary policy. From 1998 through 2005, Bulgaria has had an average economic growth rate of more than 5% per year. Gross Domestic Product (GDP) grew by just under 6% in the first three-quarters of 2007. Unemployment has fallen from 18.1% in 2000 to 7.8% in 2007. Bulgaria ran a government budget surplus of 3.5% of GDP in 2007. The central bank is working to restrain rapidly expanding commercial bank lending in order to maintain stable growth. However, inflation remains high; average consumer price inflation was 8.4% in 2007. Persistent inflation is likely to delay Bulgaria's efforts to adopt the euro as its currency for a few years, at least. Due to strong import demand, Bulgaria had a large current account deficit of 20% of GDP in 2007. On the other hand, Bulgaria has seen a surge of foreign direct investment (FDI) in recent years. FDI amounted to $8.4 billion in 2007, or nearly 20% of GDP. Bulgaria is attractive to investors because it can supply not only cheap labor, but qualified experts in such fields as computer science. Organized crime and corruption are very serious problems in Bulgaria. Powerful organized crime kingpins continue to operate in Bulgaria with relative impunity, and dozens have died in contract killings and gang shootouts in the past few years. Organized crime groups are involved in such activities as trafficking in persons, drugs and weapons, money laundering, counterfeiting, optical disc piracy, and credit card fraud. High-level corruption is also a critical issue. Powerful politicians are perceived as operating their ministries as corrupt fiefdoms with relative impunity. One of Bulgaria's biggest challenges is long-delayed judicial reform. The Bulgarian system remains weak, corrupt, and sometimes politicized. Experts believe that Bulgaria must also overhaul its education and health care systems. Foreign Policy Bulgaria's foreign policy in recent years has focused on joining NATO and the European Union. Bulgaria joined NATO in April 2004, in part due to strong U.S. support. Bulgaria has deployed over 400 troops to Afghanistan as part of the NATO-led International Security Assistance Force (ISAF). They are stationed in Kabul and in the southern Afghan city of Kandahar. Bulgaria is considering providing training to Afghan security forces. Bulgaria has deployed 42 soldiers to KFOR, the NATO-led peacekeeping force in Kosovo, as well as to SFOR, the former NATO-led peacekeeping force in Bosnia. SFOR has been replaced by an EU-led force, in which Bulgaria is also participating, with 152 soldiers. Bulgaria has supported extending membership invitations to Albania, Croatia, and Macedonia at the NATO summit in Bucharest on April 2-4, 2008. Bulgarian officials say the move would strengthen peace and stability in the region. Bulgarian officials say that military modernization has proceeded slowly in part because of the costs of participating in overseas deployments. In April 2005, Gen. Nikola Kolev, Chief of General Staff of the Bulgarian army, said that it will take at least 10 years for Bulgaria to achieve full integration in the Alliance, citing in particular the need for new equipment. He said that Bulgaria was focusing on preparing at least one mechanized brigade for use in the full range of NATO's missions, as well as several smaller, specialized units, totaling over 5,000 men in all. Some observers have expressed concern that some of the Soviet-trained officers holding senior positions in the Bulgarian military and intelligence services may continue to have links with Russian intelligence agencies. In 2004, several senior Bulgarian nominees to NATO posts were denied NATO security clearances. Bulgaria joined the EU in January 2007, but under stringent conditions. It must provide regular reports to the EU Commission on its progress toward specific benchmarks in several areas, including the fight against organized crime and corruption, and judiciary reform. The EU may apply sanctions (suspending judicial cooperation, for example) against Bulgaria if the benchmarks are not met. In February 2008, the European Commission released a report on Bulgaria's progress. It recognized progress in judicial reform and fighting corruption on Bulgaria's borders, but noted shortcomings in such areas as corruption in local government, healthcare, and education. The report particularly stressed the need to make stronger efforts in fighting high-level corruption and organized crime. No sanctions have been taken against Bulgaria yet, but the EU has suspended funding for some projects in Bulgaria, due to irregularities in how the money has been spent, including corruption concerns. Russia and Bulgaria have traditionally had good relations, due to longstanding historical and personal ties. However, some analysts have expressed concern about Russia's dominance in Bulgaria's energy sector. Bulgaria is almost entirely dependent on Russia for its oil and natural gas needs. Russian firms own major oil refineries, a key commercial natural gas distribution company, and many retail gasoline stations in Bulgaria. As in other countries in Central Europe, some analysts are concerned that Russia could use this control and its links with some politicians (particularly in the BSP) and business leaders to manipulate the country. Bulgarian-Russian energy relations became closer in January 2008, when President Putin won Bulgaria's support for Russia's South Stream natural gas pipeline. Bulgaria's position on the Black Sea may make it an important transit point for oil and natural gas supplies from Russia and the Caspian Sea region to Western Europe. Routes through Bulgaria would avoid Turkey's crowded Bosporus and Dardanelles straits. South Stream, which would run though Bulgaria and the Balkans to western Europe, may increase Europe's dependence on Russian energy by reducing the prospects for the U.S.- and EU-sponsored Nabucco project. Nabucco is intended to supply Central Asian gas to Europe without transiting Russia. Russian and Bulgarian leaders also signed agreements on a proposed oil pipeline from the Bulgarian city of Burgas to the Greek port at Alexandropoulos on the Aegean Sea and on building two Russian nuclear reactors in Bulgaria. U.S. Policy The United States and Bulgaria have excellent bilateral relations. In April 2006, the United States signed a Defense Cooperation Agreement with Sofia on use of military bases in Bulgaria. (Even before the agreement, the United States was already using Bulgarian bases for joint exercises with Bulgarian and other troops, as well as for U.S. forces in transit to Iraq and Afghanistan.) The Bulgarian government eagerly sought such bases, viewing them as an economic stimulus and as useful in cementing strategic bonds with the United States. The bases involved include the Bezmer and Graf Ignatievo air bases and the Novo Selo training range. About 2,500 U.S. troops are expected to be deployed to the relatively spartan facilities at the bases at any one time, each group staying for only a few months. In February 2008, the United States signed additional agreements needed to implement the 2006 accord, including on customs procedures, taxes, and other issues. Bases in Bulgaria are likely to be less expensive than bases in Western Europe and subject to fewer constraints on training and exercises. Bulgaria is also closer geographically to the Middle East than Western Europe. At the same time, Bulgaria's infrastructure is inferior to that of countries such as Germany. Bulgaria contributed 450 troops to U.S.-led coalition forces in Iraq, despite the deployment's unpopularity among Bulgarians, according to opinion polls. Bulgaria suffered casualties in Iraq: 13 soldiers have died. In March 2005, a Bulgarian soldier was killed in a friendly-fire incident involving U.S. troops. In May 2005, with the parliamentary elections looming, the Bulgarian parliament voted to withdraw the Bulgarian contingent by the end of the year. Although the 450-man infantry battalion was indeed withdrawn at the end of 2005, Bulgaria sent a 150-man unit to guard a refugee camp north of Baghdad in March 2006. Bulgaria is also helping to train Iraqi security force members in Bulgaria. The State Department's 2007 Trafficking in Persons report said that Bulgaria is a "transit country and to a lesser extent, a source country" for human trafficking. It is a "Tier 2" country, meaning that it does not fully comply with the minimum standards for the elimination of trafficking, but is making significant efforts to do so. The report said that Bulgaria improved its victim assistance infrastructure and continued to demonstrate increased law enforcement efforts. However, Bulgaria's National Anti-Trafficking Commission could not effectively monitor and improve national and local efforts due to inadequate staffing, according to the report. In FY2006, Bulgaria received $35 million in U.S. total aid. FY2006 was the last year that Bulgaria received assistance under the SEED program to promote political and economic reform, because of Bulgaria's pending admission to the EU. In FY2007, Bulgaria received $11 million in U.S. aid, including $9.6 million in Foreign Military Financing (FMF) and $1.4 million in IMET military training funding to bring Bulgaria's military closer to NATO standards. Bulgaria will receive an estimated $8.5 million in U.S. aid in FY2008. Of the amount, $6.6 million is in FMF, $1.6 million is in IMET, and $0.3 million in funding to destroy excess small arms and ammunition stocks. For FY2009, the Administration requested $11 million in aid for Bulgaria. This total includes $9 million in FMF and $1.6 million in IMET. Another $0.4 million is aimed at helping Bulgaria destroy small arms and ammunition stocks.

This short report provides information on Bulgaria's current political and economic situation, and foreign policy. It also discusses U.S. policy toward Bulgaria. This report will be updated as warranted.

Most Recent Developments The President signed the Department of Transportation and Related AgenciesAct, 2000 ( P.L. 106-69 ), hereafter referred to as the FY2000 Act, on October 9,1999. The Act provided $50.2 billion for the Department of Transportation (DOT).However, the FY2000 Consolidated Appropriations Act ( P.L. 106-113 ), mandatesa government wide rescission equal to 0.38% of discretionary budget authorityprovided (or obligation limits imposed) for all government departments.Approximately $179 million will be cut from the DOT funding levels provided for in P.L. 106-69 . The largest reductions are faced by the Federal HighwayAdministration (-$105.3 million), the Airport Improvement Program (-$54.4 million),the Federal Transit Administration (-$17.6 million), and the Coast Guard (-$1.6million). Even accounting for the rescission, the final funding level represents nearlya 6% increase over the appropriations level of the FY1999 Act. The Transportation Appropriations Framework Transportation is Function 400 in the annual unified congressional budget. Itis also considered part of the discretionary budget. Funding for the DOT budget isderived from a number of sources. The majority of funding comes from dedicatedtransportation trust funds. The remainder of DOT funding is from Federal Treasurygeneral funds. The transportation trust funds include: the highway trust fund, thetransit account of the highway trust fund, the airport and airway trust fund, and theinland waterways' trust fund. All of these accounts derive their respective fundingfrom specific excise and other taxes. Together, highway and transit funding constitutes the largest component of DOT appropriations, and can account for 60% to 70% of total federal transportationspending in any given year. Most highway, and the majority of transit, programs arefunded with contract authority derived by the link to the highway trust fund. This isvery significant from a budgeting standpoint. Contract authority is tantamount to, butdoes not actually involve, entering into a contract to pay for a project at some futuredate. Under this arrangement, specified in Title 23 U.S.C., authorized funds areautomatically made available at the beginning of each fiscal year and may beobligated without appropriations legislation. Appropriations are required to makeoutlays at some future date to cover these obligations. Where most federal programs require new budget authority as part of the annual appropriations process, transportation appropriators are faced with the oppositesituation. That is, the authority to spend for the largest programs under their controlalready exists and the mechanism to obligate funds for these programs is also inplace. Prior to the FY1999 Appropriations Act changes in spending in the annual transportation budget component had been achieved in the appropriations process bycombining changes in budget/contract authority and placing limitations onobligations. The principal function of the limitation on obligations is to controloutlays in a manner that corresponds to congressional budget agreements. The authority to set a limitation on obligations for contract authority programs gave appropriators considerable leeway in allocating funds between the variousfederal transportation activities in function 400, which includes agencies such as theCoast Guard and the Federal Aviation Administration. In addition, the inclusion ofthe highway and transit programs and their trust fund generated revenue streams inthe discretionary budget provided appropriators with additional flexibility as part ofthe annual process by which available funds were allocated amongst the 13 standingappropriations subcommittees in the House and the Senate. Changes in Transportation Appropriations as a Result of TEA-21 TEA-21 changed this budgetary procedure in two ways. First, it created new budget categories and second, it set statutory limitations on obligations. The Actamends the Balanced Budget and Emergency Deficit Control Act of 1985 to createtwo new budget categories: highway and mass transit. The Act further amends thebudget process by creating a statutory level for the limitation on obligations in eachfiscal year from FY1999 to FY2003. In addition, TEA-21 provides a mechanismto adjust these amounts in the highway account, but not the transit account, tocorrespond with increased or decreased receipts in the highway generated revenues(see revenue aligned budget authority - RABA- under key policy issues). The net effect of the creation of these budget categories is a predetermined level of funding for core highway and transit programs, referred to in TEA-21 as adiscretionary spending guarantee. These categories are separated from the rest of thediscretionary budget in a way that prevents the use of funds assigned to thesecategories for any other purpose. These so called "firewalls" are viewed, in theTEA-21 context, as guaranteed and/or minimum levels of funding for highway andtransit programs. Additional funds above the firewall level can be made available forhighway and transit programs through the annual appropriations process. TEA-21 changes the role of the House and Senate appropriations and budget committees in determining annual spending levels for highway and transit programs. The appropriations committees are precluded from their former role of setting anannual level of obligations. In addition, it appears that the House appropriationscommittee is precluded, at least in part, from exercising what some Members viewas their traditional option of changing spending levels for any program or project. The TEA-21 firewalls appear to diminish the flexibility of the committees on appropriations to meet the goals of the annual budget process, because they can onlyadjust the DOT agency/program budgets outside the firewalls. Hence, any reductionin spending for Function 400 must be allocated to these agencies/programs. This hasraised special concern for supporters of the FAA, the Coast Guard, and Amtrak,which are the largest DOT functions without firewall protection. See the key policyissues section for further amplification. On June 15, 1999, the House completed action on H.R. 1000 , the Aviation Investment and Reform Act for the 21st Century (AIR21). H.R. 1000 contains provisions that take the aviation trust fund off budget. Off budgetdiffers from firewalls and would give the trust fund status similar to the SocialSecurity trust fund as far as the annual budget debate is concerned. TheSenate-passed version of H.R. 1000 contains no changes in thebudgetary treatment of the aviation trust fund. A conference version of the bill failedto emerge from conference before the end of the first session of the 106th Congress. However, the conference remains open and action could occur in the second session. The budget treatment of the aviation trust fund has become a particular issue in the 106th Congress. The aviation trust fund is expected to have large unobligatedbalances in the years ahead unless spending from the fund is increased or the fund'stax revenues are decreased. This situation, combined with the belief in some quartersthat protected spending within the TEA-21 firewalls constrains FAA spending in theannual appropriations process, has heightened interest in providing some sort ofbudgetary protection for aviation. Supporters of the Coast Guard are also concerned about the new transportation appropriations environment. The Coast Guard is not funded by a trust fund, andhence cannot claim a user-fee base to support an argument for its own budgetfirewalls. The Coast Guard has a unique status within the transportation budgetcategory because of its wartime role in national defense. It is not unusual for theCoast Guard to receive some funds from military appropriations during the annualappropriations process. It is possible that the Coast Guard will seek additionalfunding from the military side of the budget in the years ahead if additional funds from transportation appropriations do not become available. Amtrak does not havea similar option. Table 1. Status of Department of Transportation Appropriations for FY2000 Key Policy Issues The debate over FY2000 DOT appropriations included the major issues of: (1)allocating funds among competing DOT programs and (2) seeking a compromisebetween the concept of a unified budget versus specifically earmarked, "off budget"activities. Competition for funds stems from various transportation interests andfrom the modal administrations themselves. Monies have been allocated for adiverse array of purposes, for example, to pay for the expenses of the U.S. CoastGuard, to improve safety throughout the various modes of transportation, and to helpfinance various infrastructure needs. In the DOT and Related AgenciesAppropriations Act, monies are also provided to support the National TransportationSafety Board (NTSB), the Surface Transportation Board (STB), and several othertransportation-related independent agencies. (1) The perennial question of priorities surrounds the appropriations process. Throughout its budget request, the DOT continues to emphasize several prioritiesincluding: safety, infrastructure, innovative financing, environmental enhancement,technology, and national security. Much of the appropriations process must take place within the framework created by the Transportation Equity Act for the 21st Century (TEA-21), signed intolaw on June 9, 1998 ( P.L. 105-178 , H.R. 2400 ). The Act authorizedappropriations for key surface transportation programs through fiscal year 2003. Thegeneral sense of Congress appears to be that, although transportation trust funds arenot sacrosanct, proceeds from the Federal fuels taxes must be targeted toward thecapital and recurring needs of the vast U.S. highway and transit network and notviewed as a source of general revenue. Although attempts to move highway andtransit programs off budget prior to the 106th Congress were unsuccessful, Congressdid insert language within TEA-21 to protect specific funding by creating firewallsaround selected programs. The firewalls effectively created minimum funding levelsfor the selected programs. However, their creation has caused a congressional debatebetween the authorizers and appropriators over who should exercise ultimateauthority for spending levels. Firewalls established by authorizing committeesguarantee minimum funding for selected programs, but in the process, are seen bysome as reducing the funding that might have been allocated to other (unprotected)programs. Thus, unprotected programs must compete for finite amounts, generallycapped by the budget resolution. A similar initiative is underway for airtransportation through H.R. 1000 , although it drops the firewallprovision while retaining off-budget provisions. TEA-21 also contained a provision (Section 1105, Revenue Aligned Budget Authority -- RABA) that authorizes DOT to redistribute trust funds, in excess ofprojected receipts, to the various states for Title 23 highway programs. Accordingto RABA, the additional revenues are to be allocated to the states using the formulasspelled out in the law. However, the FY2000 DOT request proposed redirection ofthese funds from highway programs to other DOT initiatives, predominantlyenvironmental activities associated with the Congestion Mitigation and Air Quality(CMAQ) program and transit. In the end, the FY2000 DOT appropriations act ( P.L.106-69 ) disallowed the Administration's proposed redirection of RABA funds. Major Funding Trends Table 2 shows Department of Transportation actual funding levels for FY1988 through FY1998 and enacted funding for FY1999 and FY2000. The major portionof these funds are contract authority. (2) Total DOT funding almost doubled fromFY1988 through FY2000 (enacted). Totals may not include some user feecollections; thus, program totals may vary from other figures cited in the text. Table 2. Department of Transportation Appropriations: FY1988 to FY2000 Enacted (in millions ofdollars) a "Actual" amounts from FY1988 to FY1998 include funding levels initially enacted by Congress in the Department of Transportation and Related Agenciesappropriations bill as well as any supplemental appropriations and rescissionslegislation enacted at a later date for that fiscal year. "Enacted" figures forFY1999 and FY2000 were mostly taken from the conference report tables( H.Rept. 106-69 ). b Amounts include obligations, limitations, DOD transfers, and exempt obligations. c The across-the-board rescission mandated for FY2000 required a reduction ofroughly $179 million from the $50.174 billion provided in P.L. 106-69 . Thisreduces the FY2000 enacted level down to just under $50 billion. Comparison of FY1999 and FY2000 Enacted Funding On October 9, 1999, President Clinton signed the Department of Transportation and Related Agencies Appropriations Act, 2000 (hereafter referred to as the FY2000Act or the Act). With total funding of $50.174 billion, the Act provided for anoverall increase of roughly 6% over FY1999 enacted levels. Table 3 sets forth atabular comparison of the FY1999 and FY2000 funding levels for a selection ofagencies' funding. (3) Table 3. Department of Transportation Appropriations (for selected agencies, in millions) Government Wide Recission The FY2000 Consolidated Appropriations Act ( P.L. 106-113 ) mandates a rescission of an amount equal to 0.38% of discretionary budget authority provided(or obligation limits imposed) for FY2000 provided by any act for each department,agency, instrumentality, or entity of the federal government. This required that theamounts provided in the FY2000 DOT Appropriations Act ( P.L. 106-69 ) be reducedby just over $179 million. Although DOT had substantial discretion in how the cuts were distributed within the department, the legislation did establish some limitations. The languageof the rescission legislation limited the amount that could be cut from any activity,program, or project to 15% and exempts any military personnel accounts. The Office of Management and Budget (OMB) Bulletin no. 00-01 includes criteria for allocating the reduction. The criteria state that: reductions should be taken from the least critical funding available to the agency; reductions should be considered from enacted funding abovethe President's request; wherever possible, no reductions should be taken that wouldrequire reductions-in-force; agencies should make targeted recommendations rather than anacross-the-board funding cut. Reductions could only be made from discretionary budget authority and obligation limitations. The allocation of the reductions, pursuant to P.L. 106-113 , is set forth in Table 4 . In implementing the OMB criteria DOT included reductions to amounts earmarkedin the language of the FY2000 appropriations reports. (4) Table 4. Department of Transportation Allocated Rescissions Coast Guard http://www.uscg.mil/ The Coast Guard appropriation is constrained, and its management challenged, by increased responsibilities for drug and illegal immigrant interdiction on the highseas as well as by its aging fleet of water craft and aircraft. The Administrationrequested $4.1 billion for Coast Guard discretionary funds in FY2000. Compared tothe total $4.5 billion appropriated in FY1999 (including emergency and supplementalappropriations), the FY2000 request would have been $358 million, or 8%, less thanall FY1999 funds. (5) In addition to these discretionaryfunds, there were mandatoryfunds of $64 million for State Boating Safety grants. In passing H.R. 2084 on June 23, the full House approved the committee-reported $4.0 billion andadopted no amendments affecting the committee recommendations for the CoastGuard. In passing H.R. 2084 , as amended, on September 16, 1999, theSenate approved the $4.0 billion amount. Conferees approved $4.0 billion includedin the final appropriations, P.L. 106-69 . Earlier, in emergency supplementaryappropriations legislation ( P.L. 106-31 ; H.R. 1141 ), Congressappropriated $200 million for the Coast Guard as emergency funding contingent onan official budget request being made. Thus, the total FY2000 appropriation couldbe interpreted as being $4.224 billion. Coast Guard programs are authorized everytwo years; see CRS Report RS20117, Coast Guard FY2000 and FY2001Authorization Issues , for discussion of current congressional consideration ofauthorization bills. According to preliminary OMB figures, the government wide rescission called for in P.L. 106-113 , the DOT will cut the Coast Guard's enacted budget by $1.6million with the acquisition, construction, and improvements account being cut byalmost $1.5 million; the environmental compliance and restoration account by$65,000; and the alteration of bridges account by $57,000. The Coast Guard budget request of $4.126 billion was proposed to enable the Coast Guard to continue its activities against drug smuggling and recapitalize aircraftand vessel fleets. Of this amount, $2.941 billion (a 4% decrease compared toFY1999) would have been allocated to operation and maintenance of a wide rangeof ships, boats, aircraft, shore units, and aids to navigation, including $334 millionin defense-related funding. The Senate passed $2.772 billion; the House passed$2.791 billion; and the conference agreed to $2.781 billion of which $300 millionshall be available for defense-related activities. Another major component of therequest would have assigned funds for acquisition, construction, and improvement. For this function, the Administration sought $350 million, a 44% decrease fromFY1999, compared to total FY1999 funds. (6) Senate-passed H.R. 2084 would have funded this at $370.4 million and the House-passed version at $410million. The conference agreed to $389.3 million of which $20 million would bederived from the oil spill liability trust fund. For research during FY2000, the agencyrequested $22 million, an 83% increase over the current fiscal year. TheSenate-passed bill would have funded this at $17 million; the House-approved billat $21 million. P.L. 106-69 provides $19 million, with $3.5 million to come from theoil spill liability trust fund. The Senate approved $730.3 million for Coast Guardretirement; the full House approved $721 million, level with the current estimate. The conference agreed to $730.3 million. The Administration requested and both theHouse and Senate recommended $72 million to train, support, and sustain a readymilitary Selected Reserve Force of 7,600 members for direct support to theDepartment of Defense and to provide surge capacity for responses to emergenciessuch as cleanup operations following oil spills. A prominent issue was the Coast Guard's management of a major planned replacement of aging and outmoded high seas' vessels and aircraft. Only planningand analysis funds were included for this in the FY2000 request; actual purchases ofnearly $10 billion are anticipated over a 20-year period beginning in FY2002. AtHouse Transportation and Infrastructure Committee hearings on February 11, 1999,and at the Transportation Subcommittee of the House Appropriations Committeehearing, March 16, 1999, the General Accounting Office criticized the Coast Guard'shandling of this vital replacement program. CRS Report 98-830 F, Coast GuardIntegrated Deepwater System: Background and Issues for Congress , discusses theissues associated with the program. In reporting S. 1143 , the SenateAppropriations Committee included several provisions in the bill language relatingto these needs. These include a requirement that funds from aircraft sales be creditedto the Deepwater Replacement Project Revolving Fund (created by a provision in S. 1143 ) for new aircraft purchases. The Senate approved bill alsopermits the Commandant of the Coast Guard to dispose of specified Coast Guardfacilities. As specified in H.R. 2084 , as amended by S. 1143 , proceeds from the sale of these facilities would be deposited into theDeepwater Replacement Project Revolving Fund. In H.R. 2084 , theHouse also included bill language providing for the crediting of sales of disposedproperty to this appropriation account. It also specifies that the Coast Guard mustsubmit a comprehensive capital investment plan with its FY2001 budget justification. These provisions were included in P.L. 106-69 . Another issue involved the Coast Guard's planned use of user fees. The budgetanticipated using $41 million from new user fees for recapitalization of vessels,information management, and Coast Guard shore infrastructure not part of thedeepwater replacement effort. The Administration proposed legislation to authorizeuser fees for commercial cargo vessels and cruise ships; it anticipated collecting $41million in FY2000 and $165 million annually when fully operational. Proposals foruser fees for traditional Coast Guard services such as buoy placement and vesseltraffic regulation have been controversial. Some argued that these services shouldbe funded from general funds because of their widespread benefits; others argue thatuser fees should be assigned in instances where the beneficiaries can be clearlyidentified. In passing H.R. 2084 , the Senate included bill languageprohibiting the Coast Guard from using any FY2000 funds "to plan, finalize, orimplement any regulation that would promulgate new user fees..." The House alsoincluded similar language in passing H.R. 2084 , which was retained inthe enacted legislation, P.L. 106-69 . Federal Railroad Administration (FRA) http://www.fra.dot.gov For FY2000, the Administration requested a total of $678 million in total budget authority for the FRA. (7) This was down from the$778 million for FY1999, and fromthe $743 million actual figure for FY1998. The Senate-passed version of H.R. 2084 recommended $750 million and the House-passed version recommended $719 million. The enacted legislation provided for $735 million. Pursuant to the government wide rescission, DOT cut $179,000 from the FY2000 enacted level. The largest reduction was allocated to the Next GenerationHigh Speed Rail Program (-$103,000). Rhode Island rail development (-$38,000)and Alaska railroad rehabilitation (-$38,000) were also reduced. The most notable reduction from the FY1999 amount was the $38 million cut for Amtrak. Amtrak issues are discussed in a separate section below. Railroad Safety and Technology. The FRA is the primary federal agency that promotes and regulates railroad safety. In P.L. 105-277 , Congress appropriated about $77.3 million in FY1999 to fund theexpenses associated with FRA's Office of Safety and the expenses of associatedoffices within FRA. In the FY2000 budget, the Administration requested about$95.5 million for the railroad safety program and associated offices. Most of thosefunds were to pay for salaries as well as associated travel and training expenses forfield and headquarters staff and for information systems monitoring the safetyperformance of the industry. (8) The Senate-passedversion of H.R. 2084 recommended $91.8 million and the House-passed version recommended $94.4million for those activities. The conference agreement accompanying P.L. 106-69 specifies $94.3 million. The last railroad safety reauthorization statute was enacted in 1994 and fundingauthority for that program expired at the end of FY1998. FRA's safety programscontinue using the authorities already specified in federal railroad safety law andfunds appropriated annually. Subcommittees of the Senate Commerce, Science, andTransportation Committee and the House Transportation and InfrastructureCommittee held extensive hearings during the 105th Congress on various railroadsafety issues. Those deliberations did not result in a consensus to enact a law thatwould have authorized continued funding for the regulatory and safety complianceactivities conducted by the FRA or change any of the existing authorities used by thatagency to promote railroad safety. Any reauthorization statute enacted during the106th Congress could change the scope and nature of FRA's safety activities but that new safety law would most likely only affect budgets after FY2000. Especially after the March 1999 crash between an Amtrak train and a truck in Bourbonnais, IL, which resulted in 11 deaths and more than 110 injuries, the 106thCongress is paying particular attention to railroad-grade crossing safety. Relevantissues include: Are FRA's grade crossing activities adequate and effective? How isFRA helping the states deal with that safety challenge? Is FRA's FY2000 budgetadequate to deal with that challenge? Congressional reaction to the answers of thosequestions appears to have had a bearing on the railroad safety budget for FY2000. The conference agreement increased funding for Operation Life Saver to $950,000and provided support for a national public service campaign to increase awarenessto crossing safety and trespass prevention. To support its safety program, the FRA conducts research and development (R&D) on a diverse array of topics, including: fatigue of railroad employees,technologies to better control train movements (positive train control), track research, and grade crossing safety. For FY2000, the FRA requested $21.8 million forrailroad R&D compared to $22.4 million appropriated in FY1999. TheSenate-passed version appropriates $22.4 million and the House-passed versionappropriates $21.3 million for railroad R&D. The conference agreement on P. L.106-69 specifies $22.5 million. In the reports accompanying each of thetransportation appropriation bills and the conference report, the appropriationscommittees historically have allocated the railroad R&D funds among variousresearch categories pertaining to safety. High Speed Rail and Maglev. For FY2000, FRA requested $12 million of appropriated funds and $10 million of RABAfunds to continue the Next Generation High Speed Rail Program. In FY1999 $20.5million was appropriated for that program. TEA-21 also authorizes $20 million ofcontract funds in FY2000 to support the Magnetic Levitation (Maglev)Transportation Technology Deployment Program. The Administration did not requestliquidating authority to use those funds, but instead proposed to use $20 million ofRABA funds to support research to reduce the costs of maglev systems. In FY1999TEA-21 authorized $15 million of contract funds to conduct the maglev program. For FY2000, the Senate rejected the Administration's request to use RABAformaglev, and instead recommended the $20 million of contract funds authorized inTEA-21 for maglev. The House also rejected the Administration's request formaglev, and left intact the funding provided in TEA-21 for maglev. The enactedlegislation, P.L. 106-69 , specifies $27.2 million for the Next Generation Program. Asmentioned earlier, the Next Generation Program was reduced by $103,000 pursuantto the government wide rescission mandated by P.L. 106-113 . Amtrak http://www.amtrak.com The FY1999 budget authority for Amtrak was $609 million compared to $594 million in FY1998. These figures do not include an estimated $1.1 billion in fundsavailable to Amtrak each year in FY1998 and FY1999 from the Taxpayer Relief Actof 1997. The Administration requested $571 million for FY2000, as did both theSenate and House-passed versions of H.R. 2084 . The enactedlegislation ( P.L. 106-69 ) also provides $571 million. Amtrak's financial condition remains weak. The Administration requests a change in legislation allowing Amtrak to use "capital" grants for routine maintenanceof equipment and facilities such as track. Amtrak testified before Congress in March1999 that without this change in legislation, Amtrak might not make it throughFY1999, the current fiscal year, on a cash basis. Amtrak typically borrows moneyfrom a private-sector line-of-credit near the end of each fiscal year to bridge the gapbetween its operating loss and federal financial assistance. Amtrak typically repaysthe loan early in each new fiscal year. Federal operating aid to Amtrak is prohibited after FY2002 (49 U.S.C. 24101 (a) (1999)). The DOT Inspector General (IG), at the request of Congress, hasevaluated Amtrak operations and outlook, and concluded that Amtrak probably willcontinue to require federal financial operating assistance after FY2002. In addition to the funding already discussed, the DOT IG estimates that over the next several years, Amtrak will require $2.7 billion to $4 billion in federal funds fornew equipment and improvements to signaling and track. Some of these funds wouldbe used to upgrade track between Washington, DC, and New York City. Beyond thisamount, the DOT IG estimates that Amtrak will have additional, continuingrequirements for such federal funding for the foreseeable future. Amtrak Reform Council. Amtrak Reform Council funding is presented within the Federal Railroad Administrationbudget request. The budget authority for the council was $450,000 in FY1999compared to $50,000 in FY1998. The Administration requested $750,000 forFY2000. The Senate recommended $950,000 to be available through September 30,2001, and the House recommended $450,000 to be available through December 30,2001. The enacted legislation ( P.L. 106-69 ) provides $750,000 for the AmtrakReform Council and requires that each annual report of the council to Congressinclude the identification of Amtrak routes which are candidates for closure orrealignment. The council was created in FY1998 to perform an independent assessment of Amtrak's labor agreements, Amtrak's progress in increasing employee productivity,and Amtrak's ability to operate without federal operating assistance after September30, 2002. If the council concludes, anytime after December 2, 1999, that Amtrak willrequire federal operating assistance after September 30, 2002, then federal lawrequires the council to submit to Congress an Amtrak reorganization plan; requiresAmtrak to submit to Congress an Amtrak liquidation plan; and requires legislativeaction by the Senate. Federal Highway Administration (FHWA) http://www.fhwa.dot.gov The FY2000 Act provides the FHWA with $28.9 billion in total budgetary resources. This is a $2.1 billion increase over the FY1999 level. The FY2000 Actcontinues the dramatic growth in FHWA funding that has resulted from passage ofthe Transportation Equity Act for the 21st Century ( P.L. 105-178 ) (TEA-21) in 1998. By way of further comparison, funding for FY2000 will be over $10 billion morethan was available in FY1995. The FY2000 Act funding was reduced by just over $105 million pursuant to the government wide rescission ( P.L. 106-113 ). The FY2000 Act largely follows the provisions of TEA-21 in terms of overall funding distribution (a discussion of the TEA-21 program structure follows thissection). There are a number of provisions in the Act, however, that waiver from theformula guidance found in TEA-21. The principal change is in the distribution ofRevenue Enhanced Budget Authority (RABA) funds for programs under the directcontrol of the FHWA (these are the so called "allocated" funds and include programssuch as the federal lands highway program and the highway beautification program). The effect of the Act's provisions is to transfer a significant portion of the RABAfunds designated for the allocated funds to core highway programs (surfacetransportation program, national highway system program, etc.) for distribution to the states on a formula basis. The other major change in the Act is a significant increasein the number of specific projects and funding levels detailed in the legislation. Thisearmarking is a common feature in other parts of the transportation appropriationsAct, but has been absent from the highway section of the act for several years. The earmarking and the RABA reallocation, are the most contentious featuresof the FY2000 Act and were opposed by the leadership of the House Transportationand Infrastructure Committee which viewed these changes as constituting legislating(i.e. authorizing) in an appropriations act. Opposition in the House, however, wasinsufficient to defeat the Conference Report on final passage. The Senate-passed version of H.R. 2084 (formerly S. 1143 ) honored the TEA-21-created program structure and spending guaranteeprovisions and provided a small additional increase in spending over the ClintonAdministration proposal. The legislation as reported included total budgetaryresources for FHWA of just under $29 billion. Almost all of the programmaticchanges proposed in the bill affected research programs and intelligent transportationsystems (ITS) programs that will be discussed later in this section. The majordifference between the Senate Act and the Clinton proposal was in the treatment ofRABA funding. The Senate Act distributes RABA funds of $1.46 billion on thebasis of TEA-21 formulas, thereby rejecting the Administration's attempt to use thesefunds for non-highway activities. The Senate-passed version of H.R. 2084 differs from the House version in that it narrows the scope of RABAdistribution to certain of the core highway programs instead of allocated programs,thereby excluding a number of smaller previously mentioned programs. During floordebate, this provision was challenged on a point of order as violating the Senate ruleagainst legislating in an appropriations bill. The point of order failed. H.R. 2084 as passed by the House also honored the TEA-21 guarantee levels. Federal aid highway funds and RABA funds are identical to theSenate levels. Total budgetary resources available to FHWA were slightly lower inthe House-passed version. The House bill also rejected the Clinton AdministrationRABA redistribution proposal. The FY2000 budget proposal submitted by the Clinton Administration requested FHWA funding at the TEA-21 firewall level, $27.3 billion. In addition, a RABAdistribution of $1.46 billion in additional highway funding was forecast. TheAdministration chose to make the very controversial suggestion that the RABAdistribution be reprogrammed to a number of transportation programs outside thehighway program firewall. These changes were designed to complement VicePresident Gore's proposals concerning the Administration's "livability agenda." Forexample, the Administration proposed $250 million in additional funding forhighway research activities, which are outside the highway firewall. RABA fundingwould also have been used for highway safety, transit, and rail related activities. TheAdministration proposal failed to gain congressional support and, as detailed above,was not seriously considered as part of the FY2000 appropriations process. The TEA-21 Funding Framework. TEA-21 created the largest surface transportation program in U.S. history. For themost part, however, it did not create new programs. Rather, it continued most of thehighway and transit programs that originated in its immediate predecessor legislation,the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA, P.L.102-240 ). Programmatically, TEA-21 can be viewed as a refinement and update ofthe ISTEA process. There are a few new funding initiatives in the Act, such as aborder infrastructure program, but the vast majority of funding is reserved forcontinuing programs. There are several groupings of highway programs within the highway firewall. Most of the funding is reserved for the major federal aid highway programs, whichcan be thought of as the core programs. These programs are: national highway system(NHS), interstate maintenance (IM), surface transportation program (STP), bridgereplacement and rehabilitation, and congestion mitigation and air qualityimprovement (CMAQ). All of these programs are subject to apportionment on anannual basis by formula and are not subject to program-by-program appropriation. There is a second category of highway funding within the firewalls. This so called "exempt" category consists of two elements, an additional annual authorizationof minimum guarantee funding ($639 million per fiscal year) and emergency relief($100 million per fiscal year). These funds are not subject to the annual limitationon obligations. A further set of programs, which are also within the firewall, are known as the allocated programs. These programs are under the direct control of FHWA or othergovernmental entities. These programs include: the federal lands highway program,high priority projects (former demonstration project category), Appalachian roads(formerly ineligible for trust fund contract authority), most minimum guaranteefunds, the national corridor planning and border infrastructure program, and severalother small programs. TEA-21 provides a link between the highway generated revenues that flow into the highway account and highway spending. The Act requires that the Secretary ofTransportation make an annual evaluation of revenues into the highway accountduring the previous fiscal year vis-a-vis spending authorized within the highwayfirewall for the new fiscal year. If revenues go up, program spending is increased. Conversely, spending can go down if revenues go down. The Act specifies a formulato determine the direction and amount of highway funding adjustment. Thismechanism, known as the Revenue Aligned Budget Authority (RABA), is employedbeginning in FY2000. FHWA Research, Development, and Technology Programs. For FY2000, the FHWA requested $641 million tosupport its research, development, and technology-related (RD&T) activities; this isan increase of $268 million over the FY1999 estimate of $373 million. The requestconsisted of $370 million to conduct RD&T related to FHWA's traditional highwayprograms and $271 million to support the National Intelligent TransportationSystems (ITS) program. An important issue associated both with the traditional highway component and, particularly, with the ITS deployment program component of the RD&T program, is the earmarking of funds. The appropriators, historically, have designated asubstantial portion of the incentive funds used to accelerate ITS deployment. Forexample, in FY1999 the appropriators earmarked the entire deployment account byspecifying which cities or states would receive those funds and the amounts to beobligated. (9) Both the House AppropriationsCommittee and the Senate Committee onAppropriations again earmarked the entire ITS deployment program in their FY2000recommendations. The conference agreement accompanying P.L. 106-69 earmarkedalmost all of the deployment account. Many Members and proponents of ITS wouldprefer to have the deployment funds competitively awarded. The FY2000 budget request poses other issues regarding highway RD&T programs, but one is of particular note. This issue pertains to the use of RABAfunds. As previously stated, the Administration has been seeking the flexibility toallocate those monies according to its priorities instead of the distribution specifiedin TEA-21. The Administration proposed allocating $250 million of the RABAfunds to supplement both components of the RD&T program. If highway RD&Tprograms had received only their proportional share of the RABA funds now allowedunder TEA-21, the funding for those activities could have been increased up to about5% (plus any increase now specified in TEA-21 for FY2000), instead of the 72%increase proposed by DOT. (10) This would haveupset the agreements forged inTEA-21 regarding how the RABA funds would be distributed. The Senate and theHouse did not accept the Administration's proposal to use RABA funds to increaseRD&T activities by 72%. Motor Carrier Safety Operations. In FY2000 FHWA requested approximately $55.4 million for the motor carrier safety(MCS) program that is managed by the newly established Office of Motor Carrierand Highway Safety. In an amended request, FHWA asked for an additional $5.8million for that program. The requested funds are used primarily to pay for thesalaries and expenses of some 630 staff who conduct audits or reviews of motorcarriers, write and revise the Federal Motor Carrier Safety Regulations, and conductmany other activities intended to improve commercial motor vehicle safety. InFY1999, $53.4 million was appropriated for those functions. For FY2000, the Senatespecified about $57.4 million for motor carrier safety operations, and the Houseappropriated about $70.5 million for that function. The conference agreementspecified the amount recommended by the House. Various congressional committees have recently conducted hearings on the truck and bus safety program administered by the U.S. Department of Transportation(DOT). Two of the key issues that were discussed include: How effectively is thecurrent program being conducted? Is a new administrative structure needed toimprove its implementation? The debate on the future administrative structure of thefederal truck and bus safety program appears to have affected the FY2000 DOTAppropriations Act. P.L. 106-69 prohibits the use of any funds to carry out certainmotor carrier safety functions and operations by the FHWA, and would transfer thosefunds to any DOT entity other than the FHWA to carry out those activities. OnOctober 9, 1999, FHWA's motor carrier safety functions were transferred to a newlyestablished entity, the Office of Motor Carrier Safety, outside of FHWA but stillwithin the DOT. In addition to the funds used to conduct FHWA's motor carrier safety program,the FHWA budget request included $105 million of contract funds authorized byTEA-21 to support the Motor Carrier Safety Assistance Program (MCSAP) andvarious information systems used to promote truck and bus safety, and an amendedrequest of another $50 million to fund additional MCSAP activities and other safetyinitiatives. MCSAP provides grants to the states to implement inspection and reviewprograms affecting both interstate and intrastate commercial vehicle operations. InFY1999 $100 million was made available for MCSAP and related informationsystems. The House-passed H.R. 2084 appropriates $105 million forthose activities. The Senate-passed version appropriates $155 million. The Act, P.L.106-69 , specifies $105 million. Federal Transit Administration (FTA) http://www.fta.dot.gov/ The Clinton Administration proposed $6.1 billion for transit in FY2000. This would have been an increase of almost $700 million, or 14%, over the FY1999 levelof $5.4 billion. However, TEA-21 authorized $6.8 billion for FY2000, of which, $5.8billion was guaranteed under the so-called firewall provisions. The additional amountof $291 million over the guaranteed level of $5.8 billion under the Administration'sproposal for transit would have come from highway gasoline tax revenues derivedfrom the Revenue Aligned Budget Authority Act (RABA) funds designated byTEA-21 for highway programs. The reallocation of RABA funds to transit wasopposed by highway proponents. The American Public Transit Association (APTA)also opposed the Administration's use of RABA funds for transit purposes. APTAbelieved that the additional funds proposed by the Administration over theguaranteed funding level could be found within the discretionary budget category. However, APTA wanted transit to be funded at the full TEA-21 authorization levelof $6.8 billion for FY2000. The Senate-passed version of H.R. 2084 (originally introduced in the Senate as S. 1143 ) provided FTA with total budgetary resources of$5.8 billion. In doing so the Senate complied with the TEA-21 budgetary firewalls. The Senate bill provided no additional transit funding over this amount and rejectedthe Clinton Administration proposals for the redistribution of RABA funds. Duringconsideration in the Senate, a deadlock occurred over a provision that the would havelimited a state's total transit funding to 12.5% of total formula grant transit funding.The provision was controversial not only because it entailed changing the grantdistribution formula enacted in TEA-21 but also because all of the reductions wouldhave come out of the projected distribution of transit funds to the two states, NewYork and California. After a vote to invoke cloture failed, the provision waswithdrawn in the face of the certainty of a filibuster by the delegations from NewYork and California and opposition from those who were against changing any ofTEA-21's provisions in general. The FY2000 Act provides a total of $5.8 billion for FTA. This exceeded FY1999 funding by $407 million, an increase of more than 7.6%. Almost all FTAprograms received funding increases. The transit appropriation figures belowillustrate the significant increase in funding from FY1999 to FY2000 following theenactment of TEA-21. As shown in Figure 4 , transit funding under TEA-21 reachedits highest funding level to date with a request of $5.8 billion in FY2000, althoughthis was below the Clinton Administration proposal of $6.1 billion. Pursuant to the government wide rescission, DOT cut $17.6 million from the level provided for in the FY2000 Act. Capital investment grants absorbed most of thereduction. There are two major transit programs: the Major Capital Investment Program and the Urbanized Area Formula Program. There are also several smaller formulaand planning and research programs. The Major Capital Investment Program (Section 5309 -- formerly known as Section 3) is comprised of three major components: new transit starts, fixed guideway modernization, and bus and bus facilities. For FY2000, the ClintonAdministration had proposed a level of $2.5 billion. Section 5309, under P.L.106-69 , received $2.5 billion in FY2000, compared to $2.3 billion in FY1999, anincrease of 8.4%. These funds are allocated on a discretionary basis by FTA orearmarked by Congress. The Urbanized Area Formula Program (Section 5307 -- formerly known as Section 9) provides for the everyday basic urbanized area capital and operating needs. These activities include bus and bus-related purchases and maintenance facilities,fixed guide way modernization, new systems, planning, and operating assistance. ForFY2000, the Administration had requested $3.3 billion, an increase over the $2.8billion enacted for FY1999. Under the FY2000 Act, section 5307 received $3.05billion, an increase of 8.9% over FY1999. These funds are apportioned on acomplicated formula process based, in part, on population and transit service data. There are also several smaller formula and planning and research programs that received increased funding in FY2000 over FY1999 funding levels. These programsinclude the Nonurbanized Area Formula Program, the Elderly and Persons withDisabilities Program, and several transit planning and research programs. TEA-21 authorized a new Clean Fuels Formula Grant Program to purchase clean fuel vehicles in urbanized areas. Urbanized areas over 1,000,000 populationwill receive two-thirds of the funding, with the remaining third to urbanized areaswith populations under 1,000,000. FY1999 was the first year these funds ($100million) were appropriated. The FY2000 request was also for $100 million. P.L.106-69 provides $100 million for FY2000. TEA-21 also authorized a new discretionary Job Access and Reverse Grant Program. This program is designed to help welfare recipients and low incomepersons with transportation assistance to suburban areas to find work. This would provide funds for projects using transit for individuals needing job training, childcare, and for other purposes. The program's initial funding level was $75 million forFY1999. The FY2000 funding request was for $150 million. However, for FY2000, P.L. 106-69 retains the previous year's funding level of $75 million. With the enactment of TEA-21, operating assistance funding was eliminated for urbanized areas (UZAs) with 200,000 or more population. However, preventivemaintenance, previously eligible for funding from operating assistance, is nowallowable under an expanded capital grants formula program. Urbanized areas under200,000 population, including rural areas (under 50,000 population), can use all ofthe formula funds for either capital or operating purposes. Federal Aviation Administration (FAA) http://www.faa.gov/ For FY2000, the Administration proposed to fund the entire FAA with a combination of current excise taxes and new user fees, and to establish aPerformance-based Organization (PBO) for air traffic services. (11) The funding levelfor the FAA would have been increased from $9.75 billion to $10.13 billion, or byabout 4% over the FY1999 level. The budget request emphasized two major areas:(1) safety initiatives to reduce the fatal accident rate on U.S. commercial carriers 80%by 2007; and (2) the upgrading of air traffic control automation to allow efficienciesthrough flights that are more direct. P.L. 106-69 , the FY2000 DOT appropriations bill, was signed by the President on October 9, 1999; the bill provides a total of $10.081 billion for the FAA. This isa $327 million increase over FY1999 funding levels, although it is slightly less, by$50 million, than the amount requested by the Administration. The FAA'sOperations and Research accounts both receive increases over the FY1999 levels (however, these increases are $139 million and $17 million, respectively, lower thanthe Administration requested). The Airport Improvement Program is funded at thesame level as FY1999 (however, $350 million above the Administration request). (12) The Facilities and Equipment budget is reduced by $12 million from the FY1999level (however, $244 million below the Administration request). Although the amount of funding for FAA is within $50 million of the requestedfunding, the Administration expressed concerns about the lower than requested levelsfor operations, research, and facilities and equipment. For the first time, assuming no general fund supplementals, the FAA will be funded entirely from the aviation trust fund with no contribution from the generalfund. Historically, a substantial portion of the FAA's budget has come from generalfund revenues rather than the aviation trust fund, the rational being that the public atlarge realizes some benefit from the aviation system whether it uses the system ornot. In related developments, the FAA reauthorization legislation, H.R. 1000 , failed to emerge from conference before the end of the first session of the 106thCongress. The conferees were unable to agree on the treatment of the aviation trustfund, the general fund share, and the cap on the passenger facility charge (PFC). Although most FAA programs and activities can operate without authorization, theAirport Improvement Program cannot, and has been in abeyance since October 1,1999. However, conference remains open and action may occur in the secondsession. Operations. The Act includes $5.900 billion for FAA operations, an increase of $334 million (6%) above theFY1999 level, but $139 million (2.3%) below the Administration's request. Theincrease will be used in part to fund 100 additional field maintenance technicians andto bring on-line and maintain air traffic control and aeronautical navigationequipment now being delivered as part of the modernization of the air traffic controlsystem. The operations budget also includes $668 million for aviation regulation andcertification, and $145 million for civil aviation security. In a statement released following the signing of the Act, the Administration said thatthe reduction in the operations account will slow hiring for safety and securitypositions and postpone implementation of needed efficiency and managementimprovements. (13) Facilities and Equipment (F&E). The $2.075 billion for the F&E account is $10 million less than last year'sappropriation, and $244 million, or 10.5% less than the request. This account is theprincipal means for modernizing and improving air traffic control and airwayfacilities. It also finances major capital investments required by other agencyprograms, experimental research and development facilities, and other improvementsto enhance the safety and capacity of the airspace system. Concerned that the FAAhas not adequately justified the Wide Area Augmentation System, which will be usedin conjunction with a satellite-based navigation system, the Act zeros out theAdministration's request of $108.1 million for this program. The Local AreaAugmentation System request of $4 million was also zeroed. Other cuts in thisaccount reflect a general concern with the agency's poor record with respect to themodernization of the air traffic control system, and its failing to evidence a strongcommitment to mission focus, accountability, coordination , or adaptability. TheAdministration said that the reductions in the F&E account will constrain funding forthe modernization of the air traffic control system, including needed modernizationand improvement of the Global Positioning System. Furthermore, it said thereductions may increase air travel delays and ill-position the FAA to meet thegrowing challenges of the future. (14) Research, Engineering and Development (RE&D). The Act provides $156.495 million in the RE&D account,which is $6 million more than last year but $17 million, or 10%, less than the request. Although programs were trimmed across the board, $5 million was added to theaging aircraft program request to continue and expand research activities at theNational Institute for Aviation Research. Grants-in-Aid for Airports. The Airport Improvement Program (AIP) provides grants for airport development andplanning. The FY2000 Act provides the program with a limitation on obligations of$1.95 billion for AIP. This amount is the same as was available in FY1999. TheAdministration requested $1.6 billion. (15) Asmentioned earlier, pursuant to thegovernment wide rescission, DOT reduced the AIP's budget by $54.4 million belowthe level provided for in the FY2000 Act. Because no FAA reauthorization bill that would authorize AIP for FY2000 has passed, the AIP has been in abeyance since October 1, 1999. Although existingprojects may continue, no new projects may be funded. Passenger Rights. During floor debate in the Senate on H.R. 2084 , airline passenger consumerprotection issues emerged in the form of a number of amendments to the bill. In theappropriations Act ( P.L. 106-69 ), this resulted in language requiring the Office of theInspector General report on a number of issues: first, to investigate whether domesticand foreign air carriers are engaging in "unfair or deceptive practices" and "unfairmethods of competition" (pursuant to 49 U.S. C. section 41712), when they selltickets on flights that are already over booked or offer different low fares throughdifferent media (for example, different lowest fares via telephone or internet);second, the OIG is required to report, not later than June 15, 2000, on the extent thatbarriers exist to consumer access to comparative price and service information fromindependent sources (such as travel agents) on the purchase of airline tickets; third,the OIG is required to report on the extent to which air carriers deny travel to airlineconsumers with non-refundable tickets from one carrier to another. In anotherprovision, the FY2000 Act also expresses the sense of the Senate that the penalty forinvoluntary "bumping" of passengers should be doubled. The Senate version of theFAA reauthorization bill ( H.R. 1000 ) also includes a number ofconsumer protection provisions. Research and Special Programs Administration For FY2000, the Research and Special Programs Administration (RSPA) requested $85.8 million in budget authority, compared to $71.7 million which wasappropriated in FY1999, to conduct a variety of safety and technology programs. Forpipeline safety, RSPA requested $38 million, an increase of $3.6 million overFY1999; and for hazardous materials transportation safety, the agency sought $18.2million, an increase of $2.1 million over FY1999. RSPA estimates that 80% of itsbudget is allocated for activities seeking to promote transportation safety. TheFY2000 budget seeks to enhance RSPA's efforts to prevent damage to gas and liquidpipelines by outside forces (e.g., by a construction crew) and to increase grants tosupport state efforts to reduce environmental damage from pipeline spills. RSPAalso seeks to increase its staff supporting the hazardous materials (hazmat)transportation safety program and to increase funding provided for hazmat trainingand planning assistance provided to emergency responder and local planningcommittees. For FY2000, the Senate-passed version of H.R. 2084 recommendedtotal budgetary resources for RSPA of $76.656 million, including $16.960 millionfor the hazardous materials transportation safety program and $36.104 for thepipeline safety program. The House-passed version recommended $82.953 millionin new budget authority for RSPA, including $17.813 million for hazardous materialstransportation safety program and $36.092 million for pipeline safety. Theconference agreement accompanying P.L. 106-69 provides $67.7 million for RSPA,but does not set a limit on obligations for the emergency preparedness grant programfor hazmat training and planning. The agreement specifies $36.9 million for thepipeline safety program and $17.7 million for the hazardous materials transportationsafety program. National Highway Traffic Safety Administration (NHTSA) http://www.nhtsa.dot.gov/ For FY2000, the NHTSA requested an appropriation of $406 million, up from $361 million enacted for FY1999. The requested increase included $125 millionderived from the Revenue Aligned Budget Authority. The $125 million of RABAfunds constituted about 30% of the agency's overall budget request of $406 million. The Administration proposed using RABA funds to pay for all of NHTSA's motor vehicle safety activities, which include defect investigations, the auto-safetyhotline, and various consumer information programs on the crash worthiness of newvehicles. Last year, the appropriations committees funded the entire NHTSA accountusing highway trust fund monies. H.R. 2084 H.R. 2084 H.Rept. 106-355 P.L. 106-69 The Senate Appropriations Committee expressed dismay at the Administration's proposal to use RABA funds for Operations and Research. The Committee hasrecommended that $72 million of contract authority (from TEA-21) be combinedwith $89.4 million authorized under sections 30104 and 32102 of title 49 U.S.C. andchapter 303 of title 49 R.S.C. for FY2000, bringing the total to $161.4 million foroperations and research activities. This amount is about $38 million less than the$199.5 million requested by the Administration. Likewise, the Administration's suggestion that a substantial portion of NHTSA's programs be funded from RABA was not well received by the HouseAppropriations Committee. In its report, the committee states that, "Such budgetgimmickery does not indicate a sincere commitment to safety. Further, by submittingthis request to Congress, the department is shortchanging safety by not continuing areliable funding source for safety programs." One of the agency's programs to encourage the use of seat belts has been bolstered by the recent presidential seat belt initiative. Although the "Buckle UpAmerica" program began in FY1999, it continues to be an important component ofthe agency's entire safety agenda. In addition, the agency is focusing its research andregulatory efforts on "smart air bags" and other lifesaving technologies. The SenateAppropriations Committee, in S.Rept. 106-55 accompanying S. 1143 ,expressed its concern over additional safety issues, including the emerging issue of tragedies of children becoming locked in auto trunks. The committee directs NHTSAto prepare a report determining the frequency of these incidents and to recommendstrategies to reduce such incidents. Although the trunk lid study deadline is March31, 2000, there is no funding earmarked to prepare the report. Incentive Funds for 0.08 BAC Laws. Section 163 of Title 23, U.S.C., provides contract authorityof $80 million for FY2000 to provide incentive grants to those states that adopt andenforce a law that makes it illegal per se (by definition) to operate a motor vehiclewith a blood alcohol concentration (BAC) at or above 0.08%. (16) TEA-21 provides$80 million of contract authority for the Section 163 program for FY2000, comparedto $65 million in FY1999. Currently 16 states qualify to receive those monies. Those funds do not require a separate appropriation and are protected within thefirewall for federal aid highway programs established by TEA-21. Although theapportioned funds may be obligated for any program authorized under Title 23,U.S.C., states are using most of those funds for behavioral-oriented traffic safetyactivities, rather than for highway infrastructure projects. In general, states supportincentive programs that encourage them to adopt specified laws rather than"disincentive" programs that take away or transfer a portion of their federal aidmonies if they do not enact those laws. Table 5. Total Budgetary Resources of Selected Agencies andSelectedPrograms (in millions of dollars--totals may not add) Sources : a Unless otherwise noted, figures for FY1999 enacted, and FY2000 requested were takenfrom H.Rept. 105-825 , H.Rept. 106-355 , the Budget of the United States, fiscal year 2000, and the FY2000 Budget in Brief andjustifications. Department of Transportation figures include adjusted figures that may not match the conferencereport or Budget of the United States figures. The columns pertaining to the Senate, House, and Conferencefunding levels For FY2000 have been taken from the table at the end of H.Rept. 106-355 . OMB figuresprovided by the House Committee on Appropriations were used to calculate the final funding levels. b Includes $105 million to account for motor carrier safety grants obligation limitation. c Figures for the Coast Guard were taken from H.Rept. 106-355 . In general, the Coast Guard total budgetaryresources includes substantial funding from the Department of Defense and from emergency supplementalappropriations. For more detail, see CRS Report No. RL30246, Coast Guard: Analysis of the FY2000Budget . For FY2000, Congress appropriated an additional $200 million as emergency funding contingent on an officialbudget request being made. Thus, the total FY2000 appropriation could be interpreted as being $4.224 billion. d This figure for the Office of the Inspector General includes $9 million transferred from the FTA administrativecategory. e Includes Surface Transportation Board estimated offsetting collections for FY1999 and estimated collections forFY2000. f Budget reductions pursuant to the government wide rescission ( P.L. 106-113 ) that were too small to be reflectedin the Final FY2000 column in Table 5 are as follows: Federal Railroad Administration,$-179,000; TransitPlanning and Research, -$243,000; Coast Guard alteration of bridges, -$57,000; and environmental complianceand restoration, -$65,000; Saint Laurence Seaway, -$46,000; OIG, -$170,000; STB, -$58,000; and Office ofthe Secretary, -$28,000. Note : Numbers within this table may differ slightly from those in the text due to supplemental appropriations,rescissions, and other funding actions. Columns may not add due to rounding or exclusion of smaller programline-items. Maritime Administration (MARAD) funding, and funding for the Federal Maritime Commission (FMC), are contained in CRS Report RL30209 , Appropriations for FY2000: Commerce, Justice, and State, the Judiciary,andRelated Agencies , coordinated by [author name scrubbed]. For Additional Reading CRS Issue Briefs CRS Issue Brief IB10026. Airport Improvement Program, by [author name scrubbed]. CRS Issue Brief IB10032. Transportation Issues in the 106th Congress , coordinatedby Glen Moore. CRS Issue Brief IB10030. Federal Railroad Safety Program and Reauthorization Issues , by [author name scrubbed] and Anthony J. Solury. CRS Reports CRS Report 98-749(pdf) . The Transportation Equity Act for the 21st Century (TEA-21) and the Federal Budget , by [author name scrubbed]. CRS Report RL30096. Airport Improvement Program Reauthorization Legislation in the 106th Congress , by [author name scrubbed]. CRS Report RS20176. Surface Transportation Board Reauthorization and the 106th Congress , by Stephen Thompson. CRS Report RS20177. Airport and Airway Trust Fund Issues in the 106th Congress ,by [author name scrubbed]. CRS Report 98-593. Airport Improvement Program: Airport Finance Issues for Congress , by [author name scrubbed]. CRS Report RL30068. Automobile Air Bags: Current Issues Associated With New Technology , by [author name scrubbed] and John R. Justus. CRS Report 98-890. Federal Traffic Safety Provisions in the Transportation Equity Act for the 21st Century: Analysis and Oversight Issues , by [author name scrubbed] andAnthony J. Solury. CRS Report 98-63. Transportation Trust Funds: Budgetary Treatment , by [author name scrubbed]. CRS Report 98-646. Transportation Equity Act for the 21st Century ( P.L. 105-178 ): An Overview of Environmental Protection Provisions , by [author name scrubbed]. CRS Report RL30246(pdf) . Coast Guard: Analysis of the FY2000 Budget , by Martin Lee. Selected World Wide Web Sites Department of Transportation, Chief Financial Officer http://ostpxweb.dot.gov/budget/ House Appropriations Committee http://www.house.gov/appropriations National Highway Traffic Safety Administration (budget & planning) http://www.nhtsa.dot.gov/nhtsa/whatis/planning/perf-plans/gpra-96.pln.html Office of Management and Budget http://www.access.gpo.gov/omb/omb003.html Senate Appropriations Committee http://www.senate.gov/committees/committee_detail.cfm?COMMITTEE_ID=405

On October 9, 1999, the President signed the Department of Transportation and Related Agencies Act, 2000 ( P.L. 106-69 ). The Act provided $50.2 billion for the Department ofTransportation (DOT). DOT had requested funding similar to the level enacted in P.L. 106-69 . However, the FY2000 Consolidated appropriations act, P.L. 106-113 , calls for an across-the-boardrescission of 0.38% from each agency's discretionary budget authority and obligation limits. Thiswill result in a reduction of approximately $179 million from the level enacted in P.L. 106-69 . TheFederal Highway Administration (-$105.3 million), the Airport Improvement Program (-$54.4million), the Federal Transit Administration (-$17.6 million), and the Coast Guard (-$1.6 million)together absorb all but about $0.5 million of the DOT reductions. Even with the rescission, theamount provided represents a nearly 6% increase over the FY1999 enacted level. Reflecting the continuing impact of the Transportation Equity Act for the 21st Century (TEA-21), both the Federal Highway Administration (FHWA) and the Federal TransitAdministration (FTA) received increases of 7% above FY1999 enacted levels. The Federal AviationAdministration (FAA) received a more modest increase of just under 3%. The FY2000 Act fundsthe entire FAA budget out of the airport and airway trust fund. Historically, a significant portion ofthe FAA operations budget has been provided from general fund revenues. Much of the debate over the Department's budget focused on allocating resources raised by user fees and deposited in specific transportation trust funds. A debate arose between those in favorof a unified budget vs. those seeking to protect individual programs either by taking them off budgetor using fiscal boundaries or "firewalls" to ensure a minimum level of financing. This policy ofcreating discretionary spending guarantees originated with the provisions of the TransportationEquity Act for the 21st Century (TEA-21), legislation that placed "firewalls" around certaincategories of the Federal Highway Administration's programs. The House version of the FederalAviation Administration (FAA) reauthorization bill, H.R. 1000 , proposes also changingthe budgetary treatment of the airport and airway trust fund by taking the fund off budget. For the highway trust fund, TEA-21 provided for the disposition of actual receipts above those forecast and authorized. The Revenue Aligned Budget Authority (RABA) provisions requireadditional trust fund receipts to be redistributed to individual states based on the formula used toapportion highway dollars. The enacted version of H.R. 2084 narrows the scope ofRABA distribution to certain core highway programs, thereby reducing the allocations to a numberof smaller TEA-21 programs and increasing the funds flowing to the states. Key Policy Staff Division abbreviations: RSI = Resources, Science, and Industry Division.

Calculating the Individual Income Tax To understand what tax deductions are, it is helpful to first understand how a tax filer calculates individual income tax liability. Figure 1 provides an overview of how a tax filer calculates his or her federal tax liability . To calculate taxes owed (tax liability), tax filers first add up all of their forms of income (see step 1 in Figure 1 ) to calculate their gross income. Next, the tax filer subtracts any above-the-line deductions to calculate their adjusted gross income , or AGI (step 2). AGI is often referred to as "the line." Then, the tax filer subtracts personal exemptions , or fixed dollar amounts per spouse and dependent child (step 3). The tax filer then subtracts the greater of either the sum of all of their below-the-line , or itemized deductions , or the standard deduction , which is a fixed amount based on filing status, in order to arrive at taxable income (step 4). The marginal tax rates are applied to taxable income (step 5) to arrive at a preliminary tax liability. Finally, tax credits are subtracted from preliminary tax liability (step 6) to arrive at final tax liability. The provisions in Figure 1 surrounded by dotted lines are covered in this report. What Are Tax Deductions? Simply stated, deductions reduce taxable income. Each deduction reduces tax liability by the amount of deduction times the tax filer's marginal tax rate. In contrast, a tax credit reduces tax liability on a dollar-for-dollar basis because it would be applied after the marginal tax rate schedule. An individual in a 35% tax bracket would receive a reduction in taxes of $35 for each $100 deduction while an individual in a 25% tax bracket would receive a reduction in taxes of $25 for each $100 deduction. Hence, the same deduction can be worth different amounts to different tax filers depending on their marginal tax bracket. The tax savings from deductions are generally equal to the tax filer's marginal tax rate times the amount of the deduction. So higher-income tax filers typically benefit more than lower-income tax filers from deductions. Deductions serve four main purposes in the tax code. First, they can account for large, unusual, and necessary personal expenditures, such as the deduction for extraordinary medical expenses. Second, they are used to encourage certain types of activities, such as homeownership and charitable contributions. Third, they account for and ease the burden of paying for nonfederal forms of taxes, such as state and local taxes. Fourth, deductions adjust for the expenses of earning income, such as deductions for work-related employee expenses. The following sections define each form of deduction and explain in greater detail how deductions are used in the calculation of an individual's tax liability. Above-Versus-Below-the-Line Deductions To arrive at final tax liability, all taxpayers may be able to claim above-the-line deductions whether they claim itemized deductions or the standard deduction. Each of these deductions has a specific line on the Form 1040 (e.g., line 23 for teacher classroom expenses). Figure 2 shows how tax deductions appear on the IRS Form 1040. These deductions are commonly referred to as above-the-line deductions, because they reduce a tax filer's AGI (the line). Above-the-line deductions are sometimes also called adjustments to income, because they generally represent costs incurred to earn income. In contrast, itemized and standard deductions are sometimes referred to as below-the-line deductions, because they are applied after AGI is calculated to arrive at taxable income. Above-the-line deductions may provide additional benefits to some tax filers seeking to claim certain tax preferences. A number of tax provisions have a phaseout of benefits as income increases. The higher the AGI, the less likely the tax filer will be able to claim a larger value of the tax preference. Tax deductions that lower AGI increase the likelihood that the tax filer will be able to claim a larger value of the tax preference. Itemized Versus Standard Deductions As previously discussed, tax filers have the option to claim either a standard deduction or the sum of their itemized deductions. Whichever deduction the tax filer claims—standard or itemized—the deduction amount is subtracted from AGI to arrive at final tax liability. Standard Deduction The standard deduction is a fixed amount, based on filing status, available to all taxpayers. In contrast to those itemizing their deductions, tax filers do not have to provide additional documentation in order to claim the standard deduction. The standard deduction was introduced into the federal tax code with the passage of the Individual Income Tax Act of 1944 (P.L. 78-315) primarily to simplify tax administration and compliance. At the time of passage, it was noted that taxpayers generally had little idea about what deductions were allowable and few taxpayers kept accurate records. Thus, the enactment of the standard deduction reduced excessive unsupportable claims of deductions, although at the same time it permitted many taxpayers to take a deduction in excess of what they would have been allowed if they had been required to itemize their deductions. Today it is also viewed as performing a social welfare purpose. The social welfare purpose of the standard deduction was introduced with the minimum standard deduction in the Revenue Act of 1964 (P.L. 88-272). Under this minimum standard deduction provision, a taxpayer was assured a minimum amount of deductions from his or her income. The personal exemptions combined with the standard deduction amount are designed to remove low-income households from the tax rolls. The calculation of the standard deduction has changed over time. In 1944, it was equal to 10% of AGI, up to a maximum of $1,000. In 1964, a minimum standard deduction was introduced as a fixed value of $200 plus $100 for each exemption with a ceiling of $1,000 if married filing jointly. The value of the standard deduction, including both the percent of AGI and the maximum value, was increased multiple times from 1969 to 1975. The minimum standard deduction and the deduction were merged in 1977 into a flat standard deduction of $2,200 (single) and $3,200 (married filing jointly). The Economic Recovery Tax Act of 1981 ( P.L. 97-34 ) indexed standard deduction amounts for inflation, beginning in 1985. The standard deduction has been increased over time, such as with the Tax Reform Act of 1986 (TRA86; P.L. 99-514 ). The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ) phased out part of the so-called marriage penalty associated with the federal tax code, where the standard deduction for joint filers was less than twice the single filer amount. EGTRRA increased the deduction for joint filers to 200% of singles. This provision, most recently extended by Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 ( P.L. 111-312 ), expired in 2012. Under current law, the standard deduction for married couples filing jointly will be equal to 167% of the upper limit for singles for the 2013 tax year and beyond. The standard deduction amount varies depending on the filing status of the tax unit (i.e., single, married filing jointly, married filing separately, or head of household), whether the tax filer is over the age of 65, and whether the tax filer is blind. For the 2015 tax year (2016 filing season), the inflation-adjusted standard deductions are as follows: $12,600 married filing jointly or surviving spouses, $6,300 for single tax filers and married filing separately, and $9,250 for tax filers who qualify as the head of a household. For the 2016 tax year (2017 filing season), the inflation-adjusted standard deductions are as follows: $12,600 married filing jointly or surviving spouses, $6,300 for single tax filers and married filing separately, and $9,300 for tax filers who qualify as the head of a household. In addition, there is a standard deduction available for an individual who can be claimed as a dependent on another person's tax return. For tax year 2016 (2017 filing season), the standard deduction for a dependent is generally limited to the greater of (a) $1,050 or (b) the sum of the individual's earned income for the year plus $350 (but not more than the regular standard deduction amount of $6,300 for single tax filers). The additional standard deductions for those aged 65 or older and those who are legally blind are increased by $1,550 if single or head of household and $1,250 if married filing jointly for tax year 2016 (2017 filing season). These increases apply per classification and are added above the base standard deduction amounts listed above. Thus, a 70-year-old blind and single tax filer would be eligible for a $3,100 increase ($1,550 for being 65 or older, and $1,550 for being blind) in his or her standard deduction for tax year 2016. These amounts are adjusted annually for inflation. Itemized Deductions Alternatively, tax filers claiming itemized deductions must list each item separately on their tax return and be able to provide documentation (i.e., in the event of an IRS audit) that the expenditures have been made. Tax filers have been able to itemize their deductions since the Revenue Act of 1913 (P.L. 63-16), which created the first permanent federal income tax. Deductions for interest paid or unexpected casualty losses were early provisions in the federal income tax code because many businesses were sole proprietorships (i.e., pass-through entities) where the owner was personally liable for the costs of doing business. Itemized deductions have been reduced or limited in eligibility, most notably with TRA86. For example, TRA86 eliminated deductions for consumer interest and enacted more complex rules for deducting investment interest. Only individuals with aggregate itemized deductions greater than the standard deduction find it worthwhile to itemize. Itemized deductions are claimed on the IRS Schedule A form. Itemized deductions are allowed for a variety of purposes. A detailed summary of the requirements and limits for each of these provisions, and other itemized deductions, is included in Table 2 , at the end of this report. Some itemized deductions can only be claimed if they meet or exceed minimum threshold amounts (usually a certain percentage of AGI) in order to simplify tax administration and compliance. For example, a tax filer must meet a certain threshold (or a floor ) to deduct a casualty, disaster, or theft loss. Certain itemized deductions are treated as miscellaneous itemized deductions, which are allowed only to the extent that their total exceeds 2% of the individual tax filer's AGI. This floor makes it simpler for a tax filer to choose whether he or she would be better off itemizing the deductions or choosing to claim the standard deduction, and it helps to ensure that the IRS is only reviewing documentation of fewer, larger events rather than many, smaller events. Any restriction placed upon an itemized deduction generally applies prior to the 2% AGI floor. An example of an expense subject to the combined 2% of AGI floor for miscellaneous deductions is the 50% reduction for unreimbursed meals while traveling away from home on business. In addition, some deductions are subject to a cap (also known as a ceiling ) in benefits or eligibility. Caps are meant to reduce the extent that tax provisions can distort economic behavior, limit revenue losses, or reduce the availability of the deduction to higher-income tax filers. For example, the home mortgage interest itemized deduction is limited to mortgage debt in the amount of up to $1 million for married couples filing jointly ($500,000 for individuals or married filing separate). This ceiling is intended to limit incentives for higher-income tax filers to finance their home purchases with deductible interest. Pease Limit on Itemized Deductions for Higher-Income Tax Filers There is a limitation on the value of itemized deductions that certain, higher-income tax filers can claim. The limitation on itemized deductions was initially included in the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ), drafted by Representative Donald Pease of Ohio. Commonly referred to as "Pease" by tax analysts, it effectively increases taxes on high-income tax filers without explicitly increasing tax rates. Pease's limitations are triggered by an AGI threshold. The number or total amount of itemized deductions claimed by a tax filer does not determine whether he or she is subject to Pease. Pease affects tax filers above the inflation-adjusted AGI thresholds who itemize deductions. For these tax filers, the total of certain itemized deductions is reduced by 3% of the amount of AGI exceeding the threshold. The total reduction, however, cannot be greater than 80% of the deductions (and the tax filer always has the option of taking the standard deduction). Consequently, the effective marginal tax rate for these tax filers will be 3% higher than their statutory marginal tax rate. Pease was in effect from 1991 to 2009, and was fully repealed from 2010 to 2012. The Economic Growth and Tax Relief Reconciliation Act of 2001 ( P.L. 107-16 ) included the phased-in repeal of Pease between 2006 and 2009. Pease was scheduled to be reinstituted beginning with the 2011 tax year, but the reintroduction was postponed until the 2013 tax year by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). The American Taxpayer and Relief Act of 2012 (ATRA; P.L. 112-240 ) restored Pease for tax years 2013 and beyond. For the 2016 tax year (2017 filing season), the Pease threshold amounts are adjusted to $259,400, if single and not married; $285,350, if head of household; $311,300, if married filing jointly or a surviving spouse; or $155,650, if married, filing separately. Summary of Individual Tax Deductions Table 1 and Table 2 provide a summary of above- and below-the-line tax deductions, respectively. The first column provides a reference to where the provision can be found on the Form 1040 (if an above-the-line deduction) or on the Schedule A form (if a below-the-line, itemized tax deduction). The provision column contains a reference to where the provision can be found in the Internal Revenue Code (IRC), which is Title 26 of the U.S. Code. A brief summary of the provision follows in the adjacent column. When applicable, annual limits (whether they are floors or ceilings) and income limits and phaseouts are provided. The last column provides the tax expenditure amount for FY2016 and FY2017. Tax expenditures are defined under the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ) as "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." Tax expenditure estimates are based on current law, which does not assume extensions of temporary provisions that are subject to expire within the time period observed. Not all tax deductions have JCT tax expenditure estimates, as some provisions are estimated to result in revenue losses less than $50 million per fiscal year (JCT's de minimus level). In addition, some tax deductions are not considered tax expenditures for various, other reasons. For example, the deduction for uncompensated employee expenses is considered an appropriate measure to adjust a tax filer's AGI.

Every tax filer has the option to claim deductions when filing their income tax return. Deductions serve four main purposes in the tax code: (1) to account for large, unusual, and necessary personal expenditures, such as extraordinary medical expenses; (2) to encourage certain types of activities, such as homeownership and charitable contributions; (3) to ease the burden of taxes paid to state and local governments; and (4) to adjust for the expenses of earning income, such as unreimbursed employee expenses. Some tax deductions can be taken by individuals even if they do not itemize. These deductions are commonly referred to as above-the-line deductions, because they reduce a tax filer's adjusted gross income (AGI, or the line). In contrast, itemized and standard deductions are referred to as below-the-line deductions, because they are applied after AGI is calculated to arrive at taxable income. Tax filers have the option to either claim a standard deduction or itemize certain deductions. The standard deduction, which is based on filing status, is, among other things, intended to reduce the complexity of paying taxes, as it requires no additional documentation. Alternatively, tax filers claiming itemized deductions must list each item separately on their tax return and be able to provide documentation that the expenditures being deducted have been made. Only tax filers with deductions that can be itemized in excess of the standard deduction find it worthwhile to itemize. Whichever deduction the tax filer claims—standard or itemized—the amount is subtracted from AGI. Deductions differ from other tax provisions that can reduce a tax filer's final tax liability. Deductions reduce final tax liability by a percentage of the amount deducted, because deductions are calculated before applicable marginal income tax rates. In contrast, tax credits generally reduce an individual's tax liability directly, on a dollar-for-dollar basis, because they are incorporated into tax calculations after marginal tax rates are applied. Some deductions can only be claimed if they meet or exceed minimum threshold amounts (usually a certain percentage of AGI) in order to simplify tax administration and compliance. In addition, some deductions are subject to a cap (also known as a ceiling) in benefits or eligibility. Caps are meant to reduce the extent that tax provisions can distort economic behavior, limit revenue losses, or reduce the availability of the deduction to higher-income tax filers. Because some tax filers and policymakers may not have detailed knowledge of tax deductions, this report first describes what they are, how they vary in their effects on reducing taxable income, and how they differ from other provisions (e.g., exclusions or credits). Next, a discussion concerning the rationale for deductions as part of the tax code is provided. Because some deductions are classified as tax expenditures, or losses in federal revenue, they might be of interest to Congress from a budgetary perspective. The final section of this report includes tables that summarize each individual tax deduction, under current law. Many of these deductions are part of the permanent income tax code. The Consolidated Appropriations Act (P.L. 114-113) extended several temporary provisions through 2016 (for the 2017 tax filing season).

Slip Laws When an individual piece of legislation is enacted under the procedures set forth in Article I, Section 7 of the U.S. Constitution, it is characterized as a "public law" or a "private law" depending on its intended audience. The overwhelming majority of laws passed by Congress are public laws because they have general applicability to the whole of society and are continuing and permanent in nature. Private laws are enacted for the benefit of a named individual or entity (for example, private laws can be enacted to assist a citizen injured by a government program). Each newly passed law— public or private —is assigned a number according to the order of its enactment within a particular Congress. This system began in 1957 with the 85 th Congress. Laws enacted prior to 1957 are cited by the date of enactment and the chapter number assigned to them in the Statutes at Large , discussed further below. When researchers want to obtain a copy of a newly enacted law, they will most likely be looking for the "slip law." A slip law is the first official publication of a public or private law, prepared by the Office of the Federal Register (OFR), and published by the Government Publishing Office (GPO). Noncommercial Sources of Slip Laws Slip laws are available from non-commercial, public sources in various forms. Government Publishing Office Slip laws in printable pamphlet form can be obtained online from GPO. GPO provides free electronic access to official federal government publications, including public and private laws from the 104 th Congress (1995-1996) forward. Additionally, Federal Depository Libraries, which are libraries designated to receive free government documents, provide no-cost access to certain classes of government documents, including slip laws. Library of Congress Public and private laws can also be found through the Library of Congress at Congress.gov, the official website for U.S. federal legislative information. Information on public and private laws may be searched from the 93 rd Congress (1973-1974) forward. The full text of the laws is available beginning with the 101 st Congress (1989-1990). Commercial Sources of Slip Laws In addition to the publicly available resources described above, many commercial, subscription-based sources provide access to slip laws as well. Subscriptions to these sources vary from House to Senate and within individual offices. Lexis Advance Lexis Advance makes public laws available in the USCS – Public Laws database from 1988 to present. ProQuest Congressional ProQuest Congressional makes public laws available in slip law format from 1988 to present. Westlaw Westlaw makes public laws available from 1973 to the previous legislative session in the U.S. Public Laws – Historical database, and public laws from the current legislative session in its U.S. Public Laws database. United States Code Congressional and Administrative News Public laws, from 1973 to present are reprinted in the United States Code Congressional and Administrative News (USCCAN), published by Thomson Reuters. Laws are compiled in slip law format chronologically, along with selected Senate, House, and conference reports associated with the laws, as well as presidential signing statements, proclamations, and executive orders. USCCAN is published both as a bound volume and electronically through a Westlaw subscription. The United States Statutes at Large Every two years at the end of a congressional session, slip laws (both public and private laws) are accumulated and published chronologically in a series of volumes entitled the United States Statutes at Large ( Statutes at Large ) . The Statutes at Large also contain concurrent resolutions, reorganization plans, proposed and ratified amendments to the Constitution, and proclamations by the President. Until 1948, treaties and international agreements approved by the Senate were also published in the Statutes at Large. Laws are cited by the Statutes at Large volume and page number (e.g., 125 Stat. 753 refers to page 753 of volume 125 of the Statutes at Large ). The printed edition of the Statutes at Large is "legal evidence of the laws...in all the courts of the United States" and thus researchers may likely refer to this publication when citing a law before a court. Noncommercial Sources of the Statutes at Large Government Publishing Office GPO provides free, electronic access to the Statutes at Large , 1951-2011. Library of Congress Earlier volumes of the Statutes at Large, from 1789 to 1950, can be found and searched through the Law Library of Congress's Digitized Collection. Commercial Sources of the Statutes at Large In addition to the publicly available resources described above, many commercial, subscription-based sources provide access to the Statutes at Large . Subscriptions to these sources vary from House to Senate and within individual offices as well. Hein Online Hein Online makes available the Statutes at Large from 1789 to present, and can also be searched by chapter or public law number. Lexis Advance Lexis Advance makes available a Statutes at Large database which contains all public and private laws from 1789 to present, as well as treaties with foreign nations and Indian tribes beginning in 1776. ProQuest Congressional ProQuest Congressional makes available the Statutes at Large from 1789 to present. Westlaw Westlaw makes available the Statutes at Large from 1789 to 1972. United States Code and the Revised Statutes of the United States The United States Code ( U.S. Code or U.S.C.) is the official government codification of all general and permanent laws of the United States. The U.S. Code has its roots in an 1866 law that initiated a project to "revise, simplify, arrange, and consolidate all statutes of the United States, general and permanent in their nature...." This endeavor was not fully realized until 1874, when the Revised Statutes of 1874 became the first official codification of U.S. laws. A second edition making corrections and updates followed in 1878. However, despite numerous efforts to supplement and revise inaccuracies in the Revised Statutes , the publication contained errors. The Revised Statutes were also not updated regularly, making it difficult to know if a particular law had been amended. In 1919, work on a new codification project began, but it was not until 1926 that what is today known as the United States Code came to exist. The U.S. Code has been published by the GPO every six years since its initial publication in 1926. The current edition of the U.S. Code was printed in 2012 and is updated annually with cumulative print supplements. In the U.S. C ode , statutes are grouped by subject matter into 54 titles and five appendices. Each title is organized into chapters and then sections, which is how a particular provision is cited (e.g., 27 U.S.C. §124 refers to Section 124 of Title 27). Source credits and historical notes at the end of each section provide additional information, including the statutory origin of the provision, its effective date, a brief citation, discussion of any amendments, and cross references to related provisions. It is important to note that generally, the U.S. Code is an unofficial restatement of the Statutes at Large organized by topic for ease of access. As discussed further below, the exception to this general rule is when a particular title of the U.S. Code has been enacted into positive law. The Office of the Law Revision Counsel (OLRC) of the U.S. House of Representatives is responsible for maintaining and publishing the U.S. Code . The OLRC oversees the organization of statutes by subject matter, assigning a statute to a U.S. Code section if the law has general applicability and permanence. If a provision is not intended to be permanent or does not have relevance to a wide audience, the OLRC may not include that language in the U.S. Code, or the OLRC may classify the provision as a statutory note or appendix to an existing U.S. Code section. Language enacted as part of government appropriations measures is a common instance of this; for example, provisions appropriating funds to the Office of Highway Administration each fiscal year are not likely to be codified because, by their own terms, they govern for only one year. Nevertheless, it is important to remember that whether a provision is codified or classified as a note or appendix in no way diminishes the statute's significance or authority. Provisions that are not codified in the U.S. Code are still acts of Congress. The language of a law as set forth in the U.S. Code is not necessarily a literal duplication of the law as it was enacted. Because the U.S. Code is arranged by subject, a slip law is often divided up among titles, with different sections of a slip law being assigned to different volumes, chapters and sections of the U.S. Code . There may also be slight changes from the original statute, particularly with regard to section numbers and cross-references, corresponding to U.S. Code sections, not statute sections. The most notable difference between the U.S. Code and the Statutes at Large , however, is that language in the U.S. Code exists as amended to reflect subsequent changes made by later laws. Amended Laws When a bill becomes a law, the OLRC will examine whether the law has any non-amendatory or "freestanding" provisions to introduce to the Code, or any language that revises, repeals, or adds to already existing statutes. Consider the following sequence of enactments. In 1952, Congress passed the Immigration and Nationality Act (INA). The INA generally consolidated and amended federal statutory law on the admission and removal of aliens in the United States and the terms under which they may become U.S. citizens. The INA was codified at 8 U.S.C . §§1 et seq. In 1986, Congress passed the Immigration Reform and Control Act (IRCA). Section 101 of IRCA amended the INA by adding new §274A to the statute. The amendment to the INA is reflected in 8 U.S.C. §1324a, which was added in 1986. The amending action can be seen in the historical notes of 8 U.S.C. §1324a, which read: "June 27, 1952, ch. 477, Title II, Ch. 8, §274A, as added Nov. 6, 1986, P.L. 99-603 [...]." The "as added" segment indicates that §274A did not originate in 1952, but was added to the INA on November 6, 1986. In 1996, Congress passed the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA). Section 412 of IIRIRA amended §274A of the INA. Section 412 of IIRIRA specifically amended 8 U.S.C . §1324a(b)(1), by striking certain clauses, adding new language, and inserting additional subparagraphs to the existing statute. As the above sequence illustrates, the canvas upon which Congress typically works is the existing realm of federal statutes, and not a blank slate. To that end, it is usually more effective to consult the U.S. Code for the current language of a statute than it is to consult either the slip law or the Statutes at Large , both of which are essentially frozen in their respective times. It can be difficult for a researcher to find amended public laws with up-to-date language, but there are resources available. The House of Representatives' Office of the Legislative Counsel assembles compilations of statutes that are not codified in the U.S. Code or are found in a title that has not been enacted into positive law. Congressional committees and federal agencies may periodically issue similar compilations of amended public laws, especially for statutes significant to their respective jurisdictions. For example, the Civil Rights Division of the Department of Justice provides access to the Americans with Disabilities Act of 1990, As Amended, which includes changes made by the ADA Amendments Act of 2008 to the 1990 law. Additionally, commercial publishers may track changes to existing law by recently enacted legislation. For instance, the commercial database CQ LawTrack notes and lists changes made by each new law to prior laws, though it does not aggregate the text of the amended law itself. Positive Versus Non-Positive Law Titles of the U.S. Code In 1947, Congress began enacting whole titles of the U.S. Code into law, generally repealing the underlying statutes. When Congress does this, the authoritative legal language is no longer the slip law that enacted it, but the language as presented in a U.S. Code title. This process is known as "positive law codification" and the titles that have been enacted are "positive law titles." Why would Congress go through the effort of reenacting laws already in force? According to the OLRC, the U.S. Code is an effective and valuable tool for researching and verifying general and permanent laws, and "positive law codification improves the usefulness of the Code in a number of significant ways." These include improving the organization of a title; restating laws using consistent language and styles; eliminating obsolete provisions; resolving ambiguous language; correcting technical errors; and establishing titles as legal evidence of the law so that they are more authoritative in federal and state courts than the Statutes at Large . Non-positive law titles are considered prima facie evidence of the Statutes at Large and may be refuted by the underlying statute should there be a disparity between the two statutes. The process of positive law codification is a meticulous and time-consuming endeavor; consequently, not all titles have undergone the process. At present there are 27 positive law titles, which are identified with an asterisk on the OLRC's U.S. Code "Search & Browse" page. For a researcher, one of the most obvious differences between positive and non-positive law titles is the difference in the history of the enacting laws. In non-positive law titles, the first act listed in the history source credits is what the OLRC terms the "base law," or the act that originated that particular U.S. Code section. For example, 2 U.S.C. §1 reads, Time for election of Senators . At the regular election held in any State next preceding the expiration of the term for which any Senator was elected to represent such State in Congress, at which election a Representative to Congress is regularly by law to be chosen, a United States Senator from said State shall be elected by the people thereof for the term commencing on the 3d day of January next thereafter. (June 4, 1914, ch. 103, §1, 38 Stat. 384; June 5, 1934, ch. 390, §3, 48 Stat. 879.) The base law for 2 U.S.C. §1 is the Act of June 4, 1914, ch. 103, 38 Stat. 384. In other words, the Act of June 4, 1914 created the language that currently occupies 2 U.S.C. §1. The opening clause of the Act of June 4, 1914 reads, "An act Providing a temporary method of conducting the nomination and election of United States Senators." However, in positive law titles, the history source credits convey different information. For example, 3 U.S.C. §7 reads: Meeting and vote of electors . The electors of President and Vice President of each State shall meet and give their votes on the first Monday after the second Wednesday in December next following their appointment at such place in each State as the legislature of such State shall direct. (June 25, 1948, ch. 644, 62 Stat. 673.) Here, the Act of June 25, 1948, ch. 644, 62 Stat. 673 is not the base law for 3 U.S.C. §7, because this Act did not create the language of Section 7. Rather, this Act codified and enacted the entirety of Title 3 into positive law. The opening clause of this Act reads, "An Act To codify and enact into law Title 3 of the United States Code, entitled 'The President.'" In other words, every section contained in Title 3 has "Act of June 25, 1948, ch. 644" as the enacting law in the source credits because the underlying statutes that individually created the whole of Title 3 have been repealed. Accordingly, for a researcher who needs to cite the authoritative language of a section, the words of the section itself will be sufficient. However, a researcher who is looking for the history of the language itself and is perhaps interested in the intent behind its enactment, must take additional steps to locate such information. A researcher seeking information on the history or intent of the language in positive law titles of the U.S. Code should examine the "Front Matter" located at the very beginning of the title, preceding the legal language. This preface includes a table showing the disposition of all sections of the former title, including where the new sections were previously located, and the original source credits. In the previous example, prior to the process of positive law codification, the language of 3 U.S.C. §7 was located at 3 U.S.C. §5, and the original base law was the Act of February 3, 1887, ch. 90, 24 Stat. 373. Editorial Reclassification As discussed in the previous section, one reason for positive law codification is to improve the organization of existing titles. Another way the OLRC improves the organization of existing titles is through a process known as "Editorial Reclassification." In this process, the OLRC reorganizes portions of the law without altering or eliminating any statutory text. The OLRC recently conducted seven editorial reclassification projects. Each one is explained in detail on the OLRC's website, with reasons for the change, major actions, current status, and resources for the transition. As an example, the OLRC transferred Title IV, Part C of the Higher Education Act of 1965 from its current location in the Public Health and Welfare Title, 42 U.S.C . §§2751, et seq., to the Education Title, 20 U.S.C. §§1087-51, et seq. In addition, portions of Title 20 are being reordered to conform to the transfer. Annotated Editions of the U.S. Code In addition to the official U.S. Code , researchers may be familiar with such resources as the United States Code Annotated (U.S.C.A.), published by Thomson Reuters, and the United States Code Service (U.S.C.S.), published by LexisNexis. These are privately published editions of the U.S. Code . In addition to the text and historical source credits, such editions include annotations with further historical commentary, cross references to the Code of Federal Regulations (C.F.R.), judicial decisions or attorney general opinions interpreting the sections, and citations to secondary sources, such as law reviews and practice guides. Although these supplements can offer benefits to the researcher, it is important to remember that these versions are unofficial and should be cross-referenced to an official publication, be it the slip law, Statutes at Large, or, in the case of a positive law title, the U.S. Code. Searching the U.S. Code As previously noted, statutes are incorporated into U.S. Code to facilitate retrieval and access, because searching by subject may be easier than searching by date in some cases. However, there are a number of resources that further simplify locating information in the U.S. Code . The tools listed below are available in both print and electronically via the OLRC, unless otherwise noted. General Index The General Index is a comprehensive directory organized alphabetically by subject with the corresponding title and section listed. The General Index is only available in print format. Popular Names Table The Popular Names Table lists statutes alphabetically by their colloquial names. This can reflect the substance of the law, the sponsor(s) of the law, or any creative acronym for the law. For example, there are entries for the "Energy Policy Act," the "Dodd-Frank Wall Street Reform and Consumer Protection Act," and the "USA PATRIOT Act." The electronic version of the Popular Names Table provides the enacting public law number, Statutes at Large cite, and the U.S. Code citation. The Popular Names Table's print version published by Thomson West with the U.S.C.A. also lists all the amending laws under the enacting law. Classification Tables The Classification Tables aid researchers by indicating where enacted laws appear in the U.S. Code and which sections of the U.S. Code those laws amended. The tables will also indicate which sections of the U.S. Code were repealed, omitted, or transferred. Table I, Revised Titles Table I conveys where sections of titles enacted as positive law were incorporated into the revised title. If a section is not listed in Table I, then it was either repealed or omitted in the process of becoming positive law. Table II, Revised Statutes 1878 Table II shows where sections of the Revised Statutes of 1878 were classified into the U.S. Code . Table III, Statutes at Large If a researcher has a Statutes at Large cite and would like to know where it has been codified, Table III provides the corresponding U.S. Code section. Table IV, Executive Orders, and Table V, Proclamations Similarly, Tables IV and V indicate where a particular executive order or presidential proclamation is set out in the U.S. Code . Table VI, Reorganization Plans Likewise, Table VI lists the codification and status of reorganization plans promulgated since 1939. A reorganization plan is a proposal offered by the President to restructure or modify existing federal agencies to improve efficiency by consolidating, transferring, or eliminating certain functions. Further Information For additional information or specific questions on federal statutes, congressional clients may contact CRS. For programs offering training on statutory research, congressional clients please consult "Federal Legal Research" under the "Events" section of CRS.gov.

This report provides an overview of federal statutes in their various forms, as well as basic guidance for congressional staff interested in researching statutes. When a bill becomes a law, the newly enacted statute may amend or repeal earlier statutes or it may create a new or "freestanding" law. Either way, these new statutes are first printed individually as "slip laws" and numbered by order of passage as either public laws, or less frequently, private laws. Slip laws are later aggregated and published chronologically in volumes known as the United States Statutes at Large (Statutes at Large). Statutes of a general and permanent nature are then incorporated into the United States Code (U.S. Code), which arranges the statutes by subject matter into 54 titles and five appendices. Statutes may be updated and published as amended public laws. As the statutes that underlie the U.S. Code are revised, superseded, or repealed, the provisions of the U.S. Code are also updated to reflect these changes. In these instances, the authoritative language remains the enacting statute, or the "base law." However, some titles of the U.S. Code have been passed into "positive law," meaning the law exists as it does in the U.S. Code and the title itself is the authoritative language. In these instances, it is the U.S. Code sections that are revised, superseded, or repealed, as the underlying statutes have all been revoked. In arranging statutes by subject rather than date, the U.S. Code may be more convenient to search than the Statutes at Large. Moreover, the Office of the Law Revision Counsel publishes tools known as "Tables," to assist researchers in locating statutes, as well identifying statutes that may have been amended, omitted, transferred, or repealed. Nevertheless, certain laws are not added to the U.S. Code, such as laws appropriating funds, and thus researchers will often need to search laws in the other forms discussed herein.

Background The National Commission on Terrorist Attacks Upon the United States (the 9/11 Commission) cited breakdowns in information sharing and the failure to fuse pertinent intelligence (i.e., "connecting the dots") as key factors in the failure to prevent the 9/11 attacks. A bipartisan task force of former policy makers and senior executives described the challenge facing the government in "the new era of national security we have entered," as "the challenge of using information effectively, linking collection with sound and imaginative analysis derived from multiple perspectives, and employing cutting edge technology to support end-users, from emergency responders to Presidents. In other words, we need to mobilize information." In the 2004 Intelligence Reform and Terrorism Prevention Act (IRTPA), Congress mandated the creation of an Information Sharing Environment (commonly known as the "ISE"). Congress intended the ISE to be a "decentralized, distributed, and coordinated environment ... with 'applicable legal standards relating to privacy and civil liberties.'" The act also directed that the ISE provide and facilitate the means of sharing terrorism information among all appropriate federal, state, local, and tribal entities and the private sector through the use of policy guidelines and technologies. A Program Manager for the Information Sharing Environment (PM-ISE) was established and placed within the Office of the Director of National Intelligence (ODNI). As required by Section 1016(h) of the IRTPA, the PM-ISE submitted to Congress three annual reports on the extent to which the ISE has been implemented. The Obama Administration reaffirmed effective information sharing as a "top priority" and established within the Executive Office of the President the position of Senior Director for Information Sharing Policy. Also after 9/11, states and major urban areas established intelligence fusion centers to coordinate the gathering, analysis, and dissemination of law enforcement, homeland security, public safety, and terrorism intelligence and analysis. According to the Department of Homeland Security (DHS), this activity by fusion centers contributes to the ISE. Fusion centers have been defined as a "collaborative effort of two or more Federal, state, local, or tribal government agencies that combines resources, expertise, or information with the goal of maximizing the ability of such agencies to detect, prevent, investigate, apprehend, and respond to criminal or terrorist activity." As of December 2011, DHS notes that 72 centers are operational within the United States and its territories. DHS has supported these centers with grant funding and has assigned intelligence officers to them. Why Information Sharing? Information sharing is ... about establishing a collaborative environment with a clear purpose: ensuring that the right people have access to the right information at the right time under the right conditions to enable informed decisions. The imperative for the exchange of terrorism-related intelligence information among law enforcement and security officials at all levels of government is founded on three propositions. The first is that any terrorist attack in the homeland will necessarily occur in a community within a state or tribal area, and the initial response to it will be by state, local, and tribal emergency responders and law enforcement officials. Second, the plotting and preparation for a terrorist attack within the United States (such as surveillance of a target, acquisition and transport of weapons or explosives, and even the recruitment of participants) will also occur within communities. Every day, officers at thousands of state and local law enforcement agencies collect and document information regarding behaviors, incidents, and other suspicious activity associated with crime including terrorism. A joint study by the Departments of Justice and Homeland Security and senior law enforcement officials concluded that "[t]he gathering, processing, reporting, analyzing, and sharing of suspicious activity is critical to preventing crimes, including those associated with domestic and international terrorism." Third, "[i]nformation acquired for one purpose, or under one set of authorities, might provide unique insights when combined, in accordance with applicable law, with seemingly unrelated information from other sources." This recognizes that "relevant information comes from a much wider range of sources … and it is difficult to know a priori what information will prove relevant to analysts or useful to users. For this reason, it is necessary to create a more horizontal, cooperative, and fluid process for intelligence collection, sharing, and analysis." Or, as the 9/11 Commission concluded, "A 'smart' government would integrate all sources of information to see the enemy as a whole." Information-Sharing Systems In a nationwide survey conducted in 2006, the Justice Research and Statistics Association (JRSA) found that there are currently in place or under development 266 separate systems that share information about crime, including terrorism, at the national, regional, and state levels. The boom in the development of these systems has led to concern that "it is hard to know what information is being shared and who is sharing it. In many cases, multiple systems are being developed to cover overlapping areas." Appendix A provides a brief overview of significant information-sharing systems. Suspicious Activity Reporting Suspicious Activity Reports (SAR) contain information about criminal activity that may also reveal terrorist pre-operational planning. These reports could be based on an officer's observation of suspicious behavior, 9-1-1 calls, or other tips and leads provided to police by citizens. Many believe that the sharing of SARs among all levels of government and combining them with other intelligence information will help uncover terrorist plots within the United States. Every day, more than 800,000 police officers collect and document information regarding behaviors, incidents, and other suspicious activity associated with crime, including terrorism. "On the beat or mobile, cops are sensitive to things that do not look right or do not sound right," says one police chief. "[R]emember, it was a rookie cop on a routine check that resulted in the arrest of Eric Robert Rudolph in North Carolina despite the enormous commitment of federal resources." Oklahoma City bomber Timothy McVeigh was arrested after a traffic stop when Oklahoma State Trooper Charles J. Hanger noticed that McVeigh's yellow 1977 Mercury Marquis had no license plate. Using his home state as an example, a former U.S. Attorney maintains that "evidence of a potential terrorist threat or organized criminal enterprise is far more likely to be found in the incidental contact with the 10,000 police officers in the state of Washington than by the less than 150 FBI agents assigned to the Seattle Field Division." In addition to the arrests of Rudolph and McVeigh, state and local law enforcement officers, in the normal course of their duties, have uncovered or disrupted the following terrorist plots: The Japanese Red Army terrorist, Yū Kikumura, was arrested on April 12, 1988, at a rest stop on the New Jersey Turnpike by a state trooper who thought he was acting suspiciously. He was found carrying three 18-inch (46-cm) pipe bombs loaded with gunpowder. Prosecutors said Kikumura had planned to bomb a military recruitment office in New York City. In July 2005, two undercover police officers noticed two men acting suspiciously near a gas station in Torrance, CA. After the men robbed the gas station, they were arrested by the undercover officers. A search of the arrested men's apartment revealed that they were members of the terrorist group Jamiyyat Ul-Islan Is-Saheeh. They were planning to bomb synagogues in Los Angeles and were financing their operation through armed robberies. In August 4, 2007, two Egyptians studying in Florida were stopped by police for a traffic violation near Goose Creek, SC. They were found to have explosives in their vehicle. A subsequent investigation revealed that one of the students had made and placed on the Internet a video demonstrating how to use a doll to conceal an improvised explosive device. The student later plead guilty to "providing material support to terrorism." One major city police department commander notes that the role of police officers has evolved after 9/11. They are now also "first preventers" of terrorism, and this represents a "dramatic paradigm shift," both for the federal government and for the local and state agencies themselves. The need for intelligence information to support the police in this terrorism prevention role is considered crucial. A national information-sharing system, says a former U.S. Attorney, should also ensure that "federal agencies have access to information maintained in state and local agencies that may be pertinent to terrorist threats ... the benefit that would accrue to U.S. national security in having police records integrated in a strictly controlled fashion with sensitive federal data would be nothing short of remarkable." He cites the example of Hani Hanjoor, the hijacker who piloted American Airlines Flight 77 that crashed into the Pentagon. Six weeks prior to the 9/11 attacks, Hanjoor had been issued a speeding ticket by a local police department in the Washington, DC, area. Had a system been in place to share this information with the FBI, it may have alerted them that a suspected Al Qaeda operative was present within the National Capital Region. Also prior to September 11, 2001, local police officers made separate traffic stops of two other 9/11 hijackers—Mohammed Atta and Ziad Samir Jarrah. Like Hanjoor, both were in violation of their immigration status. There was even an outstanding arrest warrant on Atta for failing to appear on a previous traffic citation. Nationwide Suspicious Activity Reporting Initiative (NSI) The NSI is a framework to support the reporting of suspicious activity—from the point of initial observation to the point where the information is available in the information-sharing environment. It supports one of the core principles of the 2007 National Strategy for Information Sharing , that information sharing "be woven into all aspects of the counterterrorism activity, including preventive and protective actions, actionable responses, criminal and counterterrorism investigative activities, event preparedness, and response to and recovery from catastrophic events." The NSI responds to the strategy's mandate that the federal government support the development of a nationwide capacity for a standardized, integrated approach to gathering, documenting, processing, analyzing, and sharing information about suspicious activity that is potentially terrorism-related while protecting the privacy and civil liberties of Americans. According to the PM-ISE, the NSI is neither a technology nor a single, monolithic program. Rather it is a coordinated effort that integrates all SAR-related activities into a nationwide unified process. The NSI is a framework that defines the data standards, business processes, and policies that facilitate the sharing of terrorism-related SARs. NSI has been described as a partnership among federal, state, local, tribal, and territorial law enforcement that establishes a national capacity for gathering, documenting, processing, analyzing, and sharing SAR information—also referred to as the SAR process—in a manner that rigorously protects the privacy and civil liberties of Americans. According to the 2010 Nationwide SAR Initiative Annual Report, 29 fusion centers had implemented the NSI process and achieved operational status, with another 30 fusion centers in progress as of March 2011. The NSI also differs from data mining programs. Data mining entails the search of numerous commercial or government data sets that contain data—the vast majority of which documents legal activity. Mathematical algorithms are then used to identify data trends that can be examined as predictors of criminal activity. The NSI establishes a federated search capability that requires the articulation of some type of criminal or law enforcement predicate before permitting a search of repositories consisting of documented events that are themselves considered reasonably indicative of criminal activity. Given the controversies surrounding various data mining programs, this difference may be a salient issue in terms of public acceptance of the NSI program. In December 2008, a concept of operations for the NSI program was published that describes the roles, missions, and responsibilities of NSI participating agencies and the top level NSI governing structure. A comprehensive overview of the operational steps of the nationwide SAR cycle grouped into five business process activities—planning, gathering and processing, analysis and production, dissemination, and reevaluation—is shown in Figure 1 . The intended operational steps of the cycle can be described simply: When a police officer detects suspicious activity that might be terrorist related, he or she documents that activity in a SAR. That report is reviewed within the officer's chain of command. Once vetted, it is submitted to a state/local fusion center, where it is reviewed by a trained intelligence analyst to determine whether it meets the established SAR criteria. If so, the report is entered into the information-sharing environment, where it becomes accessible to authorized agencies at all levels of government and available for analysis and fusion with other intelligence information. Privacy and Civil Liberties Implications According to the commander responsible for the Los Angeles Police Department (LAPD) SAR program, a suspicious activity reporting program should be "built upon behaviors and activities that have been historically linked to preoperational planning and preparation for terrorist attacks." Appropriately managed, a SAR program "takes the emphasis off the racial or ethnic characteristics of individuals and places it on detecting behaviors and activities with potential links to terrorism related criminal activity." Some observers, however, are concerned that many behaviors that the police observe, and then use to judge whether the behaviors might be precursors to terrorism, are often entirely innocent and perfectly legal. Consider the following behaviors derived from the LAPD list of SAR "suspect actions": Uses binoculars or cameras. Takes measurements. Takes pictures or video footage. Draws diagrams or takes notes. Pursues specific training or education that indicate suspicious motives (flight training, weapons training, etc). Espouses extremist views. The American Civil Liberties Union (ACLU) argues that "[m]ost people engage in one or more of these activities on a routine, if not daily, basis." They fear that "overbroad reporting authority gives law enforcement officers justification to harass practically anyone they choose, to collect personal information, and to pass such information along to the intelligence community." The Center for Democracy and Technology (CDT) is concerned that "there is a trend toward the collection of huge quantities of information with little or no predicate through SARs. There seems to us a high risk that this information will be misinterpreted and used to the detriment of innocent persons." In support of this contention, both the ACLU and CDT cite a case reported by the Baltimore Sun in July 2008: "Undercover Maryland State Police officers [in 2005 and 2006] ... sent covert agents to infiltrate the Baltimore Pledge of Resistance, a peace group; the Baltimore Coalition Against the Death Penalty; and the Committee to Save Vernon Evans, a death row inmate." The police "also entered the names of some in a law-enforcement database of people thought to be terrorists or drug traffickers." According to files obtained by the ACLU through a Maryland Information Act lawsuit, "none of the 43 pages of summaries and computer logs—some with agents' names and whole paragraphs blacked out—mention criminal or even potentially criminal acts, the legal standard for initiating such surveillance." A challenge for the NSI is how to achieve law enforcement and intelligence objectives while ensuring privacy and civil liberties protections for American citizens. For example, all of the behaviors listed by the LAPD could be potential indicators of terrorist planning and preparation. But such behaviors could also be innocent and legal activities. Carefully articulating what activity crosses the threshold into reportable suspicious activity is seen as a necessary step to ensuring the protection of privacy and civil liberties. The NSI has endeavored to address these issues. Agencies participating in the NSI are required to implement a privacy policy that is at least as comprehensive as the policy elaborated within the ISE Privacy Guidelines and that includes a SAR provision. Likewise, all fusion centers have similar protections. ISE SAR Functional Standard Also in an effort to address civil liberties issues associated with the NSI, the PM ISE published a ISE SAR Functional Standard , which describes the structure, content, and products associated with processing, integrating, and retrieving SARs by participating agencies. It is specifically intended to establish a structured environment to reduce inappropriate police data gathering and support the training of law enforcement personnel so that they can better distinguish between behavior that is legal or constitutionally protected and that which is potentially associated with criminal activity. It establishes threshold criteria for what suspicious activity will be considered as having a nexus to terrorism and establishes a process to determine whether reports of that activity meet the criteria for being entered into the ISE as a SAR. The 2010 Nationwide SAR Initiative Annual R eport states: The current ISE-SAR Functional Standard reinforces constitutional standards, including the protection of rights guaranteed by the First Amendment and limitations on the use of certain factors—race, ethnicity, national origin, or religious affiliation—in the gathering, collecting, storing, and sharing of information about individuals. As a result of input from privacy advocates, the standard also includes reliability indicators. Through the use of Information Exchange Package Documentation ... the Functional Standard allows the originating agency to include or not include fields that contain personal information, based upon the agency's rules and policies. In 2008, the PM ISE completed a report that examined the potential impact of the ISE SAR Functional Standard on the privacy and other legal rights of Americans, how it will be evaluated in a limited operational environment, and articulated the measures that will be established to protect privacy and civil liberties. Subsequently, the Office of the PM-ISE engaged with various stakeholders, including privacy and civil liberties groups such as the ACLU, CDT, and the Freedom and Justice Foundation, as it developed and refined SAR-related operational processes and training. In May 2009, the suggestions of these groups as well as state and local law enforcement agencies were incorporated into a revised version of the ISE SAR Functional Standard . Among the changes in the revision (Version 1.5) were the following: Refines the definition of "suspicious activity," as "observed behavior reasonably indicative of pre-operational planning related to terrorism or other criminal activity." Further emphasizes a behavior-focused approach to identify suspicious activity and requires that factors such as race, ethnicity, national origin, or religious affiliation should not be considered factors that create suspicion. Refines the guidance to distinguish between Defined Criminal Activity and Potentially Criminal or Non-Criminal Activity requiring additional factual information before investigation. Clarifies those activities that are generally First Amendment-protected and should not be reported in a SAR absent articulable facts and circumstances that support the source agency's suspicion that the behavior observed is reasonably indicative of criminal activity associated with terrorism. In a press release following publication of Version 1.5, the ACLU National Security Policy Counsel noted that [t]he revised guidelines for suspicious activity reporting establish that a reasonable connection to terrorism or other criminal activity is required before law enforcement may collect Americans' personal information and share it within the ISE. These changes to the standard, which include reiterating that race cannot be used as a factor to create suspicion, give law enforcement the authority it needs without sacrificing the rights of those it seeks to protect. To bolster these efforts, NSI PMO developed the document "Vetting ISE-SAR Data: A Pathway to Ensure Best Practices." It articulates guidance for fusion center analysts on how to vet SAR information, provides compliance with the ISE-SAR Functional Standard v. 1.5. Also, according to the PM-ISE, for reported activity to make its way into a SAR, the activity "must conform to one or more of the criteria identified in Part B of the ISE-SAR Functional Standard." Community Outreach Two projects related to community outreach and associated with the NSI have emerged. These have endeavored to connect private citizens to the SAR process. Building Communities of Trust Initiative (BCOT) In recognition that NSI's success depends on partnership with local communities, the Building Communities of Trust Initiative (BCOT) was developed by DOJ and DHS. It resulted in guidance for the development of trust among three sets of actors—fusion centers, law enforcement, and the communities in which they operate. All of these actors have a stake in the production of SARs. These recommendations included items such as training of fusion center analysts in cultural sensitivity so that they can distinguish behavior that is constitutionally protected from criminal or terrorist activity; encouraging law enforcement to "embrace" community policing by "emphasizing partnerships and problem solving"; and encouraging communities to view information sharing with fusion centers and law enforcement as key to crime prevention and counterterrorism. "If You See Something, Say Something™" Campaign In July 2010, DHS launched its national "If You See Something, Say Something™" campaign. It is meant to "raise public awareness of indicators of terrorism and terrorism-related crime and to emphasize the importance of reporting suspicious activity to the proper transportation and law enforcement authorities." DHS has tied the campaign to NSI as a way of emphasizing community awareness regarding terrorism. NSI Shared Space Architecture NSI participants can make their SARs available within the NSI federated search via two methods. They can install "an NSI-provided server that leverages an existing legacy computer-aided dispatch … system or records management system…." Alternatively, they can create an eGuardian account to disseminate SARs. Via this architecture, law enforcement agencies can share information without having to open up their own internal databases to outside users. Simultaneously, law enforcement agencies control their own information and determine what they want to share. This shared space architecture also allows participants to search existing SARs via the NSI Federated Search. NSI participants can access the NSI Federated Search through either the Regional Information Sharing Systems® Secure Intranet (RISSNET™) or Law Enforcement Online (LEO). Eventually, participants will be able to access the search through the Homeland Security Information Network portal geared toward law enforcement. The Federated Search is represented as the "Entry point into ISE Shared Spaces Environment" in Figure 2 . The FBI's eGuardian system is a node within the ISE Shared Spaces environment. On the surface, it would appear that the existing eGuardian capability duplicates the NSI—or at least NSI's shared spaces concept. But it should be noted that the NSI is an overall framework for a SAR process that includes policies, governance, procedures, training, and information technology (IT) architecture, whereas eGuardian is a specific technology for terrorism-related information sharing. Under NSI, eGuardian can remain the technology that FBI uses to supply data to and access data from the ISE Shared Spaces environment. Likewise, fusion centers or state and local governments may, if they wish, use eGuardian as a gateway to and from the shared spaces. However, some law enforcement agencies may choose, or are legislatively mandated, to maintain a repository of their own data and to control what data is shared with whom based on statutory criteria. Consistent with the requirement in the IRTPA for a "decentralized, distributed, and coordinated" information-sharing environment, the NSI shared spaces architecture allows state, local, and tribal agencies to maintain control of their own data. Training The training regimen that has been established for the NSI has three levels. At one level, the SAR process training involves briefings for law enforcement executives regarding "executive leadership, policy development, privacy and civil liberties protections, agency training, and community outreach." Another level—the SAR Analytic Role Training—is directed at those involved in analyzing SAR information, "ensuring that SARs are properly reviewed and vetted is critical to promoting the integrity of information submitted; protecting citizens' privacy, civil rights, and civil liberties; and successfully implementing the SAR process." The analytic training revolves around teaching analysts and investigators "to recognize terrorism-related pre-incident indicators and to validate—based on a combination of knowledge, experience, and available information—whether the behavior has a potential nexus to terrorism and meets criteria for submission." The final level—Line Officer Training―focuses on frontline law enforcement personnel. They are trained to "recognize behavior and incidents that may indicate criminal activity associated with terrorism." As of October 2011, more than 160,000 law enforcement officers received SAR training. According to the 2010 Nationwide SAR Initiative Annual Report , training for two additional groups is also necessary. The first of these groups includes public safety/justice professionals involved in fire service, emergency medical service, emergency management, and corrections, as well as probation and parole officers. The second group consists of private-sector owners, operators, and protectors of critical infrastructure. The NSI Pilot Project In 2007, the Office of the PM-ISE funded a pilot effort called the "ISE-SAR Evaluation Environment" (ISE-SAR EE) to evaluate the feasibility of the NSI for the sharing of terrorism-related SARs. Program management services for the project were provided by DOJ's Bureau of Justice Assistance (BJA) with the support of the Global Justice Information Sharing Initiative. The ISE-SAR EE sought to develop and implement consistent national policies, processes, and best practices among the federal, state, local, and tribal partners in the NSI initiative. System evaluations and training activities were conducted at three state and nine urban fusion center pilot sites. That evaluation program concluded on September 30, 2009. There were two specific activities of note within the ISE-SAR EE. First, the project team furnished and tested the "shared spaces" concept. Second, a pilot training program was developed for the thousands of state and local law enforcement officers to assist them in the detection, identification, and reporting of suspicious activity in a way that supports the analysis and fusion of such reports into actionable intelligence while protecting privacy and civil liberties. ISE-SAR EE Final Report Key Recommendations In January 2010, the final report of the ISE-SAR EE provided a number of key recommendations. These include securing the support of executive leadership within agencies involved in the SAR process. According to the final report, agencies should form their own unique policies and procedures regarding SARs while folding in a common set of processes across participating agencies. Agencies should maintain privacy frameworks consistent with the ISE Privacy Guidelines. The final report also emphasizes the importance of effectively deploying technology, of offering training, and of outreach to build public, private sector, and law enforcement awareness of the SAR process. Formation of a Program Management Office In March 2010, a Program Management Office (PMO) was established within the BJA "to facilitate the implementation of the NSI across all levels of government." The PMO's purpose is largely to "assist agencies with adopting compatible processes, policies, and standards that foster broader sharing of SARs, while ensuring that privacy, civil rights, and civil liberties are protected." The PMO plays an advocacy role for the NSI. It guides participating agencies at all levels and also coordinates NSI efforts. The PMO has also highlighted the importance of privacy and civil liberties issues by working with the DOJ Privacy and Civil Liberties Office. Issues for Congress Too Many "Dots" The NSI is designed to increase the amount of information—the intelligence "dots"—that will flow from state, local, and tribal law enforcement agencies to the federal government. The goal of "connecting the dots" becomes more difficult when there is an increasingly large volume of "dots" to sift through and analyze. Because the NSI would establish mechanisms for—and indeed promote—the widespread reporting and sharing of data by numerous federal, state, and local agencies, some have expressed concerns about the risk of "'pipe clogging' as huge amounts of information are ... gathered without apparent focus." In an October 2007 report, the Government Accountability Office (GAO) identified a related challenge. When "identical or similar types of information are collected by or submitted to multiple agencies, integrating or sharing this information can lead to redundancies." The GAO found "that in intelligence fusion centers, multiple information systems created redundancies of information that made it difficult to discern what was relevant. As a result, end users were overwhelmed with duplicative information from multiple sources." A challenge for the NSI is the extent to which the program will result in an avalanche of largely irrelevant or duplicative data while diverting the police from more productive law enforcement activities. For example, in a 40-month period before the ISE-SAR EE pilot program, the FBI documented approximately 108,000 potential terrorism-related threats, reports of suspicious incidents, and terrorist watchlist encounters. Congress may be interested in how a future SAR Program Management Office intends to address this problem—specifically, which agency or agencies will be responsible for quality control of SARs to prevent system overload from irrelevant or redundant ones and to ensure that the SARs that are entered into the shared space environment adhere to privacy and civil liberties standards. Data Privacy and Access To achieve information-sharing objectives, government agency partners need to establish wide-scale electronic trust between the caretakers of sensitive information and those who need and are authorized to use that information. The Markle Task Force on National Security in the Information Age, maintains that [i]n an effective information sharing framework, information is not simply shared without restraint ... information sharing will succeed only if accompanied by government-wide policy guidelines and oversight to provide robust protections for privacy and civil liberties ... [i]ts governance should require a user to provide a predicate in order to access data under an authorized use standard. To establish a predicate, an analyst seeking information would need to state a mission- or threat-based need to access the information for a particular purpose." To accomplish this, proponents say that fusion centers must acquire a federated capability for identity and privilege management that securely communicates a user's roles, rights, and privileges to ensure network security and privacy protections. The two elements of this are identification/authentication—the identity of end users and how they were authenticated—and privilege management—the certifications, clearances, job functions, and organizational affiliations associated with end users that serve as the basis for authorization decisions. In order to protect sensitive data and the privacy of Americans, Congress may wish to examine the NSI policies that will govern data privacy and access to data within the ISE Shared Spaces environment. Information Technology (IT) Infrastructure The success of the NSI is dependent on an IT infrastructure that enables state and local fusion centers to have access to each other's information as well as to the appropriate federal databases. Under the "shared space architecture" concept, fusion centers replicate data from their systems to an external server under their control. A secure portal is then created that allows simultaneous searching of all such databases so that fusion centers will be able to aggregate any relevant information that exists throughout the network. To connect into the system, a fusion center requires a server and software to translate data from whatever case management or intelligence system it uses to a separate database on the server. Expenses for this IT infrastructure may exceed the funds that states and cities will allocate for their fusion centers from the State Homeland Security Program (SHSP) or Urban Area Security Initiative (UASI). Congress may wish to consider ways to provide funding to fusion centers for this purpose. Metrics One of the biggest challenges facing policy makers is how to determine whether the NSI program is successful: Are the number of SARs produced or the number of SARs shared relevant metrics? How does one know if the SARs that are produced and shared under the program are actually meaningful intelligence "dots?" How does one determine if the right "dots" are being connected? Congress may wish to ask the NSI PMO about metrics to measure the success of the NSI program. Appendix A. Significant Information-Sharing Systems Law Enforcement Online (LEO) Established prior to the 9/11 attacks, LEO is a secure, Internet-based communications portal for law enforcement, first responders, criminal justice professionals, and anti-terrorism and intelligence agencies around the globe. Managed by the FBI's Criminal Justice Information Services Division, LEO catalyzes and strengthens collaboration and information-sharing by providing access to sensitive but unclassified information and various state-of-the-art communications services and tools. It is available around the clock and is offered free of charge to members of the criminal justice and intelligence communities, as well as military and government agencies associated with infrastructure protection in the United States. Regional Information Sharing Systems Program (RISS) Also established prior to the 9/11 attacks, RISS is a national network of six multistate centers designed to operate on a regional basis. It is federally funded and administered by DOJ's Bureau of Justice Assistance (BJA). RISS supports law enforcement efforts nationwide to combat illegal drug trafficking, identity theft, human trafficking, violent crime, and terrorist activity, and to promote officer safety. The regional centers provide member law enforcement agencies with a broad range of intelligence exchange and related investigative support services. RISS operates a secure intranet, known as RISSNET™, to facilitate law enforcement communications and information sharing nationwide. Homeland Security Information Network (HSIN) After the 9/11 attacks, DHS established the HSIN, a secured, Web-based platform for sensitive but unclassified information sharing and collaboration between federal, state, local, tribal, private sector, and international partners. The HSIN platform was created to interface with existing information-sharing networks to support the diverse communities of interest engaged in preventing, protecting from, responding to, and recovering from all threats, hazards, and incidents under the jurisdiction of DHS. There are five community of interest portals on HSIN: Emergency Management, Critical Sectors, Law Enforcement, Multi-Mission Agencies, and Intelligence and Analysis. HSIN provides real-time, interactive connectivity between states and major urban areas and the 24/7 DHS operations center—the National Operations Center (NOC). The HSIN-Intelligence portal provides state, local, and tribal officials with access to unclassified intelligence products. Classified intelligence products are provided to state and local fusion centers that have the appropriate security infrastructure through the Homeland Security Data Network (HSDN). Through HSDN, users can access collateral Secret-level terrorism-related information including products from the National Counterterrorism Center's (NCTC) NCTC Online . Law Enforcement Information Sharing Program (LEISP) After 9/11, DOJ initiated the LEISP to foster the sharing of information across jurisdictional boundaries to prevent terrorism and to systematically improve the investigation and prosecution of criminal activity. Two significant systems under the LEISP are described below: OneDOJ System This system is a repository of data from DOJ law enforcement components (Bureau of Alcohol, Tobacco, Firearms, and Explosives; Bureau of Prisons; Drug Enforcement Administration; FBI; and the U.S. Marshals Service) that enables the sharing of investigative information within the department. It is hosted at the FBI's Criminal Justice Information Services (CJIS) data center. External sharing is accomplished through bilateral partnerships with designated regional, state, or federal sharing initiatives. These partnerships allow non-DOJ users to access OneDOJ data from within their own systems and vice-versa. However, data are not contributed by external partners to the OneDOJ system. Law Enforcement National Data Exchange (N-DEx) N-DEx is intended to facilitate the sharing of information across jurisdictional boundaries and to provide new investigative tools that enhance the nation's ability to fight crime and terrorism. Its proposed services and capabilities would allow participating agencies to detect relationships between people, places, things, and crime characteristics; to link information across jurisdictions; and to "connect the dots" between apparently unrelated data without causing information overload. FBI Terrorist Threat Information Tracking Systems After 9/11, the FBI established two programs for the tracking, analysis, and sharing of information about terrorism threats: Guardian Guardian is described as a classified information technology system that allows the FBI to collect and review reports of suspicious activity in an organized way to determine which ones warrant additional investigative follow-up. The primary purpose is not to manage cases, but to facilitate the reporting, tracking, and management of threats to determine within a short time span whether a particular matter should be closed or referred for an investigation. Guardian's database can be searched by FBI employees and certain other government agency partners thus providing a capability to analyze threat information for trends and patterns. eGuardian A companion system to Guardian is eGuardian . It is an unclassified system designed to enable near real-time sharing and tracking of terrorist information and suspicious activity with federal, state, local, and tribal agencies. Unclassified information from the Guardian system that appears to have a potential nexus to terrorism is to be passed down to eGuardian , where it will be available for viewing by those members of state, local, and tribal law enforcement and representatives of other federal law enforcement agencies that have been given permission to access the system. It is also intended to serve as the mechanism for the electronic transmittal of leads by state, local, and tribal agencies to the JTTF's. FBI has made eGuardian available on its secure LEO Internet portal, allowing more than 18,000 agencies to run searches and input their own reports. Appendix B. Acronyms Used in This Report

The 2004 National Commission on Terrorist Attacks Upon the United States (the 9/11 Commission) cited breakdowns in information sharing and the failure to fuse pertinent intelligence (i.e., "connecting the dots") as key factors in the failure to prevent the 9/11 attacks. Two of the efforts undertaken since 2001 to tackle these issues included Congress mandating the creation of an information-sharing environment (commonly known as the "ISE") that would provide and facilitate the means of sharing terrorism information among all appropriate federal, state, local, and tribal entities and the private sector through the use of policy guidelines and technologies. States and major urban areas establishing intelligence fusion centers to coordinate the gathering, analysis, and dissemination of law enforcement, homeland security, public safety, and terrorism intelligence and analysis. The imperative for the exchange of terrorism-related intelligence information among law enforcement and security officials at all levels of government is founded on three propositions. The first is that any terrorist attack in the homeland will necessarily occur in a community within a state or tribal area, and the initial response to it will be by state, local, and tribal emergency responders and law enforcement officials. Second, the plotting and preparation for a terrorist attack within the United States (such as surveillance of a target, acquisition and transport of weapons or explosives, and even the recruitment of participants) will also occur within local communities. Third, "[i]nformation acquired for one purpose, or under one set of authorities, might provide unique insights when combined, in accordance with applicable law, with seemingly unrelated information from other sources." Suspicious Activity Reports (SARs) contain information about criminal activity that may also reveal terrorist pre-operational planning. Many believe that the sharing of SARs among all levels of government and the fusing of these reports with other intelligence information will help uncover terrorist plots within the United States. The Nationwide SAR Initiative (NSI) is an effort to have most federal, state, local, and tribal law enforcement organizations participate in a standardized, integrated approach to gathering, documenting, processing, and analyzing terrorism-related SARs. The NSI is designed to respond to the mandate of the Intelligence Reform and Terrorism Prevention Act of 2004 (P.L. 108-458), for a "decentralized, distributed, and coordinated [information sharing] environment ... with 'applicable legal standards relating to privacy and civil liberties.'" This report describes the NSI, the rationale for the sharing of terrorism-related SARs, and how the NSI seeks to achieve this objective. It examines the privacy and civil liberties concerns raised by the initiative and identifies other oversight issues for Congress.

Overview All unemployment benefits including regular state Unemployment Compensation (UC), extended benefits (EB), Trade Adjustment Assistance (TAA), Disaster Unemployment Assistance (DUA), and railroad unemployment benefits are potentially subject to the federal income tax. For income tax purposes, all temporary benefits, such as the Emergency Unemployment Compensation (EUC08) benefits, are also included within this category. This tax treatment, which has been in place since 1987, puts all unemployment benefits on an equal basis with wages and other ordinary income with regard to income taxation. Unemployment benefits are not subject to employment taxes, including Social Security and Medicare taxes, because the benefits are not considered to be wages. In addition to being subject to federal income taxes, in most states that have an income tax, unemployment benefits are taxed. Most other industrial nations also tax unemployment benefits. State UC agencies must give UC beneficiaries the opportunity to elect federal income tax withholding at the time the claimant first files for UC benefits. Benefit claimants wishing to have federal income tax withheld from their UC benefits must file form W-4V, Voluntary Withholding Request . The current withholding rate for federal income tax is 10% of the gross UC benefits payment. Federal law does not require that states offer state income tax withholding to UC beneficiaries, although many do offer such services. Beneficiaries may opt to pay quarterly estimated taxes if a state does not offer state income tax withholding. Impact of Taxing Unemployment Benefits Table 1 shows the number of federal income tax returns that reported unemployment benefits and the amount of unemployment benefits for tax years 1998 through 2013. The increases in the number of tax returns claiming unemployment benefits as income filed in 2001 through 2003 are attributable to the 2001 economic recession and the policy responses, including the temporary extension of unemployment benefits (the Temporary Emergency Unemployment Compensation program, TEUC) and providing additional benefits for individuals affected by the 2001 terrorist attack. The most recent recession that began in December 2007 is reflected in the sharp increases in 2008 and 2009 tax returns with an estimated additional 3.7 million tax returns claiming unemployment benefits as income in 2009 as compared with tax filings for 2007. This increase was attributable to higher levels of unemployment as well as the availability of additional weeks of unemployment benefits via the temporary Emergency Unemployment Compensation program (EUC08, P.L. 110-252 , as amended). For tax year 2009, the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 §1007) excluded the first $2,400 from income taxes. Thus, the number of persons who had reportable unemployment insurance income was less than it would have otherwise been. This meant that the amount of unemployment benefits reported as income for tax purposes in 2009 was less than it would have otherwise been under the permanent law income tax treatment of unemployment compensation. The difference in the number of taxpayers reporting UC income in tax year 2010 as compared with 2009 was large, with an additional 3.6 million returns in 2010. The difference in returns was attributable to both the increase of potential weeks of EUC08 benefits available in 2010 ( P.L. 111-92 , enacted in November 2009) and the termination of the exclusion of the first $2,400 of UC income from income tax calculations. Nationally, the number of unemployed persons began to decrease in 2011 and as a result this triggered a decrease in the number of weeks available for some extended unemployment benefits (EB and EUC08) as both programs incorporated automatic reduction mechanisms based upon unemployment rates. These reductions in the number of persons receiving benefits and the potential number of weeks of unemployment benefits were reflected in the decreased number of returns reporting unemployment benefits as well as reported amount. By 2013, the number of returns containing UC income had decreased to 9.3 million, the lowest level since 2007. Typically, the loss of a job, even with unemployment benefits, results in a decline in earned income and often in total income. Unemployment benefits are not considered earned income for purposes of computing the earned income tax credit, and the earned income tax credit is not available if adjusted gross income (AGI) exceeds a certain level or if investment income (interest, dividends, and capital gains distributions) exceeds a certain level. Table 2 shows the most recent Congressional Budget Office (CBO) estimates of the effect of taxing unemployment compensation at various income levels. Families that reported an income of less than $10,000 in 2005 received an estimated $1.8 billion in UC benefits but only paid $6 million in taxes on those benefits. In comparison, families reporting an income between $50,000 and $100,000 received an estimated $7.3 billion in unemployment benefits and paid $1.2 billion in taxes on those benefits. Legislative History Before 1979, UC benefits were not subject to the federal income tax. In the Revenue Act of 1978 ( P.L. 95-600 ), UC benefits were made partially taxable for benefits received after December 31, 1978. Benefits were taxable only for tax filers whose AGI exceeded $20,000 (single filers) or $25,000 (joint filers). Taxation was applied to the lesser of (1) UC benefits or (2) one-half of AGI (with UC benefits included) in excess of the above-mentioned AGI thresholds. During the 1970s, some policy studies had shown that the proportion of wages replaced by UC benefits on an after-tax basis was large enough to erode a claimant's work incentive. Taxation of UC benefits served to reduce the degree of after-tax wage replacement and reduce the work disincentive effect. However, UC benefits of lower-income claimants remained untaxed because their total income was under the tax threshold (i.e., their standard deduction and personal exemptions offset their income). In 1982, Congress lowered the AGI thresholds for taxation of UC benefits. The Tax Equity and Fiscal Responsibility Act of 1982 ( P.L. 97-248 ) reduced those thresholds to $12,000 for single filers and $18,000 for joint filers. A primary motivation of this legislation was to raise revenue, but it left in place a policy of protecting lower-income claimants from taxation of UC benefits. Congress made UC benefits fully taxable in the Tax Reform Act of 1986 ( P.L. 99-514 ), effective for benefits received after December 31, 1986. Although this action reversed the original policy of taxing UC benefits only above an AGI threshold, it occurred in the context of a law that removed many low-income filers from the tax rolls, lowered the marginal tax rates for the majority of taxpayers, and expanded eligibility for the earned income credit. The rationale for full taxation of UC benefits was to treat UC benefits the same as wages and to eliminate the work disincentive caused by favorable tax treatment for UC benefits relative to wages. Concern about claimants' cash flow problems caused by the lack of tax withholding from UC benefits arose during the 1990-1991 recession. P.L. 102-318 required states to inform all new claimants of their responsibility to pay income tax on UC benefits and to provide them with information on how to file estimated quarterly tax payments. In 1994, P.L. 103-465 required states to withhold federal income tax from UC benefits if a claimant requested withholding, and permitted states to withhold state and local income taxes. P.L. 103-465 set the federal withholding rate at 15% of the gross benefit payment amount. The federal withholding rate was changed to 10% by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ) effective August 7, 2001. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 §1007) included a temporary exclusion on the first $2,400 of UC benefits for the purposes of the federal income tax. This exclusion applied only for the 2009 tax year. The Joint Committee on Taxation estimated that this exclusion would reduce federal receipts by approximately $4.7 billion. As of the date of this report, no relevant legislation in the current Congress has been introduced.

Unemployment compensation (UC) benefits have been fully subject to the federal income tax since the passage of the Tax Reform Act of 1986 (P.L. 99-514). Under tax law, unemployment compensation is a broad category that includes regular state UC benefits, Extended Benefits (EB), Trade Adjustment Assistance (TAA) benefits, Disaster Unemployment Assistance (DUA), and railroad unemployment benefits, as well as the now expired Emergency Unemployment Compensation (EUC08) benefits. Individuals who receive UC benefits during a year may elect to have the federal (and in some cases state) income tax withheld from their benefits. UC benefits are considered income and may be subject to federal income tax. This report provides an overview of the taxation of UC benefits and legislation related to taxing UC benefits.

Background The Major Research Equipment and Facilities Construction (MREFC) account of the National Science Foundation (NSF) was established in FY1995 and supports the acquisition, construction, and commissioning of major research facilities and equipment that are to extend the boundaries of science and engineering. Major research facilities are complex in their design, construction, and operation and require a large investment over a limited period of time. Examples of some of the funded projects include telescopes, research vessels, accelerators, networked high-tech research platforms, advanced computing resources, astronomical observatories, and earthquake simulators. These complex projects sometimes involve the participation of international partners. Currently, the NSF provides approximately $1.0 billion annually in support of facilities and other infrastructure projects. The funding for construction of individual facilities ranges from several tens of millions to hundreds of millions of dollars. Additional funding is required annually for operation, maintenance, upgrades, and retooling of the facilities. With the significant exception of research facilities in the Antarctic, the NSF does not directly design or operate research facilities. Rather, it makes awards to other organizations, such as universities, consortia of universities, or nonprofit organizations, which have the responsibility of construction, operation, and management. The NSF enters into cooperative agreements with these external entities, and has the final responsibility for oversight of the development, management, and performance of the facilities. During the past few years, NSF's portfolio of facilities has expanded and diversified to include complex multidisciplinary projects and distributed projects. Because these major facility projects are multi-year, their accounting, management, and oversight require more complexity and detail than the traditional average grant award. There are concerns from Congress and from some in the academic and scientific community about the adequacy of the planning and management of NSF facilities. Discussions have focused on how major facility projects are selected for funding. Other questions have centered on the types of costs to be funded through the MREFC account and NSF personnel involved in major facility projects. In the FY2002 budget submission, President Bush directed the NSF to develop clearer policies and procedures for managing all aspects of large facility projects, including funding controls and effective project management. The FY2002 budget document, A Blue Print for New Beginnings: A Responsible Budget for America's Priorities , directed that "NSF will develop a plan to enhance its capability to estimate costs and provide oversight of project management and construction. This plan should help ensure that NSF is able to meet and stick to cost and schedule commitments for major facility projects." Definition of a Major Research Facility The MREFC is an agency-wide capital asset account that funds major science and engineering infrastructure projects that cost more than one program's budget could support. Major research facility projects are defined as those awards made for establishing and/or operating a major tool or facility that will potentially benefit a community of researchers and/or educators. A project should "offer the possibility of transformative knowledge and the potential to shift existing paradigms in scientific understanding, engineering processes and/or infrastructure technology." A research facility is considered "major" if its total cost of construction and/or acquisition constitutes an investment that is more than 10% of the annual budget of the sponsoring directorate or office. The majority of large facility projects are funded through the MREFC, but some also receive support through the Research and Related Activities Account (RRA). Congressional Hearing on Planning and Management Issues On September 6, 2001, the House Committee on Science, Subcommittee on Research, held a hearing on planning and management issues associated with major research facilities at the NSF. These hearings resulted from concerns expressed by some in the academic and scientific community and in Congress about the management and oversight of major projects selected for construction and the need for prioritization of potential projects funded in the MREFC. In testimony before the Subcommittee on Research, then NSF Director Rita R. Colwell stated that the draft of the Large Facility Projects Management and Oversight Plan codifies practices already in place and develops new guidelines for oversight of financial and business functions. She responded to criticism that the lines of authority for project management included in the draft plan were ambiguous and that those with oversight functions for the projects were program officers who may not have the expertise necessary for overseeing a complex project. The Plan established a new position—Deputy Director for Large Facility Projects. Under the Plan , the Deputy Director would be responsible for implementing and managing guidelines and procedures for facility management and oversight, maintaining lines of authority for facility management, and providing project management training for NSF staff engaged in large facility projects. There has been considerable debate concerning the selection of major research facility projects for funding. In testimony before the Subcommittee on Research, Anita K. Jones, then Vice Chair, National Science Board (NSB), stated that because not all facilities can be built at the time they are considered, the NSB established guidelines for approving major facility projects. She emphasized that there is a prioritization process for selecting major projects, one that involves the NSF and the community, with the NSB actually making the priority decisions. The NSB, she asserted, reviews the need for the facility, the research that will be enabled, the readiness of plans for construction and operation, construction budget estimates, and operations budget estimates before making its decisions. Another issue brought before the subcommittee was that of maintaining distinct records of spending activities in the MREFC. Subcommittee members questioned the types of costs to be funded through the MREFC account because the differentiation between construction and operation is not always clearly defined. The Subcommittee noted that internal mechanisms needed to be created in order to prevent the combining of MREFC and RRA funds. Audit of Funding for Major Research Equipment and Facilities In May 2002, the NSF's Office of Inspector General (OIG) released a draft report, Audit of Funding for Major Research Equipment and Facilities . The report noted that the current policy for major research equipment and facilities projects is limited to only the MREFC and does not include major facilities for other programs in NSF. In addition, the existing guidelines stipulate a single financial review and do not offer directives on how the review should be conducted. Also, according to the audit, the current policies did not provide direction to NSF program mangers on how to address the problem of potential cost overruns. While federal guidelines require that the total cost of major research facilities be tracked through all stages of a project, NSF's policies and procedures did not provide full accounting costs in its financial reports in accordance with federal standards. Because of NSF's inconsistencies in tracking costs and funding sources of its major research facilities, the OIG recommended that NSF revise its policies and procedures by complying with the directives that were detailed in the FY2002 appropriation bill. Congressional Activity In June 2002, Congress requested the National Academy of Sciences (NAS) to review NSF's management of its large facility projects. The study began in February and examined how the NSF sets priorities in determining which competing projects to fund, and offered recommendations on how to strengthen the process. The recommendations are contained in a January 2004 report prepared jointly by the NSB and the NSF— Setting Priorities for Large Research Facility Projects Supported by the National Science Foundation. At an October 2004 meeting of the NSB, the NSF was directed to begin implementation of the proposed large facility project review and prioritization process outlined in the report. The report revealed that in addition to there being a backlog of approved but unfunded projects, there was a lack of support for disciplines conducting idea-generating activities, and a lack of funding for conceptual development, planning, and design. On March 8, 2012, the House Subcommittee on Research and Science Education held a hearing on the management and accountability concerns being raised relative to MREFC at NSF. Testifying at the hearing was Jum Yeck, Project Director for IceCube, a MREFC facility. Yeck stated that the management of large facilities continues to evolve and improve; that the rules are "stabilizing"; and that considerably more confidence is being voiced in its management practices. He also stated that the director of any project ensures that proper project management and reporting systems are implemented. Also testifying was Cora B. Marrett, Deputy Director, NSF. Marrett reiterated that the NSB provides oversight during the complete life-cycle process for planning, constructing, operating, and possibly terminating support for a particular facility. This oversight occurs while simultaneously providing guidance between the balance for investments in research infrastructure and support for other NSF programs and activities. Marrett further explained the importance and necessity for external review committees to evaluate management capabilities and the need for investment in effective management techniques. She stated that Project Management Control Systems are essential for determining the project's technically limited construction schedule and the associated funding profile, and so that, once in construction, the project manager can effectively ascertain technical and financial status, obtain a detailed picture of risks and contingency usage, and provide the necessary transparency to the agency needed to carry out an effective oversight role. Planning and Management Issues The March 2011 report, Large Facilities Manual, details the procedures by which large facility research projects advance through a multi-phase internal and external review and approval process. According to the Manual , an MREFC Panel evaluates the projects based on, among other things, project definition; intellectual justification; connection to NSF strategic goals and priorities; life-cycle cost profile; partnerships; and project management plans, schedules, and reviews. Based on the review, the MREFC Panel submits to the NSF Director its recommendation on the project's relative importance, eligibility, and readiness, with readiness defined as its ability to be included in the upcoming budget request. The Director then makes the selection of projects based on (1) strength and substance of the information; (2) the appropriate balance among various fields, disciplines, or directorates; and (3) opportunities to leverage MREFC funds. The Director submits his selections to the NSB for project approval. After the NSB approves a project for future budget cycle funding, it prioritizes among the projects. On an annual basis, the NSB reviews all NSB-approved projects that have not been funded as yet to determine if any changes are necessary to the priority order of the projects. If a project is not approved, or if a project's plans are no longer determined to be "clearly and fully construction ready," the project will be returned to the preliminary design/readiness phase for additional work. A project can be resubmitted to the NSB the following year. While the NSB may approve a project for inclusion in a future budget request, it does not necessarily mean that it will receive funding in the upcoming budget request. It does indicate that the project is to be considered for inclusion, depending on current budget levels and constraints. The 2012 NSF Facility Plan was presented to the NSB on February 2, 2012. The Plan covers readiness stage projects through those projects that are in the process of completion. In addition, the report includes NSF's support for major research infrastructure and the operational facilities that have received new or renewed awards, interrelationships among the portfolio of research facilities, life-cycle considerations, and sunsetting provisions. The 2012 Facility Plan describes NSF's goals and strategies for incorporating the existing approaches and practices into a system for selecting, managing, and overseeing large facility projects to make certain that a large facility is both constructed properly and is the appropriate facility to build. Included in the report also are detailed procedures for termination or renewal of a large facility. The Plan includes a multi-stage development, review, and approval process. NSF has designated four project evolution phases: (1) conceptual design review, (2) preliminary design review, (3) final design review (readiness), and (4) construction and operation. The projects under construction and those being considered for construction are indicative of NSF's long-term investment priorities for new capabilities and next-generation facilities that will "transform research in science and engineering." The NSF questions Is the proposed project, when compared to other proposed projects—whether within the same field, across related fields, or across different fields—among the very highest priorities for potential new facilities? The 2012 Facility Plan describes a team approach and details the cooperation between the scientific and technical staff and the business operations staff. The lines of authority and responsibility are defined for the NSF Director, the participating Division Director, the NSF Program Manager, and the awardees' project director. In every large facility project, the NSF Program Manager, with the support of the participating Division Director, has primary responsibility for all aspects of management. In addition, the NSF Program Manager is responsible for determining whether the project director and project management staff have the necessary training and skills for working on the project. Termination of a Major Research Project The Rare Symmetry Violating Processes Project (RSVP) was initially NSB-approved for funding in October 2000, and was included in the FY2005 budget request as a new construction project. While the RSVP was in the design phase, an analysis revealed that there could be significant increases in construction and operating costs. The cost overruns generated interest from Congress and the international scientific community. An evaluation was conducted by scientific personnel internal and external to NSF in an attempt to resolve the cost increases in various elements of the project. In August 2005, on the recommendation from NSF management, the NSB terminated the RSVP. NSF determined that continued support for the RSVP would cause "unacceptable loss of research opportunities in elementary particle physics and other areas of science." The RSVP underwent a series of phase-out activities. The March 2011 Large Facilities Manual includes a discussion of termination of a large facility. Language included in the report states that To remain at the research frontier and support new facilities, NSF should retire existing facilities when the science they enable is of lower strategic priority than science that could be enabled by alternate use of the funds. Such decisions will be difficult to make, in part because of the number of stakeholders and interested parties, and will require extensive community consultation and input, which may come from "blue ribbon" panels, National Academies committees and professional societies. In some cases in which a facility can continue to be productive, it may be possible to transfer ownership to another agency, a university or a consortium of universities. It is the responsibility of the Directorate and Divisions to periodically review their facilities portfolio and to consider which facilities may have reached an appropriate end of NSF support. MREFC Support in the FY2013 Budget Request The Major Research Equipment and Facilities Construction (MREFC) account receives $196.2 million in the FY2013 budget request, slightly below the FY2012 estimated level of $197.1 million. The MREFC supports the acquisition and construction of major research facilities and equipment that extend the boundaries of science, engineering, and technology. According to NSF, it is the primary federal agency providing support for forefront instrumentation and facilities for the academic research and education communities. NSF states that "Modern and effective research infrastructure is critical to maintaining U.S. leadership in science and engineering. The future success of entire fields of research depends upon access to new generations of powerful research tools. Increasingly, these tools are large and complex, and have a significant information technology component." NSF gives highest priority to ongoing projects, and second-highest priority to projects that have been approved by the NSB for new starts. To qualify for support, NSF required MREFC projects to have "the potential to shift the paradigm in scientific understanding." The FY2013 request proposes support for the National Ecological Observatory Network, $98.2 million (NEON); Advanced Laser Interferometer Gravitational Wave- Observatory, $14.9 million (AdvLIGO); Advanced Technology Star Telescope, $42.0 million (ATST); and the Ocean Observatories Initiative, $27.5 million (OOI). Funds were not included in the budget request for the Atacama Large Millimeter Array (ALMA). The funding received for ALMA in the FY2012 appropriation ($3.0 million) was the final support required to complete the eleven-year project. The NSF has instituted tighter standards and requirements for receiving funding in this account. Included in the more stringent procedures was the implementation of a "no cost overrun" policy for major projects. All projects seeking funding and construction support in the MREFC must move through a series of detailed steps and "should be transformative in nature, with the potential to shift the paradigm in scientific understanding." The cost estimates for projects developed at the preliminary design phase must include adequate contingencies. In the absence of such contingencies, any cost increase would result in reduction in scope for the project. NSF states that If total cost for a project is revised during construction for reasons other than inadequate funding, NSF will identify mechanisms for offsetting any cost increases in accordance with the no overrun policy. In addition, all of the projects funded through the MREFC account undergo major cost and schedule reviews as required by NSF guidelines. The following table provides funding levels for current and out-years for projects in the MREFC account. Appendix.

The Major Research Equipment and Facilities Construction (MREFC) account of the National Science Foundation (NSF) supports the acquisition and construction of major research facilities and equipment that are to extend the boundaries of science, engineering, and technology. The facilities include telescopes, earth simulators, astronomical observatories, and mobile research platforms. Currently, the NSF provides approximately $1.0 billion annually in support of facilities and other infrastructure projects. While the NSF does not directly design or operate research facilities, it does have final responsibility for oversight and management. Questions have been raised by many in the scientific community and in Congress concerning the adequacy of the planning and management of NSF facilities. In addition, there has been debate related to the criteria used to select projects for MREFC support. The Administration's FY2013 budget request for the NSF is $7,373.1 million, a 4.8% increase ($340.0 million) over the FY2012 estimated level of $7,033.1 million. Included in the request total is $196.2 million for MREFC, slightly below the FY2012 estimate of $197.1 million. The FY2013 request proposes support for four projects—Advanced Laser Interferometer Gravitational-Wave Observatory ($14.9 million), Advanced Technology Solar Telescope ($42.0 million), Ocean Observatories Initiative ($27.5 million), and the National Ecological Observatory Network ($98.2 million).

Introduction The United States Department of Veterans Affairs (VA) provides a broad range of benefits and services to American veterans and to certain members of their families. In addition, the Department of Defense (DOD) offers a variety of benefits to veterans who are also military retirees. Retired members of the National Guard or the reserve components who have not yet reached the age of 60 and who have not been recently deployed to a combat theater, however, are not entitled to the same federal benefits, such as health care, that other veterans and military retirees receive. National Guard and reserve members may not necessarily meet the relevant statutory definition of "veterans" for VA benefit purposes, and retired members of the National Guard or reserve are not eligible for DOD benefits until they reach the age of 60. These National Guard and reserve retirees are commonly known as Gray Area Retirees (GARs). The National Defense Authorization Act of Fiscal Year 2010 ( P.L. 111-84 ) provided TRICARE Standard (TS) coverage for certain members of the retired reserve who are qualified for a non-regular retirement, but are not yet 60 years old. This report examines the current VA and DOD benefit eligibility for members of the National Guard and the reserves; the benefit status and situation of GARS; and legislation related to GARS. Gray Area Retirees Eligibility for VA benefits may vary significantly for certain members of the Guard and the reserves, as compared with members of the regular military, particularly at the time that a member of the Guard or reserves retires. The National Guard and the Reserves—Background and Purpose The Guard had its predecessors in the colonial militias with the concept of the "citizen-soldier," who was called to service during times of need. Today, the Guard serves a two-fold function—it provides security and assistance on the home front and is available for military missions abroad. For example, the Guard was deployed in the wake of Hurricane Katrina in 2005, and many members of the Guard have served or are serving in Iraq and Afghanistan. The reserves of the U.S. Armed Forces are military organizations—such as the Army Reserve or the Navy Reserve—whose members usually perform a minimum number of military duty days per year and whose members may be "called up" for duty as required. The reserves enlarge the active-duty (full-time) military when their services are needed. These entities are known collectively as "the reserves," the "reserve units," or the "reserve components." Career Pattern Ordinarily, a member of the Guard or the reserves may retire after 20 years of service with his or her unit. Certain federal benefits for the retired member (which include health care and retirement pay) currently do not commence until the retiree reaches the age of 60. Depending upon the retiree's age and length of service, the retiree could be as young as 37 years old, but he or she will not receive the federal retirement benefits until reaching the age of 60. This time period from retirement to the age of 60 is generally referred to as the "Gray Area," and this category of retirees is generally referred to as "Gray Area Retirees." This term is not defined by statute or regulations, but it generally refers to members of the Guard or reserves who have transferred to the retired reserve after 20 years (or more) of service with their unit and who have not reached the age of 60. Most members of the Guard or the reserves who elect to remain in service will have served between 20 and 30 years. Upon retirement, the servicemember will transfer from the active reserve service to the retired reserve. The servicemember is still subject to "call up" to active duty. At the age of 60, the GAR is then usually entitled to DOD benefits similar to those of servicemembers who retire from active military service after at least 20 years. However, in many cases, GARs are not considered to be veterans under Title 38 for VA benefit purposes. A GAR carries a Military ID card marked "Ret," maintains military base privileges, and usually keeps the commissary privileges that he or she had while on active reserve status. GARs are eligible for (1) VA disability compensation and VA health care for disabilities or injuries incurred while performing inactive duty for training, regardless of length of service; (2) VA home loan eligibility, as long as the retiree had six or more years of honorable service in the selected reserve; (3) VA burial and memorial benefits if the retiree is entitled to reserve retired pay at the time of his or her death; and (4) conversion of Servicemen's Group Life Insurance (SGLI) to Veterans Group Life Insurance (VGLI). Basically, before the age of 60, the GAR has the same benefits that he or she had before retirement, but without receiving pay. When the GAR reaches the age of 60, retirement pay and medical benefits begin. But, if the GAR is called back to active service, the GAR will regain eligibility for pay, medical benefits, and other service benefits during this period of active service. Generally, once a GAR reaches the age of 60, he or she will receive DOD benefits and privileges comparable to those of a "regular" military retiree, including retirement pay and medical benefits. Spousal Survivor Benefits GARs' surviving spouses are eligible for annuities. Section 656 of the National Defense authorization Act for Fiscal Year 2000 ( P.L. 106-65 ) provides authority for granting an annuity to certain surviving spouses of servicemembers who did not decline participation in the military Survivor Benefit Plan. This legislation provides coverage to surviving spouses of all GARs. Benefits Provided by the VA and the DOD Various benefits are provided by the VA to "veterans," and other benefits are provided by the DOD to certain military retirees. These two benefit systems are examined below. VA Benefits Among the benefits extended to veterans through the VA are health care and related services, such as nursing homes, clinics, and medical centers; education, vocational training, and related career assistance; home financing; life insurance; burial benefits; benefits for certain family survivors; and financial benefits, including disability compensation and pensions. To be eligible for most VA benefits, the claimant must be a veteran, or, in some cases, the survivor or the dependent of a veteran. Significantly, however, not every person who has served in the military is considered to be a "veteran" for the purposes of VA benefits. By federal statute, for VA benefit purposes, a "veteran" is defined as a "person who served in the active military, naval, or air service, and who was discharged or released therefrom under conditions other than dishonorable." Various criteria, however, including discharge status, "active" service, time of service (whether during a "time of war"), and length of duty are all factors considered in determining whether a former servicemember is a "veteran" for the purposes of VA benefits. Two particular elements of these criteria—"active duty" and "length of service"—are often difficult for members of the Guard and the reserves to meet. As a result, these servicemembers, having not met the statutory threshold criteria for "veteran," are often not eligible for VA benefits. The "Active Duty" Requirement In many cases, members of the Guard and the reserves may not have fulfilled the "active duty" requirement. Members of the Guard and reserves who served on regular active duty are eligible for the same VA benefits as other veterans. An example of this situation would be a Guard member who was called up to serve in the Persian Gulf for 12 months, and at the end of that period would thus be considered to have served on active duty for that period of time. Otherwise, Guard and reserve duty is not considered "active duty" for benefits unless the servicemember performing this duty was disabled or died from a disease or injury incurred or aggravated in the line of duty. The "Length of Service" Requirement Guard and reserve members must ordinarily serve a minimum of 24 continuous months on active duty to meet the "length of service" requirement to qualify for VA benefits. A former Guard or reserve member who has served for less than 24 months of continuous active duty may still qualify so long as the servicemember has served the "full period" for which he or she was "called to duty." This requirement was fulfilled, for example, by Guard and reserve members who were called to active duty during the 1991 Persian Gulf War. These servicemembers satisfied the minimum length of service requirement, even though most did not serve for a full 24 months. But their orders reflected that they served the full period for which they were called to active duty. VA Determination on a Case-by-Case Basis Although many Guard and reserve members may not appear to be eligible "veterans" for the purposes of VA benefits, certain exceptions and special circumstances may exist, which add to the complexity of the eligibility determination. As each servicemember's military service may be different, and therefore may fit within certain case categories or exceptions, eligibility is usually determined by the VA on a case-by-case basis after reviewing the individual servicemember's military service records. As the statutory definition of "veteran" is not precise or absolute, it provides the VA with some discretion in determining who may be considered a "veteran" for purposes of VA benefits. DOD Retiree Health Benefits As with the VA's system, the DOD's military health system includes a health benefits program, generally referred to as "TRICARE." TRICARE serves active duty servicemembers; National Guard and reserve members; retirees; and their families, survivors, and certain former spouses, worldwide. As a major component of the Military Health System, TRICARE brings together the health care resources of the uniformed services and supplements them with networks of civilian health care professionals, institutions, pharmacies, and suppliers to provide access to health care services while maintaining the capacity to support military operations. Prior to the enactment of the National Defense Authorization Act of Fiscal Year 2010 ( P.L. 111-84 ), GARs were usually not eligible for TRICARE health benefits until they became eligible for retirement pay at the age of 60 (at which time, they are no longer considered GARs). However, these individuals and eligible family members may purchase the TRICARE Retiree Dental Program (TRDP) before drawing retirement pay. Individuals who enroll in TRDP within 120 days of their official retirement date are not subject to a 12-month waiting period, which is otherwise required for certain TRDP benefits. Members of the retired reserve who are receiving retirement pay but are not yet eligible for Medicare (generally those retirees between the ages of 60 and 64) are automatically eligible for TRICARE Standard or TRICARE Extra. They may also enroll in TRICARE Prime if they live in an area where it is offered. Upon reaching the age of 65, reservists receiving retirement pay must enroll in Medicare Part B to retain TRICARE coverage, which converts to TRICARE for Life (TFL). TFL covers all TRICARE beneficiaries who are entitled to Medicare Part A and have Medicare Part B coverage based on age. There are no enrollment fees for TFL, and the catastrophic cap is $3,000 per fiscal year per family. TRDP also remains available. Legislation Section 705 of the National Defense Authorization Act for Fiscal Year 2010 ( P.L. 111-84 ) (October 28, 2009) provided TRICARE Standard (TS) coverage for certain members of the retired reserve who are qualified for a non-regular retirement but are not yet 60 years old. The TRICARE program allows retired reservists to purchase TRICARE coverage if "they are under the age of 60 and are not eligible for, or enrolled in, the Federal Employees Health Benefits (FEHB) program." They are also required to be members of the retired reserve of a reserve component and qualified for non-regular retirement. Detailed eligibility criteria are available on the TRICARE website. In the 112 th Congress, S. 542 , S. 1768 , and H.R. 1003 would authorize space-available travel on military aircraft for GARs on the same basis as active-duty military personnel. S. 491 and H.R. 1025 would recognize service by certain persons in the reserves by honoring them with the status as veterans under law. However, such persons would not be entitled to any benefit by reason of such recognition.

The United States Department of Veterans Affairs (VA) provides a broad range of benefits and services to American veterans and to certain members of their families. In addition, the Department of Defense (DOD) offers a variety of benefits to veterans who are also military retirees. When members of the National Guard or the reserves who have not yet reached the age of 60 retire (usually after at least 20 years of service), they may not necessarily meet the statutory definition of "veterans" for VA purposes or be eligible for DOD health benefits. These military retirees are commonly known as Gray Area Retirees (GARs). To be eligible for most VA benefits, the claimant must be a veteran, or in some cases, the survivor or dependent of a veteran. However, not every person who has served in the military is considered to be a "veteran" for the purposes of VA benefits. The concept of "veteran" is defined by federal statute and includes various criteria, such as discharge status, "active" service, time of service, and length of duty. Section 705 of the National Defense Authorization Act for Fiscal Year 2010 (P.L. 111-84) made TRICARE Standard (TS) coverage available for purchase by certain members of the retired reserve who are qualified for a non-regular retirement, but are not yet 60 years old (GARs). This program, known as TRICARE Retired Reserve (TRR), was launched on September 1, 2010, and is now fully operational. In 2011, a program was implemented that permits GARs to enroll in the TRR online, through a DOD website. In the 112th Congress, S. 542, S. 1768, and H.R. 1003 would authorize space-available travel on military aircraft for GARs on the same basis as active-duty military personnel. S. 491 and H.R. 1025 would recognize service by certain persons in the reserves by honoring them with the status as veterans under law. However, such persons would not be entitled to any benefit by reason of such recognition.

Introduction Attempt is a crime of general application in every state in the Union, and is largely defined by statute in most. The same cannot be said of federal law. There is no generally applicable federal attempt statute. In fact, it is not a federal crime to attempt to commit most federal offenses. Here and there, Congress has made a separate crime of conduct that might otherwise have been considered attempt. Possession of counterfeiting equipment and solicitation of a bribe are two examples that come to mind. More often, Congress has outlawed the attempt to commit a particular crime, such as attempted murder, or the attempt to commit one of a particular block of crimes, such as the attempt to violate the controlled substance laws. In those instances, the statute simply outlaws attempt, sets the penalties, and implicitly delegates to the courts the task of developing the federal law of attempt on a case by case basis. Over the years, proposals have surfaced that would establish attempt as a federal crime of general application and in some instances would codify federal common law of attempt. Thus far, however, Congress has preferred to expand the number of federal attempt offenses on a much more selective basis. Background Attempt was not recognized as a crime of general application until the 19 th century. Before then, attempt had evolved as part of the common law development of a few other specific offenses. The vagaries of these individual threads frustrated early efforts to weave them into a cohesive body of law. At mid-20 th century, the Model Penal Code suggested a basic framework that has greatly influenced the development of both state and federal law. The Model Penal Code grouped attempt with conspiracy and solicitation as "inchoate" crimes of general application. It addressed a number of questions that had until then divided commentators, courts, and legislators. A majority of the states use the Model Penal Code approach as a guide, but deviate with some regularity. The same might be said of the approach of the National Commission established to recommend revision of federal criminal law shortly after the Model Penal Code was approved. The National Commission recommended a revision of title 18 of the United States Code that included a series of "offenses of general applicability"—attempt, facilitation, solicitation, conspiracy, and regulatory offenses. In spite of efforts that persisted for more than a decade, Congress never enacted the National Commission's recommended revision of title 18. It did, however, continue to outlaw a growing number of attempts to commit specific federal offenses. In doing so, it rarely did more than outlaw an attempt to commit a particular substantive crime and set its punishment. Beyond that, development of the federal law of attempt has been the work of the federal courts. Definition Attempt may once have required little more than an evil heart. That time is long gone. The Model Penal Code defined attempt as the intent required of the predicate offense coupled with a substantial step: "A person is guilty of an attempt to commit a crime, if acting with the kind of culpability otherwise required for commission of the crime, he ... purposely does or omits to do anything that, under the circumstances as he believes them to be, is an act or omission constituting a substantial step in a course of conduct planned to culminate in his commission of the crime." The Model Penal Code then provided several examples of what might constitute a "substantial step"—lying in wait, luring the victim, gathering the necessary implements to commit the offense, and the like. The National Commission recommended a similar definition: "A person is guilty of criminal attempt if, acting with the kind of culpability otherwise required for commission of a crime, he intentionally engages in conduct which, in fact, constitutes a substantial step toward commission of the crime." Rather than mention the type of conduct that might constitute a substantial step, the Commission defined it: "A substantial step is any conduct which is strongly corroborative of the firmness of the actor's intent to complete the commission of the crime." Most of the states follow the same path and define attempt as intent coupled to an overt act or some substantial step towards the completion of the substantive offense. Only rarely does a state include examples of substantial step conduct. Intent and a Substantial Step The federal courts are in accord and have said, "As was true at common law, the mere intent to violate a federal criminal statute is not punishable as an attempt unless it is also accompanied by significant conduct," that is, unless accompanied by "an overt act qualifying as a substantial step toward completion" of the underlying offense. The courts seem to have encountered little difficulty in identifying the requisite intent standard. In fact, they rarely do more than note that the defendant must be shown to have intended to commit the underlying offenses. What constitutes a substantial step is a little more difficult to discern. It is said that a substantial step is more than mere preparation. A substantial step is action strongly or unequivocally corroborative of the individual's intent to commit the underlying offense. It is action which if uninterrupted will result in the commission of that offense, although it need not be the penultimate act necessary for completion of the underlying offense. Furthermore, the point at which preliminary action becomes a substantial step is fact specific; action that constitutes a substantial step under some circumstances and with respect to some underlying offenses may not qualify under other circumstances and with respect to other offenses. It is difficult to read the cases and not find that the views of Oliver Wendell Holmes continue to hold sway: the line between mere preparation and attempt is drawn where the shadow of the substantive offense begins. The line between preparation and attempt is closest to preparation where the harm and the opprobrium associated with the predicate offense are greatest. Since conviction for attempt does not require commission of the predicate offense, conviction for attempt does not necessitate proof of every element of the predicate offense, or any element of the predicate offense for that matter. Recall that the only elements of the crime of attempt are intent to commit the predicate offense and a substantial step in that direction. Nevertheless, a court will sometimes demand proof of one or more of the elements of a predicate offense in order to avoid sweeping application of an attempt provision. For instance, the Third Circuit has held that "acting 'under color of official right' is a required element of an extortion Hobbs Act offense, inchoate or substantive," apparently for that very reason. Defenses Impossibility Defendants charged with attempt have often offered one of two defenses—impossibility and abandonment. Rarely have they prevailed. The defense of impossibility is a defense of mistake, either a mistake of law or a mistake of fact. Legal impossibility exists when "the actions which the defendant performs or sets in motion, even if fully carried out as he desires, would not constitute a crime. The traditional view is that legal impossibility is a defense to the charge of attempt—that is, if the competed offense would not be a crime, neither is a prosecution for attempt permitted." Factual impossibility exists when "the objective of the defendant is proscribed by criminal law but a circumstance unknown to the actor prevents him from bringing about that objective." Since the completed offense would be a crime if circumstances were as the defendant believed them to be, prosecution for attempt is traditionally permitted. Unfortunately, as the courts have observed, "the distinction between legal impossibility and factual impossibility [is] elusive." Moreover, "the distinction ... is largely a matter of semantics, for every case of legal impossibility can reasonably be characterized as a factual impossibility." Thus, shooting a stuffed deer when intending to shoot a deer out of season is offered as an example of legal impossibility. Yet, shooting into the pillows of an empty bed when intending to kill its presumed occupant is considered an example of factual impossibility. The Model Penal Code avoided the problem by defining attempt to include instances when the defendant acted with the intent to commit the predicate offense and "engage[d] in conduct that would constitute the crime if the attendant circumstances were as he believe[d] them to be." Under the National Commission's Final Report, "[f]actual or legal impossibility of committing the crime is not a defense if the crime could have been committed had the attendant circumstances been as the actor believed them to be." Several states have also specifically refused to recognize an impossibility defense of any kind. The federal courts have been a bit more cautious. They have sometimes conceded the possible vitality of legal impossibility as a defense, but generally have judged the cases before them to involve no more than unavailing factual impossibility. In a few instances, they have found it unnecessary to enter the quagmire, and concluded instead that Congress intended to eliminate legal impossibility with respect to attempts to commit a particular crime. Abandonment The Model Penal Code recognized an abandonment or renunciation defense. A defendant, however, could not claim the defense if his withdrawal was merely a postponement or was occasioned by the appearance of circumstances that made success less likely. The revised federal criminal code recommended by the National Commission contained similar provisions. Some states recognize an abandonment or renunciation defense; the federal courts do not. Admittedly, a defendant cannot be charged with attempt if he has abandoned his pursuit of the substantive offense at the mere preparation stage. Yet, this is for want of an element of the offense of attempt—a substantial step—rather than because of the availability of an affirmative abandonment defense. Although the federal courts have recognized an affirmative voluntary withdrawal defense in the case of conspiracy, the other principal inchoate offense, they have declined to recognize a comparable defense to a charge of attempt. Sentencing The Model Penal Code and the National Commission's Final Report both imposed the same sanctions for attempt as for the predicate offense as a general rule. However, both set the penalties for the most serious offenses at a class below that of the predicate offense, and both permitted the sentencing court to impose a reduced sentence in cases when the attempt failed to come dangerously close to the attempted predicate offense. The states set the penalties for attempt in one of two ways. Some set sanctions at a fraction of, or a class below, that of the substantive offense, with exceptions for specific offenses in some instances; others set the penalty at the same level as the crime attempted, again with exceptions for particular offenses in some states. Most federal attempt crimes carry the same penalties as the substantive offense. The Sentencing Guidelines, which greatly influence federal sentencing beneath the maximum penalties set by statute, reflect the equivalent sentencing prospective. Except for certain terrorism, drug trafficking, assault, and tampering offenses, however, the Guidelines recommend slightly lower sentences for defendants who have yet to take all the steps required of them for commission of the predicate offense. Relation to Other Offenses The relation of attempt to the predicate offense is another of the interesting features of the law of attempt. It raises those questions which the Model Penal Code and the National Commission sought to address. May a defendant be charged with attempt even if he has not completed the underlying offense? May a defendant be charged with attempt even if he has also committed the underlying offense? May a defendant be convicted for both attempt and commission of the underlying offense? May a defendant be charged with attempting to attempt an offense? May a defendant be charged with conspiracy to attempt or attempt to conspire? May a defendant be charged with aiding and abetting an attempt or with attempting to aid and abet? Relation to the Predicate Offense A defendant need not complete the predicate offense to be guilty of attempt. On the other hand, some 19 th century courts held that a defendant could not be convicted of attempt if the evidence indicated that he had in fact committed the predicate offense. This is no longer the case in federal court—if it ever was. In federal law, "[n]either common sense nor precedent supports success as a defense to a charge of attempt." The Double Jeopardy Clause ordinarily precludes conviction for both the substantive offense and the attempt to commit it. The clause prohibits both dual prosecutions and dual punishment for the same offense. Punishment for both a principal and a lesser included offense constitutes such dual punishment, and attempt ordinarily constitutes a lesser included offense of the substantive crime. Instances where the federal law literally appears to create an attempt to attempt offense present an intriguing question of interpretation. Occasionally, a federal statute will call for equivalent punishment for attempt to commit any of a series of offenses proscribed in other statutes, even though the other statutes already proscribe attempt. For example, 18 U.S.C. 1349 declares that any attempt to violate any of the provisions of chapter 63 of title 18 of the United States Code "shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt." Within chapter 63 are sections that make it a crime to attempt to commit bank fraud, health care fraud, and securities fraud. There may be some dispute over whether provisions like those of Section 1349 are intended to outlaw attempts to commit an attempt or simply to reiterate a determination to punish equally the substantive offenses and attempts to commit them. Relation to Other General Provisions Conspiracy The Model Penal Code and National Commission resolved attempt to attempt and conspiracy to attempt questions by banning dual application. Crimes of general application would not have applied to other crimes of general application. A few states have comparable provisions. The federal code does not. The attempting to conspire or conspiring to attempt questions do not offer as many issues of unsettled interpretation as the attempt to attempt questions, for several reasons. First, the courts have had more occasion to address them. For instance, it is already clearly established that a defendant may be simultaneously prosecuted for conspiracy to commit and for attempt to commit the same substantive offense. Second, as a particular matter, conspiracies to attempt a particular crime are relatively uncommon; most individuals conspire to accomplish, not to attempt. Third, in a sense, attempting to conspire is already a separate crime, or alternatively, is a separate basis for criminal liability. Solicitation is essentially an invitation to conspire, and solicitation to commit a crime of violence is a separate federal offense. Moreover, an attempt that takes the form of counseling, commanding, inducing, procuring or aiding and abetting another to commit a federal crime is already a separate basis for criminal liability. Fourth, a component of the general conspiracy statute allows simultaneous prosecution of conspiracy and a substantive offense without having to addressing the conspire to attempt quandary. The conspiracy statute outlaws two kinds of conspiracies: conspiracy to violate a federal criminal statute and conspiracy to defraud the United States. Conspiracy to defraud the United States is a separate crime, one that need not otherwise involve the violation of a federal criminal statute. Consequently, when attempt or words of attempt appear as elements in a substantive criminal provision, conspiracy to attempt issues can be avoided by recourse to a conspiracy to defraud charge. For example, the principal federal bribery statute outlaws attempted pu blic corruption. The offense occurs though no tainted official act has yet been performed or foregone. It is enough that the official has sought or been offered a bribe with the intent of corrupting the performance of his duties. Bribery conspiracy charges appear generally to have been prosecuted, along with bribery, as conspiracy to defraud rather than conspiracy to violate the bribery statute. Aiding and Abetting Unlike attempt, aiding and abetting is not a separate offense; it is an alternative basis for liability for the substantive offense. Anyone who aids, abets, counsels, commands, induces, or procures the commission of a federal crime by another is as guilty as if he committed it himself. Aiding and abetting requires proof of intentional assistance in the commission of a crime by another. When attempt is a federal crime, the cases suggest that a defendant may be punished for aiding and abetting the attempt and that a defendant may be punished by attempting to aid and abet the substantive offense. State General Attempt Statutes (Citations) Ala. Code §§13A-4-2, 13A-4-5; Alaska Stat. §§11.31.100, 11.31.140, 11.31.150; Ariz. Rev. Stat. Ann. §§13-1001, 13-1005; Ark. Code Ann. §§5-3-201 to 5-3-204; Cal. Penal Code §664; Colo. Rev. Stat. Ann. §18-2-101; Conn. Gen. Stat. Ann. §53a-49; Del. Code Ann. tit.11 §§531, 532, 541; Fla. Stat. Ann. §777.04; Ga. Code §§16-4-1 to 16-4-6; Hawaii Rev. Stat. §§705-500 to 705-502, 705-530 to 705-531; Idaho Code §§18-305 to 18-307; Ill. Comp. Stat. Ann. ch. 720 §§5/8-4, 5/8-5; Ind. Code Ann. §§35-41-5-1, 35-41-5-3; Kan. Stat. Ann. §21-5301; Ky. Rev. Stat. Ann. §§506.010, 506.020, 506.110; La. Rev. Stat. Ann. §14:27; Me. Rev. Stat. Ann. tit. 17-A §§152, 154; Md. Code Ann. Crim. Law §1-201; Mass. Gen. Laws Ann. ch. 274 §6; Mich. Comp. Laws Ann. §750.92; Minn. Stat. Ann. §609.17; Miss. Code Ann. §§97-1-7, 97-1-9; Mo. Ann. Stat. §564.011; Mont. Code Ann. §45-4-103; Neb. Rev. Stat. §28-201; Nev. Rev. Stat. §193.330; N.H. Rev. Stat. Ann. §629.1; N.J. Stat. Ann. §§2C:5-1, 2C:5-4; N.M. Code Ann. §30-28-1; N.Y. Penal Law §§110.00 to 110.10, 40.10; N.C. Gen. Stat. §14-2.5; N.D. Cent. Code §§12.1-06-01, 12.1-06-05; Ohio Rev. Code Ann. §2923.02; Okla. Stat. Ann. tit.21§§41 to 44; Ore. Rev. Stat. Ann. §§161.405 to 161.430; Pa. Stat. Ann. tit. 18, §§901, 905, 906; R.I. Gen. Laws Ann. §12-17-14; S.C. Code Ann. §16-1-80; S.D. Codified Laws §§22-4-1, 22-4-2; Tenn. Code Ann. §§39-12-101, 104 to 109; Tex. Penal Code Ann. §§15.01, 15.04, 15.05; Utah Code Ann. §§76-4-101, 76-4-102; Vt. Stat. Ann. tit. 13 §9; Va. Code §§18.2-25 to 18.2-28; Wash. Rev. Code Ann. §9A.28.020; W.Va. Code Ann. §61-11-8; Wis. Stat. Ann. §939.32; Wyo. Stat. Ann. §§6-1-301, 6-1-304.

It is not a crime to attempt to commit most federal offenses. Unlike state law, federal law has no generally applicable crime of attempt. Congress, however, has outlawed the attempt to commit a substantial number of federal crimes on an individual basis. In doing so, it has proscribed the attempt, set its punishment, and left to the federal courts the task of further developing the law in the area. The courts have identified two elements in the crime of attempt: an intent to commit the underlying substantive offense and some substantial step towards that end. The point at which a step may be substantial is not easily discerned; but it seems that the more serious and reprehensible the substantive offense, the less substantial the step need be. Ordinarily, the federal courts accept neither impossibility nor abandonment as an effective defense to a charge of attempt. Attempt and the substantive offense carry the same penalties in most instances. A defendant may not be convicted of both the substantive offense and the attempt to commit it. Commission of the substantive offense, however, is neither a prerequisite for, nor a defense against, an attempt conviction. Whether a defendant may be guilty of an attempt to attempt to commit a federal offense is often a matter of statutory construction. Attempts to conspire and attempts to aid and abet generally present less perplexing questions. This report is available in an abridged version as CRS Report R42002, Attempt: An Abridged Overview of Federal Criminal Law, by [author name scrubbed], without the footnotes, attributions, citations to authority, or appendix found here.

Introduction The concept that all Americans should be able to afford access to the telecommunications network is commonly called the "universal service concept." This concept can trace its origins back to the 1934 Communications Act. Since then the preservation and advancement of universal service has been a basic tenet of federal communications policy, and Congress has historically played an active role in helping to preserve and advance universal service goals. In 1996 Congress passed the Telecommunications Act of 1996 ( P.L. 104 - 104 ), which not only codified the universal service concept, but also led to the establishment of a federal Universal Service Fund (USF or the Fund) to meet the universal service objectives and principles contained in the 1996 act. According to Fund administrators, since 1998 almost $73.7 billion in support has been disbursed by the USF, with all 50 states, the District of Columbia, and all territories receiving some benefit. Over the past decade the telecommunications sector has undergone a vast transformation fueled by rapid technological growth and subsequent evolution of the marketplace. A wide range of new services have become available, offered by a growing list of traditional as well as nontraditional providers. One of the results of this transformation is that the nation's expectations for communications services have also grown. In the past, access to the public switched network through a single wireline connection, enabling voice service, was the standard of communications. Today the desire for simple voice connectivity has been replaced by the demand, on the part of consumers, business, and government, for access to a vast array of multifaceted fixed and mobile services. Consumers are also demanding greater flexibility and may choose to gain access to the same content over a variety of technologies, whether it be a computer, a television, or a mobile telephone. The trend towards sharing information, such as music, movies, or photographs, is also growing, making it necessary to ensure that network upload speeds match download capabilities. These advances require that networks transition into converged next-generation wireline and wireless broadband networks capable of meeting these demands. One of the challenges facing this transition is the desire to ensure that all citizens have access to an affordable and advanced telecommunications infrastructure so that all members of American society may derive the benefits. Technological advances such as the ability of the Internet to provide data, voice, and video, the bundling of service offerings, the advancement of wireless services, and the growing convergence of the telecommunications sector have, according to many policy makers, made it necessary to reexamine traditional policy goals such as the advancement of universal service mandates. These changes in technology and the marketplace, a declining funding base, and significant increases in the amount of support disbursed by the Fund, have led to concerns that the USF is in need of reform. There is a growing consensus among policy makers, including some in Congress, that significant action is needed not only to ensure the viability and stability of the USF, but also to address the numerous issues surrounding such reform. How this concept should be defined, how these policies should be funded, who should receive the funding, and how to ensure proper management and oversight of the Fund are among the issues expected to frame the policy debate. The Universal Service Concept Since its creation in 1934 the Federal Communications Commission (FCC, or Commission) has been tasked with "mak[ing] available, so far as possible, to all the people of the United States ... a rapid, efficient, Nation-wide, and world-wide wire and radio communications service with adequate facilities at reasonable charges." This mandate led to the development of what has come to be known as the universal service concept. The universal service concept, as originally designed, called for the establishment of policies to ensure that telecommunications services are available to all Americans, including those in rural, insular and high cost areas, by ensuring that rates remain affordable. During the 20 th century, government and industry efforts to expand telephone service led to the development of a complex system of cross subsidies to expand the network and address universal service goals. The underlying goal of the cross-subsidization policy was to increase the number of subscribers to the network by shifting costs among network providers and subscribers. Profits from more densely populated, lower cost urbanized areas helped to subsidize wiring and operation costs for the less populous, higher cost rural areas. Higher rates and equipment charges for business and long distance customers helped to subsidize the charges for residential local calling. The funding for universal service objectives was built into the rate structure, and effectively most telephone subscribers have contributed to universal service goals for decades. With the advent of competition and the breakup of the Bell System, the complex system of cross subsidies that evolved to support universal service goals was no longer tenable. The Telecommunications Act of 1996 ( P.L. 104 - 104 ; 47 USC) codified the long-standing commitment by U.S. policymakers to ensure universal service in the provision of telecommunications services (§254). The 1996 act also required that every telecommunications carrier that provides interstate telecommunications services be responsible for universal service support [§254(d)] and that such charges be made explicit [§254(e)]. The 1996 act also expanded the concept of universal service to include, among other principles, that elementary and secondary schools and classrooms, libraries, and rural health care providers have access to telecommunications services for specific purposes at discounted rates [§254(b)(6) and 254(h).] The Federal Universal Service Fund Over the years this concept fostered the development of various FCC policies and programs to meet this goal. A new federal Universal Service Fund (USF or Fund) was established in 1997 to meet the specific objectives and principles contained in the 1996 act. The USF is administered by the Universal Service Administrative Company (USAC), an independent-not-for-profit organization, under the direction of the FCC. The FCC, through the USF, offers universal service support through a number of direct mechanisms that target both providers of and subscribers to telecommunications services. The USF provides support and discounts for providers and subscribers through four programs: high-cost support; low-income support; schools and libraries support; and rural health care support. High-Cost Program High-cost support, provided through the high cost program, is an example of provider-targeted support. Under the high cost program, eligible telecommunications carriers, usually those serving rural, insular, and high cost areas, are able to obtain funds to help offset the higher than average costs of providing telephone service. This mechanism has been particularly important to rural America where the lack of subscriber density leads to significant costs. Low-Income Program FCC universal service policies have been expanded to target low-income subscribers. Two income-based programs, Lifeline and Link Up, established in the mid-1980s, were developed to assist economically needy individuals. The Link Up program, established in 1987, assists low-income subscribers pay the costs associated with the initiation of telephone service, and the Lifeline program, established in 1984, assists low-income subscribers pay the recurring monthly service charges incurred by telephone subscribers. Discounts are eligible for one connection, either wired or wireless, per household. Schools and Libraries or "E-Rate" Program Under universal service provisions contained in the 1996 act, elementary and secondary schools and classrooms, and libraries are designated as beneficiaries of universal service discounts. Universal service principles detailed in Section 254(b)(6) state that "Elementary and secondary schools and classrooms ... and libraries should have access to advanced telecommunications services." The act further requires in Section 254(h)(1)(B) that services within the definition of universal service be provided to elementary and secondary schools and libraries for education purposes at discounts, that is at "rates less than the amounts charged for similar services to other parties." The FCC established the Schools and Libraries Division within the Universal Service Administrative Company (USAC) to administer the schools and libraries or "E (education)-rate" program to comply with these provisions. Under this program, which became effective, January 1, 1998, eligible schools and libraries receive discounts ranging from 20% to 90% for telecommunications services depending on the poverty level of the school's (or school district's) population and its location in a high cost telecommunications area. Three categories of services are eligible for discounts: internal connections (e.g., wiring, routers and servers); Internet access; and telecommunications and dedicated services, with the third category receiving funding priority. Unlike the high-cost and low-income programs, the FCC established a yearly ceiling, or cap, of $2.25 billion, adjusted for inflation prospectively beginning with funding year 2010, for this program. Rural Health Care Program Section 254(h) of the 1996 act requires that public and non-profit rural health care providers have access to telecommunications services necessary for the provision of health care services at rates comparable to those paid for similar services in urban areas. Subsection 254(h)(1) further specifies that "to the extent technically feasible and economically reasonable" health care providers should have access to advanced telecommunications and information services. The FCC established the Rural Health Care Division (RHCD) within the USAC to administer the universal support program to comply with these provisions. Under FCC-established rules only public or non-profit health care providers are eligible to receive funding. Eligible health care providers, with the exception of those requesting only access to the Internet, must also be located in a rural area. Similar to the Schools and Libraries program, this support program went into effect on January 1, 1998, and a funding ceiling, or cap, was established, in this case at $400 million annually. The primary use of the funding is to provide reduced rates for telecommunications and information services necessary for the provision of health care. In addition, in 2007 the FCC established the "Rural Health Care Pilot Program" to help public and non-profit health care providers build state and region-wide broadband networks dedicated to the provision of health care services. Funding The USF receives no federal monies but is funded by mandatory contributions from telecommunications carriers that provide interstate service. Under current rules, a carrier's contributions are assessed based on a percentage of its interstate and international end-user telecommunications revenues. This percentage is called the contribution factor. The FCC calculates the contribution factor based on anticipated funding needs of the USF in the upcoming quarter. This information is submitted quarterly, to the FCC, by USAC's universal service administrator. The contribution factor is calculated four times a year, on a quarterly basis, and may increase, decrease, or remain the same depending on the needs of the universal service programs drawing on the USF. The FCC's Wireline Competition Bureau releases a public notice stating the proposed factor. After 14 days, absent any FCC action, the factor becomes final. As shown in Table A -1 , from 2003 to the first half of 2005 the contribution factor generally saw a steady increase. During that period the contribution factor varied from a low of 7.3% in the first quarter of 2003 to a high of 11.1% in the second quarter of 2005. Since reaching that high, the factor had begun to moderate; however, the contribution factors for the second and third quarters of 2007, at 11.7% and 11.3% respectively, were a strong reversal of this trend, resulting in a significant increase from the first quarter 2007 contribution factor of 9.7%. Since reaching a high of 11.7% the contribution factor began to moderate with a first quarter 2008 factor of 10.2%. The contribution factor once again began to climb and reached an historic high of 15.5% for the first quarter of 2011. The contribution factor for the second quarter of 2011 at 14.9% and the third quarter at 14.4% represented a slight moderate downward trend. The contribution factor for the fourth quarter of 2011, however, had a significant increase to 15.3 % and represents the second highest rate on record. The overall growth in the factor over this decade remains a significant policy concern. (See " Policy Options " section, below, for a discussion of some of the reasons attributed to this increase.) There are some exceptions to this funding process. Under the FCC's rules telecommunications providers are not required to contribute in a given year to universal service if their annual contributions to the program would be de minimis, that is less than $10,000 in that year, or if they provide only international services. Filers are also not required to contribute based on international revenues if their interstate end-user revenues meet the 12% rule, that is, if their interstate end-user revenues represent less than 12% of their combined interstate and international end-user revenues. In other cases the FCC has determined that selected categories of providers, for example, wireless carriers and interconnected VoIP providers, may, but are not required to, base their contributions on an FCC-established revenue percentage, or "safe harbor," that attempts to estimate the percentage of the provider's total revenues that are interstate and international end-user revenues. The current (effective June 2006) safe harbor for wireless carriers and VoIP providers is set at 37.1% and 64.9% of total revenues, respectively. Many assessed providers have chosen, but are not required, to recover USF contributions directly from their customers. They pass through universal service payments directly to consumers and earmark a universal service charge on subscriber's bills. This is legal and a common industry practice. However, if an assessed provider does choose to collect USF fees directly from their customers the provider is not permitted to recover, through a federal universal service line item on a customer's bill, an amount that exceeds the universal service charge contribution factor. Disbursements According to USAC, universal service support disbursements for calendar year 2010 totaled $8.0 billion. Figure 1 , below, shows the breakdown of calendar year 2010 USF disbursements as a percentage by individual program. High Cost support accounted for 53.7% of total disbursements, or $4.3 billion. Schools and Libraries support represented 28.7% of disbursements, totaling $2.3 billion. Low Income support was 16.5% of disbursements, totaling $1.3 billion. Disbursements for Rural Health Care support were $86.0 million, or 1.1% of disbursements. (It should be noted that "commitments" for the schools and libraries support program and the rural health care program are not the same as "disbursements." Commitments authorize beneficiaries to spend up to a total dollar figure of USF money committed for procuring telecommunications services, while disbursements pay for specific activities actually carried out and for which beneficiaries have received "commitments" of USF support. In the aggregate, applicants end up spending less than the total amounts of dollars committed. Commitments operate on a school year calendar, July 1-June 30, and disbursements are reported on a calendar year basis.) Although subscribers benefit from the USF, only companies that provide the services draw money directly from the fund. Table A -2 provides data on USF payments and contributions broken down by state and program for 2009. The data show that service providers (and their subscribers) in every state, territory, and commonwealth received, to varying degrees, some 2009 USF payments. For example, all received at least some payments from the Low Income program, all received support from the Schools and Libraries program, and all with the exception of the District of Columbia and Connecticut received payments from the High Cost program. Payments from the Rural Health Care program were received by 45 states and 3 territories. The allocation of benefits varies depending on which individual program is examined. However, when overall net dollar flow is examined 25 states and the District of Columbia were net contributors to the 2009 USF program as a whole. The service providers in the remaining 25 states and 5 territories were net receivers, that is they received more payments from the USF, for 2009, than estimated contributions. Although there is some variation within programs and among states in any given year, on the whole whether a particular state is a net receiver of, or contributor to, the USF program, is a fairly stable pattern. In general, rural states with low population density typically tend to benefit most as they receive significant funding from the High Cost program, but tend to contribute less to the USF program overall, since they tend to generate lower telecommunications revenues. Policy Options The FCC is required to ensure that there be "specific, predictable and sufficient ... mechanisms to preserve and advance universal service." However, changes in telecommunications technology and the marketplace, while often leading to positive benefits for consumers and providers, have had a negative impact on the health and viability of the USF, as presently designed. These changes have led to a growing imbalance between the entities and revenue stream contributing to the fund and the growth in the entities and programs eligible to receive funding. The desire to expand access to broadband and address what some perceive as a "digital divide" has also placed focus on what role, if any, the USF should take to address this issue. The current policy debate surrounding USF reform has focused on four major concerns: the scope of the program; who should contribute and what methodology should be used to fund the program; eligibility criteria for benefits; and concerns over possible program fraud, waste, and abuse. A separate and more narrowly focused issue, the impact of the Antideficiency Act (ADA) on the USF, also has become an issue of concern. Program Scope One of the major policy debates surrounding universal service is whether access to advanced telecommunications services (i.e., broadband) should be incorporated into universal service objectives. The term universal service, when applied to telecommunications, refers to the ability to make available a basket of telecommunications services to the public, across the nation, at a reasonable price. As directed in the 1996 Telecommunications Act [Section 254(c)], a federal-state Joint Board was tasked with defining the services which should be included in the basket of services to be eligible for federal universal service support; in effect using and defining the term "universal service" for the first time. The Joint Board's recommendation, which was subsequently adopted by the FCC in May 1997, included the following in its universal services package: voice grade access to, and some usage of, the public switched network; single line service; dual tone signaling; access to directory assistance; emergency service such as 911; operator services; access and interexchange (long distance) service. Some policy makers have expressed concern that the FCC-adopted definition is too limited and does not take into consideration the importance and growing acceptance of advanced services such as broadband and Internet access. They point to a number of provisions contained in the Universal Service section of the 1996 act to support their claim. Universal service principles contained in Section 254(b)(2) state that "Access to advanced telecommunications services should be provided to all regions of the Nation." The subsequent principle (b)(3) calls for consumers in all regions of the Nation including "low-income" and those in "rural, insular, and high cost areas" to have access to telecommunications and information services including "advanced services" at a comparable level and a comparable rate charged for similar services in urban areas. Such provisions, they state, dictate that the FCC expand its universal service definition. The 1996 act does take into consideration the changing nature of the telecommunications sector and allows for the universal service definition to be modified if future conditions warrant. Section 254(c) of the act states that "universal service is an evolving level of telecommunications services" and the FCC is tasked with "periodically" reevaluating this definition "taking into account advances in telecommunications and information technologies and services." Furthermore, the Joint Board is given specific authority to recommend "from time to time" to the FCC modification of the definition of the services to be included for federal universal service support. The Joint Board, in July 2002, concluded such an inquiry and recommended that at that time no changes be made in the list of services eligible for universal service support. The FCC, in a July 10, 2003, order (FCC 03-170) adopted the Joint Board's recommendation, thereby leaving unchanged the list of services supported by Federal universal service. More recently, however, the Joint Board was once again called upon to reexamine this issue and came up with a different conclusion. The Joint Board, on November 19, 2007, recommended that the FCC change the mix of services eligible for universal service support and concluded that "the universal availability of broadband Internet services" be included in the Nation's communications goals and hence be supported by Federal universal service funds. The FCC in its national broadband plan, Connecting America: the National Broadband Plan , released March 16, 2010, to Congress, has recommended that access to and adoption of broadband be a national goal and has proposed that the USF be restructured to become a vehicle to help reach this goal. (See the " FCC National Broadband Plan " section of this report, below, for more details on how the USF could be transformed to help achieve this recommendation.) Other policy makers caution that a more modest approach is appropriate given the "universal mandate" associated with this definition. Also at issue is the uncertainty and costs associated with mandating nationwide deployment of such advanced services as a universal service policy goal. Some have expressed concern that given the pressures currently facing the Fund, and their impact on the contribution factor, the inclusion of broadband services, at this time, is taking on too large a mandate. Current policy concerns regarding both the contribution and distribution mechanisms should be addressed first, they state, prior to any expansion of the USF definition. Furthermore, they state, the USF has already taken on limited broadband deployment responsibilities through the E-rate and Rural Health Care programs, and indirectly through the High Cost program, as funding is used to upgrade existing telephone networks. If ubiquitous broadband deployment is a national policy goal, they state, policymakers should not place further stress on the USF program but should seek out other means of achieving this goal which may be more effective, such as providing economic incentives, easing economic regulation, encouraging municipal ownership, expanding other existing programs or establishing a new program. Contribution Methodology One of the major policy questions surrounding USF reform is to what degree, if any, there should be a change in the way the program is funded. A consensus has been forming that some reform to broaden the contribution base is needed. How this should be accomplished, however, remains open to debate. Proposals range from modest options to expand the existing funding base, to broadening the base to include intrastate revenues, to calling for a complete restructuring of the contribution methodology. Expanding the Base One option is to broaden the base of entities that must contribute to the Fund, by calling for technology neutral funding. The FCC has taken a number of actions, over the years, to expand the pool of contributors, thereby broadening the base of entities supporting the Fund. For example, in 1998 the FCC established a revenue percentage, or safe harbor, of 15% of revenues for determining the USF contribution for wireless carriers. That percentage has been increased twice since and is currently set at 37.1%. In a June 2006 decision, the FCC further expanded the pool of contributors by requiring that providers of interconnected VoIP contribute to the USF and established a safe harbor of 64.9%. Some policy makers have recommended that the list of providers be expanded to include broadband providers which were removed from the base when the FCC ruled that Internet access services are information services, not telecommunications services. However, they generally recommend that this expansion be contingent on the understanding that USF support be used to upgrade the telecommunications infrastructure to include broadband capabilities. Intrastate Revenues Another proposal calls for broadening the revenue base by assessing fees on intrastate as well as interstate/international revenues. Although this would provide an additional source for USF funds, many state that this option may not be available absent congressional action to specifically designate intrastate revenues as a source for federal USF contributions. The recommendation for specific congressional clarification is based, to a large part, on a successful court challenge of an earlier attempt by the FCC to collect support for the E-rate program based on combined interstate and intrastate revenues. In the case of Texas Office of Public Utility Counsel v. FCC (183F.3d; 393;1999) the United States Court of Appeals, 5 th Circuit concluded that "the agency (FCC) exceeded its jurisdictional authority when it assessed contributions for Section 254(h), 'schools and libraries' programs based on combined intrastate and interstate revenues of interstate telecommunications providers and when it asserted its jurisdictional authority to do the same on behalf of high-cost support." Proponents of including intrastate revenues cite technological and marketplace changes which have eroded the distinction between interstate and intrastate services as well as the growth of combined calling plans in support of such action. Some, however, have expressed concern over the potential negative impact that the inclusion of intrastate revenues may have on state-supported USF programs since many are funded by intrastate telecommunications revenues. Numbers or Connections Another proposal calls for a shift in the basis of support away from revenues to a completely new methodology based on working numbers or connections. Under this proposal contributions for USF would be assessed based on a monthly flat fee, or charge, per working telephone number. Since users need a discrete number to connect to the public switched network, supporters claim this proposal would lead to a more stable assessment, would be technologically neutral, would spread contributions over a broader base, and would be easier to administer. Opponents, however, state that using a numbers-based approach shifts the burden of USF from high volume users directly to all subscribers as a regressive fixed charge. This, they state, not only adds a financial burden on low volume subscribers, who may be elderly, and/or on low and fixed incomes, but could possibly lead to subscriber drop-off, thereby defeating the purpose of the USF program. Distribution Methodology Another major issue facing USF reform concerns the eligibility criteria used to distribute USF funds. Over the past 12 years (1998-2010) annual USF receipts have grown from $2.3 billion to an estimated $8.0 billion and the contribution factor needed to support this growth has almost tripled to reach an all time high of 15.5% for the first quarter of 2011. While this factor had experienced a slight moderation the current (fourth quarter 2011) contribution factor is 15.3%,the second highest rate on record. This significant rise in the funding level, and subsequently the contribution factor, has led to an examination of the Fund's eligibility criteria and distribution methodology. More specifically concerns have been voiced over the long-term sustainability of the Fund and the cost burden it imposes on contributors. Examination of USF program revenue flows, since 2003, shows that three of the four programs—Low Income, Schools and Libraries, and Rural Health Care—have been relatively stable. However, the High Cost program has experienced significant growth (30.4%), with disbursements increasing from $3,273.2 million to $4,267.7 million over the most recent seven year (2003-2010) period; and as a result, is the major factor contributing to the USF's recent overall growth. Within the High Cost program the growth can be traced to support given to competitive eligible telecommunications carriers. For example, payments for competitive eligible telecommunications carriers, which are largely wireless carriers, increased from $1 million in 2000 to $126.7 million in 2003, but are estimated by USAC to total slightly more than $1.2 billion for 2010. On the other hand, while incumbent eligible telecommunications carriers still receive a significant majority of funds from the High Cost program, revenues disbursed in 2003 and 2010 decreased from $3.2 billion to $3.1 billion. The FCC's May 2008 decision to place an interim cap on High Cost payments to competitive eligible telecommunications carriers has helped to mitigate this trend. (See " Capping " section, below, for a further discussion.) A more recent trend which has added to the overall increase in the USF has been the growth, after years of relative stability, in the Low Income program. Disbursements to the Low Income program have increased from $822 million in 2008 to an estimated $1.3 billion in 2010. This recent growth can be attributed, to some degree, to the entrance of pre-paid wireless providers to the Lifeline program. According to the FCC, pre-paid wireless eligible telecommunications carriers now account for one-third of all Lifeline reimbursements. An increase in eligible households, due to the recession, is also a likely contributing factor. Whether this will become a growing trend, placing further pressure on the Lifeline program, or is a limited uptick, is yet to be determined. Hence, most policy discussions regarding the distribution methodology focus on proposals to stem the growth of the High Cost Program by limiting eligibility criteria and/or controlling the amount of funding disbursed. A variety of proposals, to be used on their own or in combination, are being discussed including limiting USF support to a single line per household, eliminating the "identical support rule," using reverse auctions to determine eligibility, placing a cap (or ceiling) on funds, and improving targeting. Improving management of all four funds to eliminate any fraud, waste, or abuse, has also been a focus of reform efforts. Primary or Single Line Limitation As presently designed, USF support is available to multiple lines per household. Some policy makers have proposed that one way to curb the increase in funding requirements is to limit eligibility criteria. USF funding, they state, should be limited to a single or primary line, not multiple access. The universal service mandate, they claim, is not to artificially construct a competitive marketplace with multiple carriers in areas that are not able to support a single carrier, but to ensure that high cost areas receive service at a reasonable rate. The use of USF funds to support multiple carriers in high cost areas, they claim, is an abuse of funds and places unnecessary strain on those supporting the program. Others, however, have argued that limiting USF support to a single provider relegates those areas to a lower standard, which does not fulfill the universal service principle to afford consumers in rural, insular and high cost areas, access to telecommunications and information services that are "reasonably comparable to those services provided in urban areas" (§254 [b] [3]). High cost areas, they state, should have the benefits and choices of competition and the opportunity to select from a variety of providers just like other regions of the nation. Line limitations, opponents state, will only discourage investment in rural infrastructure. Reverse Auctions One proposal under consideration for selecting an eligible carrier is the use of reverse auctions, or competitive bidding. Under this method a geographic area would be designated as high cost, providers interested in offering service would be asked how little universal service support they would need to provide service and the provider that submits the lowest bid, all else equal, would receive the funds. This approach, in theory, would result in a decrease in funding for High Cost support since it would be based on low bids submitted by providers instead of on the current method that is based on the embedded costs of the incumbent telecommunications provider in the area. This, supporters claim, will lead to the use of the most efficient technology and will relieve the growing pressure on USF funds. However, there is no single methodology that must be used and the reverse auction concept could be designed in a number of ways and impose a variety of requirements and obligations. For example, some support a phased-in approach to reverse auctions where it is used solely to select a competitive carrier for an area while the designated incumbent eligible telecommunications carrier remains under the present system indefinitely, or for a specific time period. Others suggest that an auction system could reward the lowest bidder with the most support, but still give other participants some limited support. Still others suggest the establishment of a pilot program to test for successes and/or unintended consequences. On the other hand, others have expressed reservations about adopting reverse auctions stating that many questions remain about how to implement reverse auctions, how to administer the costs associated with their adoption, and the long-term impact they would have on consumers as well as providers. Concerns were also expressed that a reverse auction would not create a favorable environment for network investment possibly resulting in stranded investment, erratic funding, and ultimately inferior networks. Identical Support Rule The criteria used for the distribution of funds for the High Cost program has also come under scrutiny. High Cost program fund distribution is based on what is known as the "identical support rule." Under this rule funds are distributed to competitive eligible telecommunications carriers based on the embedded costs, or per line support, of the incumbent carrier. Typically the incumbent carrier is a wireline carrier while the competitive carrier is a wireless carrier. The infrastructure costs associated with the investment and maintenance of a wireline system are generally significantly higher than those associated with a wireless system. Therefore some have questioned whether basing funding levels on the incumbent carrier's costs, particularly when support is based on a more expensive infrastructure, is reasonable, or even fair. Switching to a more refined distribution methodology, more reflective of a carrier's actual costs they claim, would help to alleviate some of the pressure facing funding of the High Cost program. Furthermore they state, it is anticipated that the growth in competitive eligible telecommunications carriers will be increasing based on the number of applications pending at the FCC, and that therefore addressing this issue is of growing significance. Capping Some have also proposed placing a cap, as a temporary or permanent measure, on the funds available for distribution to competitive eligible telecommunications carriers through the High Cost program. Supporters of capping claim that it will prevent the uncontrolled growth of this part of the High Cost program, which is the major contributor to the overall growth in the USF. In turn, they state, this will bring stability to the Fund and the USF contribution factor. They note that both the E-rate and the Rural Health Care programs operate under yearly caps, and with the exception of the Low Income program which has been relatively stable, the High Cost program is the only program with no built-in restraints on its growth. Others, however, are opposed to implementing a cap. They point out that placing a cap on an existing program, such as the High Cost program, could lead to confusion and be very disruptive. The dynamic, they state, is very different than capping programs, such as the E-rate and Rural Health Care, at their inception. The High Cost program, they claim, is an ongoing program responsible for providing basic voice service and connection to the network, a fundamental tenet of the universal service mandate. The placing of a cap on this program, they claim, could have significant unintended consequences which could undermine universal service goals. The federal-state Joint Board recommended that the FCC immediately impose an interim cap on a portion of the high cost fund. More specifically the Joint Board, in a May 1, 2007, action, issued a recommendation that the FCC place an interim, emergency cap on the amount of high-cost support that competitive eligible telecommunications carriers receive for each state from the High Cost program. The Joint Board recommended that the support be based on the average level of competitive eligible telecommunications carrier support distributed in that state in 2006 and that the interim cap apply until one year from the date that it makes its recommendation regarding comprehensive USF reform. This is seen as a temporary measure to curb the growth of the High Cost program until more permanent action can be taken to reform the USF. The FCC, in a May 11, 2007, action, adopted a notice of proposed rulemaking seeking comment on this recommendation; comments and reply comments were received in June 2007. On May 1, 2008, the FCC adopted, by a 3-2 vote, an interim cap on payments to competitive eligible telecommunications carriers to the High Cost fund. Total annual support is capped, with some limited exceptions, at the level of support received in each state, during March 2008, on an annualized basis. The decision went into effect August 1, 2008, and will remain in place only until the FCC adopts comprehensive high cost universal service reform. Improved Targeting An additional proposal calls for making a better effort to target areas of need by using better mapping technology (geographic information systems or GIS) or modeling to determine support for eligible telecommunications carriers. Some claim that the designated areas for support are too large and cover areas which might not be in need of USF support. Designating areas for USF support that do not need such subsidies only encourages the influx of eligible carriers into areas that they might choose to enter absent such support, they claim, and leads to the use of funds which may be more appropriately used elsewhere. Taking a more refined and precise approach, they state, will result in using funds more effectively in areas that truly need support. While most support such efforts, and see such proposals to be more long-term efforts, progress is being made. Provisions in the American Recovery and Reinvestment Act ( P.L. 111-5 ) called for the development and maintenance of a national broadband inventory map, which was released in February 2011, and additional efforts are also underway to improve and refine data collection. Fraud, Waste, and Abuse Directly related to the funding issue are concerns expressed by policy makers over the potential for possible fraud, waste, or abuse of the program. While all USF programs have the potential for mismanagement, the E-rate program, "due to its materiality and an initial assessment of its potential for waste, fraud, and abuse," was initially singled out for particular attention. The ability to ensure that only eligible services are funded, that funding is disbursed at the proper level of discount, that alleged services have been received, and the integrity of the competitive bidding process is upheld have been questioned. A series of Government Accountability Office (GAO) reports raising concerns about the financial oversight of the E-rate program prompted additional congressional scrutiny. The USAC, as the administrator responsible for the management and oversight of the USF, initiated a number of measures to address specific E-rate concerns and extended them to all USF programs. These measures include establishing a whistleblower hotline to report violations and conducting random and targeted audits of USF program participants and contributors. In August 2007 the FCC adopted a series of measures to safeguard the USF to deter fraud, waste, and abuse. Included in the measures taken are those that extend the debarment rules (three years) and sanctions for criminal and civil violations beyond the Schools and Libraries Program to cover all four programs; tighten rules requiring timely payments and assessing penalties or interest for late payments on USF contributors; and increase record keeping requirements for both contributors and beneficiaries. In addition the FCC, as recommended by the GAO, adopted performance measures, for all four programs and for USAC. A GAO report focusing on the USF's High Cost Program was released in July 2008. The report, FCC Needs to Improve Performance Management and Strengthen Oversight of the High-Cost Program , noted that the "FCC has not established performance goals or measures [for the Program]." Furthermore, the GAO stated "In the absence of performance goals and measures, the Congress and the FCC are limited in their ability to make informed decisions about the future of the high-cost program." Although the GAO acknowledged that "the FCC has begun preliminary efforts to address these shortcomings," problems with these efforts still exist. The FCC, in an August 15, 2008, action, adopted a Notice of Inquiry (NOI) seeking public "comment on ways to further strengthen management, administration, and oversight of the USF ... define more clearly the goals of the USF ... identify any additional quantifiable performance measures" and "comment on whether, and if so, to what extent the Commission's oversight of the USF can be improved." Citing the steps the FCC has already taken to strengthen its oversight and management of the Fund, and the recent benefits and improvements that have been made, the FCC, however, acknowledged both the demand for "constant scrutiny and assessment of the Commission's oversight efforts" as well as the GAO's July 2008 recommendation that the FCC take steps to improve its oversight of the USF. This NOI has been initiated, according to the FCC, to continue to assess and solicit public input to develop additional rules and safeguards to protect the Fund. The FCC's Office of the Inspector General (OIG) has also been active in pursuing oversight of the USF focusing initially on the E-rate program. Since 2002 the OIG has included in its semi-annual reports coverage of its specific efforts to oversee E-rate program activity, including audits, to ensure program integrity. More recently, however, the OIG has also expanded its audit efforts to include the remaining three USF programs and audits of USF contributors. In 2006, USAC took additional action by initiating with the OIG "a large-scale beneficiary audit program" covering all four USF programs and planned to "conduct more than 450 audits of program beneficiaries and contributors." The result of this audit, which was comprised of 459 audits of USF program participants for beneficiaries of all four programs and contributors to the USF, was released by the OIG in October 2007. According to the preliminary OIG analysis of the audits, using estimates extrapolated from incomplete audits which covered beneficiaries of all four programs as well as contributors, in general the audits indicated compliance with the [FCC's] rules, although erroneous payment rates exceeded 9% in most USF program segments. The audit resulted in the following erroneous payment rates: contributors payments, 5.5% ($385,000,000); Low Income, 9.5% ($75,500,000); Schools and Libraries, 12.9% ($210,000,000); High Cost, 16.6% ($618,000,000) and Rural Health Care, 20.6% ($4,450,000). USAC has completed all the audit work left unfinished in the first three rounds of the OIG USF audits and found that the actual improper payment rate was significantly lower than early estimates. For example, the "improper" payment rate in the High Cost Program dropped to 2.7% from the earlier reported 16.6% and the Schools and Libraries Program improper payment rate dropped to 8.6% form the earlier estimate of 12.8%. It should also be noted that an "erroneous payment" as defined by OMB, is "any payment that should not have been made or that was made in an incorrect amount," which includes overpayments, underpayments, and the inappropriate denial of a payment or service. Despite this activity, however, the OIG continues to cite the need for additional resources, stating that "Although we have made progress in achieving the goal of establishing a more effective oversight program, we need significant increases in audit, investigative, and legal resources to achieve the goal of having a truly effective oversight program." The FCC's Enforcement Bureau is the primary entity within the FCC tasked with enforcing the provisions of the Communications Act, including those related to Section 254 (universal service). The Enforcement Bureau pursues violators and initiates enforcement actions including notices of liability, suspensions, consent decrees, and debarments. The Department of Justice (DOJ) has also taken an active role in pursuing instances of deliberate fraud related, in particular, to the E-rate program. The Antitrust Division of the DOJ has established a task force to investigate E-rate fraud and has prosecuted a number of individuals and companies leading to fines, restitution, program debarments, and imprisonment. As was the case in the 110 th and 111 th Congresses, the 112 th Congress is expected to continue its review of the USF, and all four of the programs will be subject to oversight to prevent any fraud, waste, or abuse. (See " Congressional Activity ," below, for a discussion of congressional oversight activities.) Concerns about fraud and abuse are shared by both critics and supporters of the program. For example, critics of the E-rate program have used examples of fraud, waste, and abuse to call for a halt to the program or at a minimum, its suspension until additional safeguards are in place. Supporters also want to ensure the integrity of all four programs since the misuse of funds or unreasonable administrative costs not only leave the program vulnerable to critics, but would only decrease available funding to meet the program's goals. Antideficiency Act Compliance A more narrowly focused policy issue relating to the operation of the USF deals with Antideficiency Act (ADA) compliance. With the guidance of the Office of Management and Budget (OMB) the FCC decided, in August of 2004, that the accounting requirements contained in the ADA should be applied to the operation of the USF. Under this accounting methodology, the government is precluded from incurring obligations prior to the funds being available. E-rate fund commitment letters, which are issued far in advance of actual funds payment, were considered to be obligations. Therefore ADA compliance requires that the funds be on hand to cover obligations and the program was required to have the cash on hand to cover all of the commitment letters. USAC changed the timing of its funds distribution in order to meet this requirement, leading to a temporary four-month suspension (from August through November 2004) of E-rate funding commitments. The temporary halt in the disbursement of E-rate funding commitments, the concern that funding for other USF programs might be disrupted and that compliance might necessitate a significant increase in USF revenues, brought this issue to congressional attention. The 108 th Congress enacted legislation to provide for a one-year exemption (through December 31, 2005) from the ADA for the USF ( P.L. 108 - 494 ). Since then the temporary one-year exemption has been extended six times, once to December 31, 2006, in conjunction with the Science, State, Justice, and Commerce appropriations measure ( P.L. 109 - 108 ); again for an additional one-year exemption (until December 31, 2007) as part of the CR2007 ( H.J.Res. 20 ; P.L. 110 - 5 ); once again a one-year extension (until December 31, 2008) as part of the Consolidated Appropriations Act of 2008 ( H.R. 2764 ; P.L. 110 - 161 ); again an extension until December 31, 2009, as part of the 2009 Omnibus Appropriations bill ( H.R. 1105 ; P.L. 111-8 ), again until December 31, 2010, as part of the 2010 Consolidated Appropriations Act ( H.R. 3288 ; P.L. 111-117 ), and most recently until December 31, 2011, as part of the Continuing Appropriations and Surface Transportation Extensions Act, 2011 ( H.R. 3082 ;P.L. 111-322). Whether the USF program should be required to comply with the accounting provisions contained in the ADA and if so what consequences that may have for USF programs is expected to continue to be an issue. Once again this exemption will expire at the close of the first session of the 112 th Congress and Congress may choose to address this issue in a variety of ways. It may continue to enact legislation to provide short-term relief by extending the temporary exemption. Also it could choose to enact legislation, such as S. 297 pending in the 112 th Congress, to provide the USF program with a permanent exemption from ADA requirements, or it may choose to take no further action allowing the temporary exemption to expire, thereby requiring the FCC to ensure, through whatever steps it deems necessary, that the USF is in full compliance with ADA requirements. The FCC has resolved, at least temporarily, any compliance problems. Former FCC Chairman Martin, in response to questioning during his September 2006 Senate confirmation hearing, stated that the Commission has concluded that the ADA does apply to the USF. However, he assured Commerce Committee members that funds will be sufficient and that E-rate program commitment letters will not be delayed. Some, however, have continued to express concern that the actions taken by the FCC are only temporary and that ADA compliance may jeopardize disbursements for not only the E-Rate program, but possibly other USF programs, and may cause a significant increase in the contribution factor. FCC National Broadband Plan Provisions contained in the American Recovery and Reinvestment Act of 2009 (ARRA) called for the FCC to develop, and submit to Congress, a national broadband plan (NBP) to ensure that every American has "access to broadband capability." This plan , Connecting America: The National Broadband Plan , submitted to Congress on March 16, 2010, calls for the USF to play a major role in achieving this goal. The NBP calls for the USF to be transformed, in three stages over a 10-year period, from a mechanism to support voice telephone service to one that supports the deployment, adoption, and utilization of broadband. More specifically, two new funds, the Connect America Fund and a Mobility Fund, are created, the High Cost program is phased-out, while the Low Income, E-rate, and Rural Health Care programs are modified and assume wider responsibilities. Before these transitions should occur, however, the NBP recommends that the FCC continue to take steps to improve USF performance and accountability through stronger oversight and management and enhanced data collection and reporting. High-Cost Program The goal of the reform of the High Cost program is to transition it from one that primarily supports voice communications to one that supports a broadband platform that enables multiple applications, including voice. Although some carriers that receive high-cost funding do use it to deploy broadband capable infrastructure, currently there is no requirement that recipients of high-cost funding provide any households in their service areas with broadband. The NBP recommends that the High-Cost program be phased-out and replaced in stages, over the next 10 years, to directly support high-capacity broadband networks through a newly created Connect America Fund and a Mobility Fund. More specifically, the NBP recommends that the legacy High-Cost program cease operation by 2020 and support be given solely to providers who offer broadband that offers high-quality voice through the Connect America Fund. Connect America and Mobility Funds The NBP recommends the creation of two new funds: the Connect America Fund (CAF) and the Mobility Fund (MF). The CAF is created to support the provision of affordable broadband and voice with at least 4 Mbps actual download speed and 1 Mbps of actual upload speed. The NBP recommends that the FCC adhere to the following principles in developing the CAF: funding should only be provided in geographic areas where there is no private sector business case to provide broadband and high-quality voice grade service; there should be at most one subsidized provider of broadband per geographic area; eligibility criteria should be company and technology agnostic; ways to drive funding to efficient levels, including market-based mechanisms where appropriate, to determine the firms selected for and the levels of support given should be identified by the FCC; recipients of funding must be subject to accountability requirements and subject to enforceable timelines for achieving access as well as a broadband provider-of-last resort obligation. The MF is created to provide targeted funding to ensure that all states achieve the national average for 3G wireless coverage used for both voice and data. The MF will provide one-time support for deployment of 3G networks. 3G availability, according to the NBP, will improve the business case for the development of 4G networks in harder-to-serve areas and potentially benefit public safety users. The NBP further recommends that the FCC "... select an efficient method, such as a market-based mechanism, for supporting mobility in targeted areas." Low-Income Program According to an FCC conducted broadband consumer survey 36% of non-adopters of broadband cited a financial reason as the main reason they do not have broadband service at home. To address this barrier the NBP recommends that both Low-Income programs, Lifeline and Link Up, be expanded to increase broadband adoption levels for low-income households. The NBP recommends that the FCC require that ETC's receiving funds permit Lifeline customers to apply Lifeline discounts to any service or package that includes basic voice service. In this way Lifeline customers can apply their discounts to bundled offerings (i.e., voice and data) making broadband service more affordable. The NBP also recommends that the FCC integrate the expanded Lifeline and Link Up programs with state and local e-government efforts as well as facilitate pilot programs to obtain information to determine what program design elements most effectively increase adoption rates. Upon completion of the pilot programs the FCC is directed to report to Congress on these results and begin a "... full scale implementation of a low-income program for broadband." Schools and Libraries and Rural Health Care Programs The NBP contains almost a dozen recommendations to modernize and improve the E-rate program. These recommendations focus on three goals: improve flexibility, deployment, and use of infrastructure; improve program efficiency; and foster innovation. Among these recommendations are those that call for the FCC to initiate rulemakings to streamline the applications process, raise the yearly cap on funding to account for inflation, and set goals for minimum broadband connectivity for schools and libraries; adopt the pending notice of proposed rulemaking to remove barriers to off-hours community use of E-rate funded resources; expand E-rate support for internal connections to more schools and libraries; improve data collection efforts on use of E-rate funds; provide more flexibility to purchase the lowest-cost broadband solutions; and make overall broadband-related E-rate program expenses more cost-efficient. Citing the importance of health care to the lives of consumers and its importance to the national economy the NBP calls for reform of the Rural Health Care Program. The NBP calls for the restructuring and expansion of its program components. The NBP recommends that the existing Internet Access Fund be replaced with a Health Care Broadband Access Fund, subsidy support be increased beyond the current 25%, the application process be simplified, and, unlike the present Fund, eligibility be expanded beyond rural health care providers to include both rural and urban health care providers, based on need. It also recommends that the FCC establish a Health Care Broadband Infrastructure Fund, based on lessons learned from the Pilot Program, to subsidize network deployment to health care delivery locations where existing network infrastructure is insufficient. Additional recommendations for the Rural Health Care Program include those that suggest the FCC expand the definition of eligible health care provider to include long-term care facilities, off-site administrative offices, data centers and other similar locations and suggest that Congress consider expanding the definition for eligibility to include providing support of certain for-profit entities. To help protect against, fraud, waste, and abuse the NBP recommends that the FCC require that participating institutions meet outcomes-based performance measures to measure the efficient use of health IT to ensure that funds are used to not only build and deploy broadband infrastructure, but to improve the country's health delivery system. The NBP also recommends that federal and state policies, including USF policies, should facilitate demand aggregation for broader community use and not develop policies that result in dedicated, single purpose networks, such as school networks funded by E-rate, or hospitals funded through the Rural Health Care program. Citing the extremely low connection rates and other unique challenges facing Tribal lands, the NBP specifically recommends that Congress amend the 1934 Communications Act to provide the FCC with the discretion to permit anchor institutions on Tribal lands to share broadband network capacity funded through the E-rate and rural health care programs with other community institutions designated by Tribal governments. The NBP also recommends that Congress consider amending the 1934 Communications Act to help Tribal libraries overcome barriers to E-rate eligibility arising from state laws. Funding The NBP calls for a major restructuring of the USF, but recommends that the funding level be maintained close to its current size (in 2010 dollars). The NBP recommends that $15.5 billion (present value in 2010 dollars) be shifted, through selected reforms, over the next decade from the existing USF High Cost program to support the transition to broadband. However, the NBP also recommends that if Congress wishes to accelerate this transition it could allocate to the CAF additional general funds of "... a few billion dollars per year over a two to three year period." The NBP also recommends that the USF contribution base be broadened and the FCC "... adopt revised contribution methodology rules to ensure that USF remains sustainable over time." It does not, however, provide specific guidance on how this should be accomplished. Furthermore, the NBP acknowledges the relationship between its broadband goals and the USF contribution factor and seeks to "... minimize the burden of increasing universal service contributions on consumers." Implementation The NBP contains over 208 recommendations involving a wide range of Executive Branch agencies, Congress, nonfederal and nongovernmental entities as well as the FCC; approximately 60 of these recommendations call for FCC action. The FCC has initiated a series of proceedings which will provide further guidance regarding how the FCC-specific recommendations will be implemented. These proceedings will flush out the details and give all stakeholders an opportunity to provide input into how the FCC should proceed to implement the recommendations contained in the NBP. The FCC also announced, on June 14, 2010, the establishment of a Universal Service Working Group, an in-house multi-bureau group to facilitate collaboration between the bureaus to further the universal service goals established in the National Broadband Plan. High Cost Program The FCC took two major steps towards implementing the NBP recommendations to reform the USF High Cost program by adopting two Notices of Proposed Rulemaking: one to create a Mobility Fund to address access to advanced wireless services; and the other to create a Connect America Fund to promote the development of broadband services. The FCC is scheduled to vote on these rulemakings on October 27, 2011. Mobility Fund The FCC adopted, on October 14, 2010, a Notice of Proposed Rulemaking (NPRM) to seek comment on proposals to create a Mobility Fund (MF) to improve the coverage of 3G wireless, or better, services. Under this proposal the MF would provide one-time support, ranging from a total of $100 million to $300 million, to areas that currently do not have access to advanced wireless services, defined as those that offer mobile wireless voice telecommunications services, e-mail, and Internet access. The NPRM proposes using a reverse auction mechanism to make the support to service providers to extend 3G or better mobile voice and Internet service coverage in specified unserved areas. The NPRM also seeks comment on a range of additional proposals, including whether to make support available to any unserved area in the nation or target support by making it available to limited areas; minimum performance and coverage requirements for MF support; suggested administrative, management, and oversight functions to deter fraud, waste, and abuse; and whether the MF initiative should be repeated. The comment and reply periods are now closed. Connect America Fund The FCC proposed, in a Notice of Proposed Rulemaking (NPRM) and Further Notice of Proposed Rulemaking (FNPRM), to eliminate and shift the money from the current High Cost program by establishing a new Connect America Fund. Coupled with this action will be a shift in focus from voice to subsidize broadband, which would include voice access. The NPRM and FNPRM, adopted on February 8, 2011, call for this transition to occur in three phases over the next 10 years. Numerous steps are proposed, to complete the transition of the current High Cost program to a "new, more efficient, broadband-focused Connect America Fund," to accelerate broadband deployment. The USF concept is broadened to include the adoption of the principle "that universal service support should be directed where possible to networks that provide advanced services, as well as voice services" and suggests that broadband and mobility should be added to the definition of supported services. The proposal calls for the use of a reverse auction to provide broadband to unserved areas by awarding a "significant amount of funding" (from $500 million to more than $1 billion) in 2012 as a one-time infusion, with the potential for future auctions. Recipients could be either fixed (wireline or wireless) or mobile wireless providers. The notices seek comment on a wide range of proposals, some more immediate and others more long term, to complete this transition. Included among these proposals, which are open for comment by all stakeholders, are whether the use of reverse auctions, or another mechanism, is appropriate to bring broadband to underserved areas; whether the per-line subsidy should be capped at $3,000 per year in high-cost areas in the continental United States, absent exceptional circumstances; whether existing carriers should be given the first option to continue serving a given area, or whether some other option should be pursued; whether the minimum broadband speed should be set at 4 megabits per second actual downstream and 1 megabit per second actual upstream, or 3 megabits/768 kilobits per second, or a different speed requirement; how often broadband speed requirements should be reevaluated; what public interest obligations should apply to eligible telecommunications carriers; ending the identical support rule; adopting performance goals and metrics; the appropriate role of the states in preserving and advancing universal service, and the expected level of financial commitment from the states. The comment and reply periods are closed. Low Income Program The FCC adopted, on March 3, 2011, a notice of proposed rulemaking (NPRM) seeking comment on a set of reforms to "modernize and drive tougher accountability measures" for the Lifeline and Link Up components of the Low Income program. The FCC is soliciting comments on proposed changes that will better position the program to, among other concerns, take on the expanded role, detailed in the NBP, as a provider of broadband service. The NPRM seeks to modernize the program to accommodate broadband while still controlling program size, strengthen program administration and accountability, increase protections against fraud, waste, and abuse, and improve enrollment and outreach efforts. More specifically the proposed reforms include those to create a National Accountability Database to verify consumer eligibility and a uniform national framework for validating ongoing eligibility; eliminate funding for services that go unused for more than 60 days; evaluate the need for a temporary or permanent cap to control program growth; permit eligible households to use Lifeline discounts on bundled voice and broadband service offerings; address the unique situations facing residents on Tribal lands; and establish pilot programs, from savings from reforms, to test strategies for supporting broadband services. Comments were due April 21, 2011, and replies May 10 and 25, 2011. Separately, the FCC adopted, on June 17, 2011, a report and order to address "potential waste" in the Lifeline and Link Up programs by strengthening rules to prevent support payments for multiple services to the same individual. The FCC clarified that an eligible consumer may only receive support for "a single telephone line in their principle residence" and codified that "... no qualifying consumer is permitted to receive more than one Lifeline subsidy concurrently." This clarification is necessary, according to the FCC, since consumers now have multiple Lifeline options, through wireless carriers, in contrast to the past when most consumers only had one option for telephone service through their incumbent telephone company's wireline service. To further insure that no duplication occurs the FCC has required that: USAC notify consumers that are receiving multiple benefits that they are allowed only one Lifeline-subsidized phone service; consumers in violation be given 30 days to select which subsidized service they wish to keep; and companies not chosen must de-enroll the consumer from the Lifeline service within five days after notification by USAC that they have been deselected by the consumer. The expectation is that the dollars saved by removing duplicative Lifeline support will be used to help cover costs associated with a yet-to-be-established pilot program to help expand the Low Income program to provide broadband services. Schools and Libraries Program Reform of the Schools and Libraries Program (E-Rate Program) is also underway. The FCC adopted, September 23, 2010, an order to "upgrade(d) and modernize(d)" the E-rate program. While significant these new rules are viewed by the FCC as "a first stage in a multi-stage upgrade of the E-rate program." Included among the proposals that were adopted are those that allow applicants to lease broadband from a wider range of options, including dark fiber; permit schools to allow community use of E-rate funded services outside of school hours; index the yearly $2.25 billion funding cap to account for inflation as of the FY2010 funding year; support eligible services to the residential portion of schools that serve students in special circumstances (e.g., schools on Tribal lands, schools that meet special medical needs; juvenile justice facilities); permit schools and libraries to receive consideration when disposing of and/or recycling E-rate-funded obsolete equipment; streamline the application process; increase protections against fraud, waste, and abuse by codifying the competitive bidding requirements and clarifying ethics obligations; and establish a limited pilot program to support off-campus wireless connectivity for portable learning devices outside of regular school or library learning hours. Rural Health Care Program A NPRM initiating reforms to the Rural Health Care Program to expand the reach and use of broadband connectivity by health care providers was adopted on July 15, 2010. The FCC maintains the existing $400 million funding cap but proposes three major changes to the existing program: creation of a new health infrastructure program that would support up to 85% of the new regional or statewide network broadband project construction costs to serve public and non-profit healthcare providers (a 15% private funding match would be required); creation of a health broadband services program that would subsidize 50% of the monthly recurring costs for access to broadband services for eligible entities; and expansion of the definition of "eligible health care provider" to include such entities as skilled nursing facilities, renal dialysis centers and facilities, data centers, and administrative offices. Comment is also sought on issues such as prioritizing funding requests; establishing performance measures; and whether there are any "unique circumstances" in Tribal lands or insular areas "that would necessitate a different approach." Comments and replies on the NPRM have already been filed. Congressional Activity 112th Congress It is anticipated that Universal Service Fund reform will continue to be a topic of congressional interest. Both the House Energy and Commerce Committee and the Senate Commerce, Science, and Transportation Committee have included USF reform on their agendas of issues for consideration and oversight. The Senate Commerce Committee held a hearing on October 12, 2011, on reforming the USF, with a particular focus on the High Cost Fund. The chairman and ranking members of the House Energy and Commerce Committee and the Subcommittee on Telecommunications and Technology have requested, in a June 22, 2011, letter to the FCC, USF data focusing on the High Cost and Low Income programs to assist them to better understand the USF and its operations. Three stand-alone measures ( H.R. 2163 , H.R. 3118 , S. 297 ) relating to USF have been introduced to date. Representative Matsui introduced, on June 14, 2011, H.R. 2163 , the "Broadband Affordability Act of 2011." This measure expands the USF's low-income Lifeline program to include subscribership to broadband services at reduced rates. Eligibility requirements are the same as those used for the current Lifeline telephone program. Provisions require the FCC to establish regulations to prevent eligible households from receiving more than a single subsidy per household. The FCC is tasked with establishing the amount of support and determining whether state matching funds will be required for participation as well as determining how broadband service is defined. Broadband service providers are required to obtain FCC authorization to participate in the program, but the program is neutral as to what type of technology is used and does not require a provider to be classified as eligible telecommunications carrier to participate. H.R. 3118 , introduced on October 6, 2011, by Representative Farenthold, contains provisions to freeze USF funding at 2011 levels and reform the Low Income program More specifically the bill will: rescind the forbearance authority which is used by eligible carriers to offer prepaid wireless Lifeline service; freeze USF funding at 2011 levels and transfer, on a yearly basis, $500 million of those funds to the General Fund of the Treasury; and implement reforms to the Low Income Program, including the establishment of a database, to help prevent fraud, waste, and abuse. S. 297 , introduced February 7, 2011, by Senator Rockefeller, amends Section 254 of the Communications Act of 1934 to provide for a permanent exemption for the USF from the Antideficiency Act. 111th Congress The House Subcommittee on Communications, Technology, and the Internet and the Senate Commerce Committee are among the committees that held hearings on USF reform and the FCC's national broadband plan. Former House Communications Subcommittee Chairman Boucher and Representative Terry released, on July 22, 2010, a bill ( H.R. 5828 ) which addressed comprehensive reform of the USF. H.R. 5828 , the "Universal Service Reform Act of 2010," provided for a major restructuring of the USF. Included among its provisions were those that expanded the USF to include support for broadband services; widened the contribution base to support the USF; required the FCC to develop new cost models for calculating USF support; limited fund eligibility; prohibited the FCC from adopting a primary line restriction; and directed the FCC to establish performance goals and measures for each program to strengthen accountability. The House Communications Subcommittee held a hearing, September 16, 2010, on the measure, but no further action was taken. Then-House Energy and Commerce Committee Chairman Waxman and other committee members also expressed interest in examining USF reform and released USF data requested by committee and subcommittee members from the FCC, focusing on USF support, that is being used to better understand the USF and its operations. Legislation ( H.R. 3646 , H.R. 4619 , S. 2879 ) to expand the role of the USF was introduced. In a move to address the issue of affordability of broadband for low-income households Representative Matsui introduced, on September 24, 2009, H.R. 3646 , the "Broadband Affordability Act of 2009." This measure expanded the USF's low-income Lifeline program to include subscribership to broadband services at reduced rates. Eligibility requirements were the same as those used for the current Lifeline telephone program. The FCC was tasked with establishing the amount of support and determining whether state matching funds will be required for participation. Broadband service provider were required to obtain FCC authorization to participate in the program, but the program was neutral as to what type of technology is used and did not require a provider to be classified as eligible telecommunications carrier. H.R. 4619 , the "E-Rate 2.0 Act of 2010," introduced February 9, 2010, by Representative Markey, expanded the E-rate program to address access to broadband. This bill created three temporary pilot programs to expand access to broadband by: extending funding to qualifying low-income students for vouchers to be used for monthly service fees for broadband services at home; expanding the E-rate program to include discounts for community colleges and head start programs; and funding an electronic books project. H.R. 4619 also called for the FCC to take steps to "streamline and simplify" the E-rate program application process and adjusted the current $2.25 billion annual program cap to account for inflation. S. 2879 , the "Broadband Opportunity and Affordability Act," introduced on December 11, 2009, by Senator Rockefeller, directed the FCC to conduct a two-year pilot program by expanding the Lifeline program, to include broadband services. The FCC was tasked with establishing the amount of support, determining whether state matching funds would be required for participation, and ensuring that the program is technologically neutral in terms of providers. After 18 months of operation the FCC was required to submit a report to the Senate Commerce and the House Energy and Commerce committees on the status of the pilot program. S. 2879 also required the FCC to initiate a notice of inquiry to determine whether the Link Up program should be expanded to reduce the cost of initiating broadband service and report its findings to the Senate Commerce and House Energy and Commerce committees. Action to address the Antideficiency Act (ADA) exemption was also undertaken. In keeping with previous Congressional efforts legislation to extend the ADA exemption for one year periods was enacted. The Consolidated Appropriations Act, 2010, which was enacted into law ( P.L. 111-117 ), contained a provision to extend the USF ADA exemption until December 31, 2010; this exemption was extended once again, until December 31, 2011, as part of the Continuing Appropriations and Surface Transportation Extensions Act, 2011 ( H.R. 3082 ; P.L. 111-322 ). S. 348 , introduced January 29, 2009, by Senate Commerce Committee Chairman Rockefeller, and H.R. 2135 , introduced April 28, 2009, by Representative Rehberg, as well as provisions contained in H.R. 5828 , provided for a permanent ADA exemption for the USF, but none of these measures received further consideration. An additional provision pertinent to the USF is also contained in P.L. 111-117 . This provision prohibits the FCC from using its FY2010 funds to limit USF support to a primary, or single, line. Appendix A. USF Contribution Factors and State Support Appendix B. Congressional Activity: 110 th Congress The 110 th Congress took an active role regarding USF oversight and reform. Legislative measures to address the reform, restructuring, and expansion into broadband of the USF were introduced ( S. 101 , S. 711 , S. 3491 , H.R. 42 , H.R. 2054 , H.R. 5806 , H.R. 6320 , H.R. 6356 , H.R. 7000 ), but not enacted. The Senate Commerce Committee held a March 1, 2007, hearing on the challenges facing the USF and the House Telecommunications Subcommittee held a June 24, 2008, hearing focusing on the future of universal service including the role of broadband and its role in the future of the program. FCC oversight hearings held by the Senate Commerce Committee and the House Telecommunications Subcommittee, as well as hearings on broadband deployment held by the House Small Business Committee included examination of USF issues. Furthermore, the Senate Commerce Committee held a June 12, 2007, hearing to examine the federal-state Joint Board's recommendation that the FCC place an interim, emergency cap on the amount of high-cost support that competitive eligible telecommunications carriers receive for each state from the High Cost program. (For a further discussion of this proposal see the section on " Capping ," above.) The House Oversight and Government Reform Committee under the direction of then-Chairman Waxman requested information from industry recipients as part of an oversight investigation of the USF. The inquiry focused on the High Cost Fund portion of the program and requested information from 24 companies that, according to the FCC, are the top 10 recipients of federal high cost funds from 2006 through 2008 as well as the those that have received the 10 highest per-line subsidies, by location, for 2006 and 2007. According to a memorandum Chairman Waxman sent to the committee, he was not accusing any of these companies of wrongdoing, but felt that the gathering of additional information about and committee oversight of the USF program will "benefit" the program and "may offer useful information to the state and federal policymakers as they formulate proposals for USF reform." This inquiry, he further stated, "is consistent with the Committee's strong interest in ensuring accountability in both the government and private sector." A provision to extend for one year (until December 31, 2007) the USF exemption from the Antideficiency Act (ADA) was passed as part of the FY2007 continuing resolution ( H.J.Res. 20 ) and was signed into law ( P.L. 110-5 ). Another one-year extension (until December 31, 2008) was passed as part of the Consolidated Appropriations Act of 2008 ( H.R. 2764 ; P.L. 110-161 ). Two stand-alone measures ( H.R. 278 , S. 609 ) as well as provisions contained in S. 101 and H.R. 2054 calling for a permanent ADA exemption were introduced, but not enacted. Two additional provisions pertinent to the USF are also contained in P.L. 110-161 . One provision prohibits the FCC from using its FY2008 funds to limit USF support to a primary, or single, line. The other provision permits the transfer of up to $21,480,000 of FY2008 funds from the USF to monitor the USF to prevent and remedy fraud, waste, and abuse, and to conduct audits and investigations by the OIG. P.L. 110-161 ( H.R. 2764 ) Consolidated Appropriations Act, 2008. For the USF extends for one year (until December 31, 2008) the USF exemption for the Antideficiency Act (Title V, §510); prohibits the FCC from using its FY2008 funds to limit USF support to a primary, or single, line (Title V, §511); permits the transfer of up to $21,480,000 of FY2008 funds from the USF to monitor the Program to prevent and remedy fraud, waste, and abuse, and to conduct audits and investigations by the OIG (Title V, FCC Salaries and Expenses). Signed by President, December 26, 2007. P.L. 110-5 ( H.J.Res. 20 ) Revised Continuing Appropriations Resolution, 2007. Extends for one year (until December 31, 2007) the USF exemption for the Antideficiency Act (§20946). Signed by President, February 15, 2007. H.R. 42 (Velázquez) The Serving Everyone with Reliable, Vital Internet, Communications, and Education Act of 2007. A bill to amend the Communications Act of 1934 to continue in effect and expand the Lifeline Assistance Program and the Link Up Program, and for other purposes. Introduced January 4, 2007; referred to the Subcommittee on Telecommunications and the Internet February 2, 2007. H.R. 278 (Cubin) A bill to amend section 254 of the Communications Act of 1934 to provide that the funds received as universal service contributions and the universal service support programs established pursuant to that section are not subject to certain provisions of Title 31, United states Code, commonly known as the Antideficiency Act. Introduced January 5, 2007; referred to the Subcommittee on Telecommunications and the Internet February 2, 2007. H.R. 2054 (Boucher) The Universal Service Reform Act of 2007. A bill to reform the universal service provisions of the Communications Act of 1934, and for other purposes. Introduced April 26, 2007; referred to the Committee on Energy and Commerce. H.R. 2829 (Serrano) The Financial Services and General Government Appropriations Bill, 2008. A bill to provide for FY2008 appropriations for selected agencies including the FCC. The House-passed version contained a provision to authorize the FCC to transfer up to $20.98 million from the USF to monitor and conduct audits of the USF to prevent fraud, waste, and abuse; passed (240-179) the House, June 28, 2007. The Senate Appropriations Committee-passed version contains language that extends for one year (December 31, 2008) the exemption of the USF from the Antideficiency Act (Title V, §501) and prohibits limiting USF funding to a single, or primary line (Title V, §502). Reported out of committee July 13, 2007 ( S.Rept. 110-129 ). H.R. 5806 (Rush) The School Emergency Notification Deployment Act. A bill to permit universal support (E-rate funds) to public and nonprofit elementary and secondary schools under the Communications Act of 1934 to be used for enhanced emergency notification services. Introduced April 15, 2008; referred to the Committee on Energy and Commerce. H.R. 6320 (Markey) The Twenty-first Century Communications and Video Accessibility Act of 2008. A bill to ensure that individuals with disabilities have access to emerging Internet Protocol-based communication and video programming technologies in the 21 st Century. Introduced June 19, 2008; referred to the Committee on Energy and Commerce. H.R. 6356 (Barton) The Universal Service Reform, Accountability, and Efficiency Act of 2008. A bill to reform the collection and distribution of universal service support under the Communications Act of 1934. Introduced June 24, 2008; referred to the Committee on Energy and Commerce. H.R. 7000 (Waxman) The Universal Roaming Act of 2008. A bill to require any eligible carrier receiving universal service support for the provision of services for rural, insular, and high cost areas to offer automatic roaming services to any technically compatible carrier upon request. Introduced September 23, 2008; referred to the Committee on Energy and Commerce. S. 101 (Stevens) The Universal Service for Americans Act, or USA Act. A bill to update and reinvigorate universal service provided under the Communications Act of 1934 and to exempt universal service contributions and disbursements from the Antideficiency Act. Introduced January 4, 2007; referred to the Committee on Commerce, Science, and Transportation January 4, 2007. S. 609 (Rockefeller) A bill to amend Section 254 of the Communications Act of 1934 to provide that funds received as universal service contributions and the universal service support programs established pursuant to that section are not subject to certain provisions of Title 31, United States Code, commonly known as the Antideficiency Act. Introduced February 15, 2007; referred to the Committee on Commerce, Science, and Transportation February 15, 2007. S. 711 (Smith) The Universal Service for the 21 st Century Act. A bill to amend the Communications Act of 1934 to expand the contribution base for universal service, establish a separate account within the universal service fund to support the deployment of broadband service in unserved areas of the United States, and for other purposes. Introduced February 28, 2007; referred to the Committee on Commerce, Science, and Transportation. S. 3491 (Stevens) The Telehealth for America Act of 2008. A bill to amend the Communications Act of 1934 to improve the effectiveness of rural health care support under section 254(h) of that act. Introduced September 16, 2008; referred to the Committee on Commerce, Science, and Transportation.

The concept that all Americans should be able to afford access to the telecommunications network, commonly called the "universal service concept" can trace its origins back to the 1934 Communications Act. Since then, the preservation and advancement of universal service has been a basic tenet of federal communications policy, and Congress has historically played an active role in helping to preserve and advance universal service goals. The passage of the Telecommunications Act of 1996 (P.L. 104-104) not only codified the universal service concept, but also led to the establishment, in 1997, of a federal Universal Service Fund (USF or Fund) to meet the universal service objectives and principles contained in the 1996 act. According to Fund administrators, from 1998 through end of year 2010, $73.7 billion was distributed, or committed, by the USF, with all 50 states, the District of Columbia, and all territories receiving some benefit. The Federal Communications Commission (FCC) is required to ensure that there be "specific, predictable and sufficient ... mechanisms to preserve and advance universal service." However, changes in telecommunications technology and the marketplace, while often leading to positive benefits for consumers and providers, have had a negative impact on the health and viability of the USF, as presently designed. These changes have led to a growing imbalance between the entities and revenue stream contributing to the fund and the growth in the entities and programs eligible to receive funding. The desire to expand access to broadband and address what some perceive as a "digital divide" has also placed focus on what role, if any, the USF should take to address this issue. The FCC's national broadband plan, Connecting America: The National Broadband Plan, calls for a major restructuring of the USF to enable it to take a major role in achieving the goal of nationwide broadband access and adoption. The FCC has initiated a series of proceedings to achieve this goal. There is a growing consensus among policy makers, including some in Congress, that significant action is needed not only to ensure the viability and stability of the USF, but also to address the numerous issues surrounding its appropriate role in a changing marketplace. How this concept should be defined, how these policies should be funded, who should receive the funding, and how to ensure proper management and oversight of the Fund are among the issues framing the debate. The current policy debate has focused on five concerns: the scope of the program; who should contribute and what methodology should be used to fund the program; eligibility criteria for benefits; concerns over possible program fraud, waste, and abuse; and the impact of the Antideficiency Act (ADA) on the USF. It is anticipated that Universal Service Fund reform will continue to be a topic of congressional interest. The House Energy and Commerce Committee and the Senate Commerce, Science, and Transportation Committee have included USF reform on their agendas of issues for consideration and oversight. Three stand-alone measures (H.R. 2163, H.R. 3118, S. 297) relating to USF have been introduced to date. This report will be updated as events warrant.

Threat Perceptions and U.S.-Gulf Security Cooperation Prior to the 2003 war against Iraq, the United States was repeatedly drawn into conflicts in the Gulf to counter Iranian or Iraqi aggression and contain regional escalation. In the "Iran-Iraq War," Iran and Saddam Hussein's Iraq fought each other from Iraq's invasion on September 22, 1980, until August 20,1988, jeopardizing the security of the Gulf monarchy states, which collectively backed Iraq. Similarly, the United States tilted toward Iraq in that war to defeat the radical Islamist threat posed by Iran's Islamic revolutionary government, which came to power in February 1979 after ousting the U.S.-backed Shah. Iran and the United States fought minor naval skirmishes during 1987-1988, at the height of the Iran-Iraq war. During one such skirmish ( Operation Praying Mantis, April 18, 1988) the United States fought a day long naval battle with Iran that destroyed almost half of Iran's largest naval vessels. On July 3, 1988, the United States mistakenly shot down an Iranian passenger aircraft flying over the Gulf (Iran Air flight 655), killing all 290 aboard. After about 400,000 Iraqi and almost 1 million Iranian casualties, the Iran-Iraq war ceased in August 1988 after Iran's forces collapsed from a series of successful Iraqi offensives and Iran accepted U.N. Security Council Resolution 598, amounting to an Iraqi victory in the war. The Iran-Iraq war victory emboldened Saddam Hussein to assert himself as the "strongman" of the Gulf. He invaded and occupied Kuwait on August 2, 1990, asserting that he did so because Kuwait (and UAE) were overproducing oil and thereby betraying Iraq (by lowering world oil prices). Others believe Saddam Hussein wanted to position Iraq to control, directly or indirectly, oil exports from the Gulf. To liberate Kuwait, the United States deployed over 500,000 U.S. troops, joined by about 200,000 troops from 33 other countries. That war (Operation Desert Storm, January 16–February 27, 1991) resulted in the death in action of 148 U.S. service personnel and 138 non-battle deaths, along with 458 wounded in action. The 1991 Gulf war reduced Iraq's conventional military capabilities roughly by half, but, prior to Operation Iraqi Freedom (March 2003), Iraq was still superior to Iran and the Gulf states in ground forces. The Gulf is one of the few theaters where weapons of mass destruction (WMD) and ballistic missiles have been used in hostilities. Iraq's missile, chemical, nuclear, and biological programs, accelerated during the Iran-Iraq war, were among the most sophisticated in the Third World at the time of Iraq's invasion of Kuwait. Israel was sufficiently concerned about Iraq's nuclear program that it conducted an air-strike against Iraq's French-built Osirak nuclear reactor on June 7, 1981, temporarily setting back Iraq's nuclear effort. During the Iran-Iraq war, Iraq fired enhanced Scud missiles at Iranian cities, and Iran fired its own Scud missiles at Iraqi cities as well in the so-called "war of the cities." On ten occasions during the Iran-Iraq war, Iraq used chemical weapons against Iranian troops and Kurdish guerrillas and civilians, killing over 26,000 Iranians and Kurds. U.N. investigation missions found that Iran also used some chemical weapons against Iraq during the war, although Iran's capability was less advanced than that of Iraq during that period. During the 1991 Gulf war, Iraq fired 39 enhanced Scud missiles at Israel, a U.S. ally, and 39 enhanced Scud missiles on targets in Saudi Arabia. One Iraqi missile, fired on coalition forces on February 25, 1991 (during Desert Storm) hit a U.S. barracks near Dhahran, Saudi Arabia, killing 28 military personnel and wounding 97. U.N. weapons inspectors dismantled much of Iraq's WMD infrastructure during 1991-1998, but they left in 1998 due to Iraqi obstructions and without clearing up major unresolved questions about Iraq's WMD. New U.N. inspections began, under threat of U.S. force, in November 2002, but were ended after the Bush Administration and its allies determined that Iraq's regime was not fully disarming and that it was necessary to overthrow the regime by force (Operation Iraqi Freedom, OIF). The "Dual Containment" Approach of the 1990s During 1993-1997, the Clinton Administration articulated a policy of "dual containment," an effort to keep both Iran and Iraq weak rather than alternately tilting toward one or the other to preserve a power balance between them. During this period, Saudi Arabia and Kuwait were primarily concerned about the conventional threat from Iraq and saw Iran as a counterweight to Iraqi power. The states of the lower Gulf were further from Iraq and tended to view Iran as a greater danger than Iraq. Bahrain, in 1981 and again in 1996—the latter a period of substantial Shiite-inspired unrest—openly accused Iran of plotting to destabilize that country by supporting radical Shiite movements there. In 1992, the UAE became alarmed at Iranian intentions when Iran asserted complete control of the largely uninhabited Persian Gulf island of Abu Musa, which Iran and UAE shared under a 1971 bilateral agreement. All the Gulf states improved relations with Iran significantly at the end of the decade, particularly after the May 1997 election of the relatively moderate president Mohammad Khatemi, who curtailed Iran's support for Shiite dissident movements in the Gulf states. Despite the rapprochement, which was matched by unsuccessful attempts by the Clinton Administration to open direct talks with Khatemi's government, the United States continued to try to constrain Iran's WMD programs, but with mixed success. Unlike Iraq, which was the target of U.N. sanctions after it invaded Kuwait, Iran faced no mandatory international restrictions on its imports of advanced conventional weapons or of "dual use" technology (civilian goods useful for WMD). Some of Iran's WMD programs made significant strides during the 1990s, reportedly with substantial help from Russia, China, North Korea, and other countries and entities, such as the network of Pakistani nuclear scientist A.Q. Khan. The dual containment policy also had little success in curbing Iran's (or Iraq's) support for international terrorism. Iran has been on the U.S. list of terrorism state sponsors ("terrorism list") since 1984 (the list was created in 1979). Iraq was on the terrorism list during 1979-1982, and again from 1990 until the U.S.-led overthrow of Saddam Hussein. Over the past decade the State Department's annual report on terrorism has described Iran as "the most active state sponsor of terrorism. The Islamic regime in Iran had held American diplomats hostage during November 1979-January 1981, a seizure for which Iran has not apologized. The pro-Iranian Lebanese Shiite Muslim organization Hizballah held Americans hostage in Lebanon during 1984-1991, occasionally releasing some and then abducting others. Some U.S. law enforcement officials say Iranian operatives were involved in the June 1996 bombing in Saudi Arabia of the Khobar Towers housing complex for U.S. military officers, in which 19 U.S. airmen were killed, although some indications from the "September 11 Commission" final report (p.60) says Al Qaeda operatives might have had some role in that bombing. According to the recent annual State Department reports on international terrorism ("Country Reports on Terrorism: 2005," released April 2006) Iran provides material support to the following groups that oppose the U.S.-sponsored Arab-Israeli peace process: Hizballah and the Palestinian groups Hamas, Palestinian Islamic Jihad, the Al Aqsa Martyr's Brigade, and the Popular Front for the Liberation of Palestine-General Command. Iraq's former regime was on the terrorism list and publicly supported Palestinian violence against Israel. According to the September 11 Commission report, neither Iran nor Saddam's Iraq was linked to the September 11 attacks and neither had an "operational" relationship with Al Qaeda. However, press accounts say that some Al Qaeda activists fleeing Afghanistan transited or took refuge in both countries, including Al Qaeda-Iraq leader Abu Musab al-Zarqawi, and there apparently were some limited contacts between Al Qaeda and the Saddam Hussein regime. The new government in Iraq, which consists of political leaders who are generally well disposed toward the United States, was removed from the terrorism list on September 24, 2004. No observer is predicting that Iran will soon be removed from the U.S. list of state sponsors of terrorism ("terrorism list"). The Post-Saddam Gulf Threat Profile6 The Gulf threat profile has been altered—but not necessarily reduced—by the overthrow of Saddam Hussein's regime in Iraq. The fall of Saddam had initially generated a sense of relief among the Gulf states because the conventional and WMD threat posed by Iraq was essentially ended. However, no clear U.S. Gulf security architecture has emerged, and the Gulf states now sense new and different threats, although no major security crises have erupted in any of the GCC states since Saddam's fall. Others note that, in the past, crises have erupted on short notice, including Saddam Hussein's invasion of Kuwait and the internal unrest in Bahrain in the 1990s, neither of which were widely predicted. Iran Strategically Strengthened First and foremost, the Gulf states believe that the strategic weakness of post-Saddam Iraq has emboldened Iran to take a more active role in Gulf security and to seek to enlist the Gulf states in an Iran-led Gulf security structure. Iran has a long coastline and a well-honed sense of nationhood; it was not created by colonial powers and believes it is entitled to a major role in Gulf security. All of the Gulf state fears about Iran have been compounded by the Iranian presidency of hardliner Mahmoud Ahmadinejad. He has appointed to key positions longtime associates from his career in the Revolutionary Guard and Basij militia—both bastions of hardline sentiment and armed force and sponsors of radical activity in the Gulf in the past. However, to date, GCC leaders have leveled no specific allegations of renewed Iranian meddling in the GCC states, and the Gulf leaders have been receiving visiting Iranian leaders, including Ahmadinejad. Yet, Gulf and U.S. concerns continue that further progress on Iran's WMD programs, particularly its nuclear program, could embolden Iran to try to intimidate the Gulf states. Qatar, for example, is wary that Iran might try to encroach on its giant natural gas North Field, which the two share. In response, in 2006, the Gulf states and the United States have renewed and expanded discussions on some of the joint defense initiatives that have been de-emphasized in the past five years. Some of these steps are discussed in the section on defense issues below. Many U.S. experts believe that the GCC states would likely back U.S. action, including military action, to halt or set back Iran's nuclear program, despite fears of Iranian retaliation against them for any U.S. military move against Iran. At the same time, Iran is not perceived as militarily able to move in force across the Gulf to invade any of the Gulf states, even if the United States were not present in the Gulf to block such a move. Senior U.S. military officials say Iran could use its coastal missiles, patrol boats, mines, aircraft, submarines, and other capabilities to try to block the Strait of Hormuz, the key oil shipment route, but U.S. officials express confidence that the U.S military presence in the Gulf could quickly overwhelm Iran's relatively older equipment and thwart any such Iranian action. Others argue that even a failed Iranian attempt to block the Strait could raise shipping insurance rates and drive up oil prices to unprecedented levels. Shiite Communities Emboldened Compounding the threat perception of the Gulf states is the rise of Shiite Islamist factions in post-Saddam Iraq—particularly revered clerical leader Grand Ayatollah Ali al-Sistani, the Supreme Council of the Islamic Revolution in Iraq (SCIRI), the Da'wa (Islamic Call) Party, and the faction of radical young cleric Moqtada Al Sadr. The Shiite Islamists have dominated Iraq's two elections for a parliament—in January and again in December 2005. The rise of Iraqi Shiite parties are reportedly prompting growing Shiite demands for power in the Gulf states themselves. As shown in the Appendix, several of the Gulf states have substantial Shiite populations; in Bahrain they are a majority (about 60%), but most Gulf Shiite communities consider themselves under-represented in government and lacking key opportunities in the economy. Bahraini Shiite groupings, including those that boycotted 2002 parliamentary elections, are planning to compete in the October 2006 parliamentary elections in the hopes of asserting Shiite rights against the Sunni-dominated government there. To prevent the emergence of Sunni-Shiite tensions that have erupted in Iraq, Bahraini leaders have begun reconciliation efforts, such as ending the distinction between Sunni and Shiite mosques and encouraging joint worship. Kuwait's concerns are also high even though Shiites (about 25% of Kuwaitis) are well integrated into the political system. Radical factions of an Iraqi Shiite Islamic party, the Da'wa Party, attacked the U.S. and French embassies in Kuwait City in December 1983, and attacked the Amir's motorcade in May 1985, injuring him slightly. Although Kuwaiti fears of a resumption of such activity have faded, Kuwait remains wary of potential Shiite militance and has engaged Iraq's Shiite clerics and provided about $500 million in humanitarian aid to Iraq through a Kuwait based Humanitarian Operations Center. Kuwait has pledged to send an ambassador to Baghdad, although no ambassador has been named, to date. In Saudi Arabia, there is acute fear of potential Shiite unrest, in part because Shiites are concentrated in the eastern provinces where many of Saudi Arabia's oil fields are located and in which much of its oil export infrastructure is based. Resenting Shiite domination in Iraq, Saudi Arabia has disbursed little of its $1 billion in aid pledges to Iraq, and it has not committed to appointing an ambassador to Iraq. Spillover From Iraq Battlefield Prior to the U.S. intervention in Iraq, the Gulf states had predicted that ousting Saddam would not necessarily produce stability in Iraq, and several were reluctant to support it. For the most part, Gulf leaders publicly indicated that they would only support a U.S. attack if such action were authorized by the United Nations and had broad international support. Two of the Gulf states, Kuwait and Qatar, were more openly supportive of the U.S. position, and both hosted substantial buildups of U.S. forces and equipment that were used in the offensive against Iraq. Kuwait, which strongly wanted to see the former invader, Saddam Hussein, overthrown, hosted the bulk of the personnel and equipment used in the ground assault. Saudi Arabia was the most vocally opposed to a U.S. offensive against Iraq, even though the prospect of the overthrow of Saddam Hussein held out the possibility that the 6,000 U.S. personnel that were based there in anti-Iraq containment operations would be able to depart. That redeployment happened after Saddam's fall. Judging from the final statement of the 26 th Gulf Cooperation Council summit in Abu Dhabi, UAE (December 2005), the Gulf leaders are expressing concern that spillover from the Iraq war could be worse than they had anticipated. Some Sunni Islamist insurgents have tried or succeeded in entering some of the Gulf states, particularly Kuwait, to commit acts of retribution against the Gulf governments or to try to attack U.S. forces staging for deployment into Iraq. The Sunni militants perceive the Gulf governments—even though they are Sunni-led—as traitors for having backed or acquiesced in the U.S. invasion of Iraq and ouster of Saddam Hussein. The Gulf states believe that parts of Iraq might become a safe haven for Sunni Islamic militants if the United States were to withdraw militarily from Iraq, an outcome that the Gulf states fear could result if U.S. casualties continue to mount. This issue is discussed in greater depth in the final section of this paper. At the same time, efforts by the Gulf states to promote ethnic and sectarian balance in Iraq might be increasing the potential for spillover from Iraq. Saudi Arabia, and possibly other Gulf states, are said to have tacitly permitting some Saudis to enter Iraq to assist the Sunni insurgency there. Observers say there is an active debate in the Kingdom about whether to provide more active support to the Sunnis but that King Abdullah has decided against it out of concern that doing so would stimulate Iran to step up aid to Shiite groups in Iraq. U.S. military officers say that Saudi fighters accounted for about half of the foreign insurgents killed in Iraq in 2005. In November 2004, 26 radical Saudi clerics issued a pronouncement calling on Iraqis to fight U.S.-led forces in Iraq, although the Saudi religious establishment subsequently contradicted that pronouncement. At the same time, Saudi Arabia has pursued diplomacy to increase the role of Sunni Arabs in Iraq's government. Press reports say the Saudis were influential in persuading hardline Iraqi Sunni clerics to attend a November 2005 Arab League-sponsored reconciliation meeting in Cairo. Post-Saddam U.S.-Gulf Defense Cooperation The post-Saddam Gulf is somewhat less stable than the United States initially expected, and the pillars of U.S.-Gulf defense cooperation that were put in place after the 1991 Gulf war are drawing renewed emphasis as Iran's power is perceived to be rising. The U.S.-GCC relationships enable the United States to continue to operate militarily in Iraq and have facilitated ongoing operations in Afghanistan as well. After the September 11, 2001, attacks, the Gulf states willingly and openly hosted U.S. forces performing combat missions in Afghanistan in Operation Enduring Freedom (OEF, the war against the Taliban and Al Qaeda). As discussed above, the Gulf states, perceiving potential fallout, were far less enthusiastic about the war to topple Saddam Hussein, although all the Gulf states did make facilities available for Operation Iraqi Freedom (OIF). The cornerstones of U.S.-Gulf defense relations are broad bilateral defense pacts between the United States and each Gulf state except Saudi Arabia. The text of the agreements, most of which were adopted after the 1990-91 Gulf crisis, are classified. However, observers report that the pacts provide for: facilities access for U.S. forces, but also for U.S. advice, training, and joint exercises; lethal and non-lethal U.S. equipment pre-positioning; and arms sales. The pacts do not include security guarantees that formally require the United States to come to the aid of any of the Gulf states if they are attacked, according to U.S. officials familiar with their contents. Nor, say officials, do the pacts give the United States automatic permission to conduct military operations from Gulf facilities; the United States must obtain permission on a case by case basis. None of the Gulf states has moved to suspend or end these formal pacts now that Saddam Hussein is gone from power. The approximate number of U.S. military personnel in the Gulf theater of operations is listed in Table 1 below, based on unclassified tables provided to CRS by the Department of Defense in late 2005. During the U.S.-led containment operations against Iraq during the 1990s, there were about 20,000 U.S. military personnel stationed in the Gulf at most times, although about 60% of those were afloat on ships. Although there are fewer U.S. forces in most of the Gulf states than there were at the height of OEF and OIF, the aggregate is still higher than the 20,000 "baseline" during the 1990s—almost entirely due to the large numbers of U.S. personnel still in Kuwait supporting OIF. U.S. forces in Iraq number about 130,000. The following is an overview of U.S. defense cooperation with the GCC states: Saudi Arabia, concerned about internal opposition to a U.S. presence, did not sign a formal defense pact with the United States. However, it has entered into several limited defense procurement and training agreements (for both the regular military and the Saudi Arabia National Guard, SANG) with the United States. During 1992-2003, U.S. combat aircraft based in Saudi Arabia flew patrols to enforce a "no fly zone" over southern Iraq (Operation Southern Watch, OSW), but Saudi Arabia did not permit preplanned strikes against Iraqi air defenses, only retaliatory strikes for tracking or firing by Iraq. OSW ended after the fall of Saddam Hussein and most of the 6,000 Saudi-based U.S. personnel, along with all Saudi-based U.S. combat aircraft, were withdrawn in September 2003. For OEF, Saudi Arabia did not offer to allow U.S. pilots to fly missions in Afghanistan from Saudi Arabia, but it reportedly did openly permit the United States to use the Combined Air Operations Center (CAOC) at Prince Sultan Air Base, south of Riyadh, to coordinate U.S. air operations over Afghanistan. Despite reservations about the war against Iraq, the Kingdom also quietly allowed use of the CAOC for OIF and permitted some U.S. special operations forces staging missions from there into Iraq. Bahrain has hosted the headquarters for U.S. naval forces in the Gulf since 1948, long before the United States became the major Western power in the Gulf. (During the 1970s and 1980s, the U.S. presence was nominally based offshore.) Bahrain signed a separate defense cooperation agreement with the United States on October 28, 1991, and the pact remains in effect. In June 1995, the U.S. Navy reestablished its long dormant Fifth fleet, responsible for the Persian Gulf region, and headquartered in Bahrain. Bahrain allowed U.S. combat aircraft missions from Bahrain in both OEF and OIF, and it publicly deployed its U.S.-supplied frigate naval vessel in support of both operations, according to the State Department. It was the only Gulf state to deploy its own forces to provide humanitarian aid inside Afghanistan. After Iran's 1979 revolution, Oman on April 21, 1980 signed a facilities access agreement providing the United States access to Omani airbases and allowing some prepositioning of U.S. Air Force equipment. The agreement was renewed in 1985, 1990, and 2000. In keeping with an agreement reached during the 2000 access agreement renewal negotiations, the United States provided the $120 million cost to upgrade the air base near al-Musnanah (Khasab). On September 19, 1991, Kuwait, which saw itself as the most vulnerable to Iraqi aggression, signed a 10-year pact with the United States (renewed in 2001 for another 10 years) allowing the United States to preposition enough equipment to outfit two U.S. brigades. Joint U.S.-Kuwaiti exercises were held almost constantly, and about 4,000 U.S. military personnel were in Kuwait at virtually all times during the 1990s. The United States opened a Joint Task Force headquarters in Kuwait in December 1998 to better manage the U.S. forces in Kuwait, and the United States spent about $170 million in 1999-2001 to upgrade two Kuwaiti air bases (Ali al-Salem and Ali al-Jabir) that hosted U.S. aircraft during the 1990s containment operations against Iraq. As noted previously, Kuwait closed off the entire northern third of the country to serve as host of the U.S.-led invasion force in OIF. Even before OEF and OIF, Qatar was building an increasingly close defense relationship with the United States. It signed a defense pact with the United States on June 23, 1992, and accepted the prepositioning of enough armor to outfit two U.S. brigades at a site called As Saliyah site, which was upgraded with U.S. help. (Most of the armor at the site was used in OIF.) The United States built an air operations center (Combined Air Operations Center, CAOC) at Al Udeid air base that, by 2003, had largely supplanted the one in Saudi Arabia and Qatar now hosts U.S. Central Command (CENTCOM) forward headquarters. Qatar publicly acknowledged the U.S. use of Al Udeid in OEF, and it continues to support OEF and OIF, according to the State Department. The UAE did not have close defense relations with the United States prior to the 1991 Gulf war. After that war, the UAE determined that it wanted a closer relationship with the United States, in part to deter and balance out Iran. On July 25, 1994, the UAE announced it had signed a defense pact with the United States, although there are still some differences in interpretation of the legal jurisdiction of U.S. military personnel in the UAE, according to observers. The UAE allows some U.S. pre-positioning, as well as U.S. ship port visits at its large man-made Jebel Ali port, and it hosts U.S. refueling aircraft at Al-Dhafra air base for OEF and OIF. However, wanting to act within an Arab consensus, the UAE limited the United States to conducting support air operations during OIF. U.S. Arms Sales and Security Assistance A key feature of the U.S. strategy for protecting the Gulf states has been to sell them arms and related defense services. Some of the Gulf states, particularly Saudi Arabia, are reportedly contemplating new arms purchases from other suppliers, as well as the United States, to counter the perceived growing threat from Iran. On August 19, 2006, it was announced that Saudi Arabia had agreed to buy 72 Eurofighter Typhoon aircraft in a deal valued at about $18 billion. Congress has not blocked any U.S. sales to the GCC states since the 1991 Gulf war, although some in Congress have expressed reservations about sales of a few of the more sophisticated weapons and armament packages to the Gulf states in recent years. Some Members believe that sales of sophisticated equipment could erode Israel's "qualitative edge" over its Arab neighbors, if the Gulf states were to join a joint Arab military action against Israel or transfer weapons to "frontline" states, but few experts believe that the Gulf states would do so. Others are concerned that some U.S. systems sold to the Gulf contain missile technology that could violate international conventions. Even if they were to do so, successive U.S. administrations have maintained that the Gulf states are too dependent on U.S. training, spare parts, and armament codes to be in a position to use sophisticated U.S.-made arms against Israel or any other U.S. ally. The Foreign Relations Authorization Act of 1994-1995 ( P.L. 103-236 , signed April 30, 1994) bars U.S. arms sales to any country that enforces the primary and secondary Arab League boycott of Israel. The provision has been waived for the Gulf states every year since enactment. Most of the GCC states are considered too wealthy to receive substantial amounts of U.S. security assistance, including Foreign Military Financing (FMF) and excess defense articles (EDA). However, U.S. aid to the GCC states, even the most wealthy among them, has increased recently. It is being used to promote a number of U.S. objectives in the Gulf, including building GCC anti-terrorism capabilities, promoting military-to-military ties and military obedience to civilian rule; enabling the GCC states to maintain U.S.-made weapons and to operate them in concert with U.S. forces; and signaling continued support for their alliance with the United States. Despite its wealth, Saudi Arabia receives a nominal amount of International Military Education and Training funds (IMET) to lower the costs to the Saudi government (approximately a 50% discount) of sending its approximately 400 military officers to U.S. schools each year. A provision of the FY2005 foreign aid appropriations (in Consolidated Appropriations law, P.L. 108-447 ) cut IMET for Saudi Arabia, but President Bush waived that restriction on September 26, 2005, to provide the aid (PD2005-38). Excess Defense Articles (EDA) Of the Gulf states, only the two least financially capable, Bahrain and Oman, are eligible to receive EDA on a grant basis (Section 516 of the Foreign Assistance Act). EDA are U.S. military items declared to be surplus or out of service for U.S. uses, but are still considered usable either as-is or with refurbishment. The UAE is eligible to buy or lease EDA. In 1998-1999, Oman received 30 and Bahrain 48 U.S.-made M-60A3 tanks on a "no rent" lease basis. The Defense Department subsequently transferred title to the equipment to the recipients. Since July 1997, Bahrain has taken delivery of a U.S. frigate and an I-HAWK air defense battery as EDA. Bahrain is currently seeking a second frigate under this program. According to State Department budget documents, in FY2007, both Bahrain and Oman will receive some EDA to assist military mobility and their ability to monitor their borders. Foreign Military Sales (FMS) The United States has considered U.S. arms sales (foreign military sales, FMS) to the Gulf states as an integral part of U.S. efforts to cement its alliances with the Gulf states, as well as to promote inter-operability between Gulf and U.S. forces. Some of the recent sales, particularly of combat aircraft, appear intended to deter Iran. The rationale for some land systems might be less clear now that the land threat from Iraq has largely ended and because Iran is judged to lack an ability to move land forces across the Gulf. Some Gulf states might be seeking arms from non-U.S. sources, possible to diversify their defense relationships or perhaps to gain leverage over potential suppliers or allies of Iran. The UAE historically has purchased its major combat systems from France, but UAE officials apparently have come to believe that arms purchases from the United States enhance the U.S. commitment to UAE security. In March 2000, the UAE signed a contract to purchase 80 U.S. F-16 aircraft, equipped with the Advanced Medium Range Air to Air Missile (AMRAAM), the HARM (High Speed Anti-Radiation Missile) anti-radar missile, and, subject to a UAE purchase decision, the Harpoon anti-ship missile system. The total sale value, including weapons and services, is estimated at over $8 billion. Deliveries began in May 2005. On November 17, 2004, DSCA notified Congress of a potential sale to UAE of 100 JAVELIN anti-tank missile launchers (plus 1,000 JAVELIN missile rounds) at a potential cost of $135 million. On July 28, 2006, DSCA notified Congress of a sale of up to 26 UH-60M (Blackhawk) helicopters, with a total sale value of up to $808 million. The UAE is also considering buying an anti-ballistic missile system, according to UAE Air Force Commander Maj. Gen. Khalid Al Bu-Ainain in November 2005. Saudi Arabia, buoyed by high oil prices, has absorbed about $14 billion in purchases of U.S. arms during the Gulf war, as well as post-war buys of 72 U.S.-made F-15S aircraft (1993, $9 billion value), 315 M1A2 Abrams tanks (1992, $2.9 billion), 18 Patriot firing units ($4.1 billion) and 12 Apache helicopters. It reportedly is now considering major new purchases, including a new generation fighter aircraft to replace aging U.S.-made F-5's and British-made Tornadoes. A Wall Street Journal Europe report on December 22, 2005 said Saudi Arabia had signed an agreement to buy up to 48 Eurofighter Typhoon jets. In three notifications on October 3, 2005 DSCA told Congress that Saudi Arabia intends to buy up to $2 billion in U.S.-made armored personnel carriers (144) and related equipment and services; equipment support; and communications upgrades for the military and National Guard (SANG). In two notifications on July 28, 2006, DSCA notified Congress of a sale of 58 M1A1 new Abrams tanks, as well as upgrades of Saudi Arabia's existing Abrams tanks and upgrades of its U.S.-made Apache helicopters. The total of these sales is up to $3.3 billion. In 2005, Kuwait began taking delivery of a long-delayed purchase of 16 U.S.-made AH-64 "Apache" helicopters, equipped with the Longbow fire control system—a deal valued at about $940 million. According to DSCA, Kuwait is considering purchasing an additional 10 F/A-18 aircraft to complement its existing fleet of 40 of those aircraft, but there has been no movement on this recently. Kuwait also bought 5 Patriot firing units in 1992 and 218 M1A2 Abrams tanks in 1993. On April 1, 2004, the Bush Administration designated Kuwait as a "major non-NATO ally" (MNNA), a designation that will facilitate the future U.S. sales of arms to Kuwait. President Bush designated Bahrain an MNNA in March 2002, reflecting the close relationship. Among recent sales, in 1998, Bahrain purchased 10 F-16s from new production at a value of about $390 million. In late 1999, the Administration, with congressional approval, agreed to sell Bahrain up to 26 AMRAAMs, at a value of up to $69 million. Among the more controversial sales to a Gulf state, in August 2000 Bahrain requested to purchase 30 Army Tactical Missile Systems (ATACMs), a system of short-range ballistic missiles fired from a multiple rocket launcher. The Defense Department told Congress the version sold to Bahrain would not violate the rules of the Missile Technology Control Regime (MTCR), an effort to allay congressional concerns that the the sale would facilitate the spread of ballistic and cruise missiles in the Gulf. In addition, the Administration proposed a system of joint U.S.-Bahraini control of the weapon under which Bahraini military personnel would not have access to the codes needed to launch the missile. Bahrain accepted that control formula, and delivery began in October 2002. In two notifications on July 28, 2006, DSCA reported to Congress a sale of up to 180 Javelin missiles (and associated launchers and equipment) and nine Blackhawk helicopters, with a total value of up to $294 million. Qatar has traditionally been armed by France and Britain, and no major U.S. sales seem imminent, despite Qatar's healthy economy that benefits from burgeoning sales of natural gas. DSCA says that Qatar has expressed interest in a few U.S. systems, including the ATACM, which Bahrain has bought and which the United States has told Qatar it is eligible to buy. Qatar is also expressing active interest in the Patriot (PAC III) missile defense system, according to DSCA. Qatar might be seeking to buy advanced combat aircraft if it finds a buyer for the 12 Mirage 2000s it put up for sale in 2002; a possible sale to India collapsed in August 2005 over pricing issues. Oman has traditionally purchased mostly British weaponry, reflecting British influence in Oman's military, and the British military's mentoring and advisory relationship to Sultan Qaboos. In October 2001, in an indication of waning British influence, the United States announced that Oman would buy 12 F-16 A/B aircraft, at an estimated value of $825 million. The first deliveries began in December 2005. In April 2003, Oman decided to purchase a podded airborne reconnaissance system for the F-16's; a sale valued at $46 million. On July 28, 2006, DSCA notified Congress of a possible sale to Oman of up to 250 Javelin missiles and associated launchers and equipment, valued at $48 million. Other Gulf State Security Initiatives The United States has continued to encourage the Gulf states to increase military cooperation among themselves. As shown in Table 3 , the Gulf states could potentially have superiority in equipment over Iran were they to combine their operations in response to a threat, and the Gulf states' military technology purchased from the United States and Europe is likely superior to Iran's mostly Russian and Chinese-supplied arsenal. However, the small (approximately 10,000 personnel) Saudi-based multilateral force known as Peninsula Shield, formed in 1981, has always suffered difficulties in coordination and command. Peninsula Shield, based at Hafar al-Batin in northern Saudi Arabia, did not react militarily to the 1990 Iraqi invasion of Kuwait, exposing the force's deficiencies. After that war, manpower shortages and disagreements over command of the force prevented the GCC states from agreeing to an Omani recommendation to boost Peninsula Shield to 100,000 men. In September 2000, the GCC states agreed in principle to increase the size of Peninsula Shield to 22,000, but no timetable was set for reaching that level. U.S. emphasis on building intra-GCC land force cooperation waned after the fall of Saddam Hussein, not only because Iraq's conventional force was largely eliminated in the 2003 war but because, as noted above, Iran is not considered a major land invasion threat. At the December 2005 GCC summit, the Gulf leaders "endorsed" a Saudi proposal to disperse donated Peninsula Shield forces back to their home countries. These forces would remain available for deployment to the Peninsula Shield force in a crisis. Sensing growing air and naval threats from Iran and from terrorist infiltration by sea, the United States is reportedly planning to focus on improving GCC state naval and air cooperation. In mid-2006, the Bush Administration, in a series of high-level U.S. visits, began efforts to revive and build on the Clinton Administration's "Cooperative Defense Initiative" to integrate the GCC defenses with each other and with the United States. Under that initiative, in early 2001, the GCC inaugurated its "Belt of Cooperation" network for joint tracking of aircraft and coordination of air defense systems, built by Raytheon. Another part of that initiative, to which Bush Administration officials are attaching new importance, is U.S.-GCC joint training to defend against a chemical or biological attack, as well as more general joint military training and exercises. The Cooperative Defense Initiative, was a scaled-back version of an earlier U.S. idea to develop and deploy a GCC-wide theater missile defense (TMD) system. However, this missile defense concept reportedly is a focus of the renewed Bush Administration initiative, in response to Iran's growing missile capabilities. The original idea envisioned a system under which separate parts (detection systems, intercept missiles, and other equipment) of an integrated TMD network would be based in the six different GCC states. That concept ran up against GCC states' financial constraints and differing perceptions among the Gulf states of the threat environment. As noted in the table, Kuwait and Saudi Arabia have Patriot anti-missile units of their own, and these states, in addition to Qatar, host U.S.-controlled Patriot systems. The 2006 Bush Administration joint U.S.-GCC security initiative reportedly also focuses on counter-proliferation actions. U.S. officials, in their 2006 visits to the Gulf, are encouraging the GCC states to close Iranian companies in those states, which might be used to procure WMD technology. Another aspect of the initiative is to track shipments to Iran. The Bahrain-based 5 th Fleet/Navcent command already plays a major role in patrolling the Gulf to prevent smuggling and the movement of terrorists across the Gulf. The patrols, which also include securing Iraqi oil export platforms, are conducted by about 30 U.S. and (OIF and OEF) allied warships in "Combined Task Force": 150, 152, and 158. On June 28, 2006, CTF-152, responsible for the central and southern Arabian Gulf, came under command of Italy. Another joint security cooperation idea never extended beyond the concept stage. Gulf state suspicions of Syria and Egypt prevented closer military cooperation with those countries, as envisioned under a March 1991 "Damascus Declaration." Under the Damascus Declaration plan, Egyptian and Syrian forces would have been stationed in the Gulf to bolster the Peninsula Shield force. Although their manpower constraints continue, many of the political disputes that had hindered cooperation within the GCC have dissipated. Almost all border disputes between GCC states have been settled, although the UAE still claims that Saudi Arabia occupies part of what UAE considers its territory. Bahrain and Qatar resolved their territorial dispute over the Hawar Islands and other territories following a March 2001 decision by the International Court of Justice in favor of Bahrain. The two have now agreed to construct a causeway connecting them. Potential Cooperation With NATO There are some indications that the Gulf states might be diversifying their security cooperation relationships with Western powers, while emphasizing such security-related issues as preventing drug trafficking, human trafficking, and proliferation. NATO is increasingly engaged in activities outside its traditional European base, and the NATO summit in Istanbul in 2004 launched an "Istanbul Cooperation Initiative" for greater NATO-Gulf state cooperation on some of these issues. To date, Kuwait, Bahrain, Qatar, and the UAE have joined the Istanbul initiative, but the absence of Saudi and Omani participation could slow development of this concept. Some NATO experts want to see the Istanbul initiative be further developed to allow for cooperation similar to that provided for in NATO's "Partnership for Peace" program. To promote greater NATO interaction with the Gulf states, NATO Secretary General Jaap de Hoop Scheffer attended a ground breaking meeting of high level Gulf defense officials in Qatar on December 1, 2005. During 2005, NATO (including U.S.) naval units, with participation of some Gulf naval forces, held exercises in the Arabian Sea in support of the U.S.-led "Proliferation Security Initiative" (PSI), a program to halt potential WMD-related shipments at sea. Domestic Stability and Political Liberalization27 The external threats the Gulf monarchies face have not produced regime-threatening instability within the Gulf states. However, there are domestic forces that, particularly if aggravated by outside Gulf powers such as Iran, could suddenly and unexpectedly prove destabilizing. Bahrain and Saudi Arabia have experienced periodic open unrest since the early 1990s, although both have largely quieted that unrest. The Gulf states are instituting gradual domestic political and economic reform efforts that are intended to satisfy the pro-reform elements of the population while maintaining tradition. Leadership Transition Still governed by hereditary leaders, several of the Gulf states also have completed at least interim leadership transitions over the past several years. The transitions have allowed new leaders to move forward on some long-dormant political or economic reforms. In Saudi Arabia, King Fahd suffered a stroke in November 1995 but he held the title of King until his death on August 1, 2005. He was immediately succeeded by his half-brother and heir apparent, Crown Prince Abdullah, who had been de-facto ruler of the country. Abdullah is the same age as was Fahd (about 81) but Abdullah appears to be in reasonably good health. Abdullah has been more willing than Fahd to question U.S. policy in the region and U.S. prescriptions for Saudi security, although he has maintained a cooperative relationship with the United States. Together with his image of piety and rectitude, Abdullah's perceived independence accounts for his relative popularity among the Saudi tribes and religious conservatives, giving him the legitimacy he needs to combat Saudi-based Al Qaeda or pro-Al Qaeda militants. The new heir apparent is Prince Sultan, a full brother of the late King Fahd, as expected, but the longer term succession could be clouded by family factional politics. The post-Fahd cabinet has remained largely unchanged; Sultan remains Defense Minister. In Bahrain, the sudden death of Amir (ruler) Isa bin Salman Al Khalifa on March 6, 1999 led to the accession of his son, Hamad bin Isa Al Khalifa, who was commander of Bahrain's Defense Forces. In February 2002, he wanted to promote a more limited monarchy and formally changed Bahrain into a kingdom and took the title King instead of Amir. King Hamad is about 57 years old and has named his son Salman, who is about 38 years old and is an avowed economic reformer, as Crown Prince. The two are sometimes said to be at odds with the King's traditionalist uncle, Khalifa bin Salman Al Khalifa, who remains Prime Minister. The UAE completed a transition upon the November 2, 2004 death of Shaykh Zayid bin Sultan al-Nuhayyan, ruler of the emirate of Abu Dhabi who helped found and became President of the seven-emirate UAE federation in 1971. His eldest son, Crown Prince Khalifa, who is about 49, succeeded immediately as ruler of Abu Dhabi and President of the UAE. His dynamic younger brother, Shaykh Mohammad, who is about 45, was named Abu Dhabi Crown Prince/heir apparent and he yielded his UAE Armed Forces chief-of-staff position to a non-royal (Lt. Gen. Hamad Al Rumaithi). Further changes occurred on January 4, 2006 when the ruler of Dubai, Shaykh Maktum bin Rashid Al Maktum, died suddenly. He was succeeded as Dubai ruler and UAE Prime Minister by his younger brother, Mohammad bin Rashid Al Maktum, who had been running Dubai de-facto for many years. The UAE is well placed to weather political transition because it has faced the least unrest of any of the Gulf states. Its GDP per capita ($22,000 per year) is among the highest in the Gulf, and there are few evident schisms in the society. Qatar's Amir, Hamad bin Khalifa Al Thani, who ousted his father in a bloodless coup in June 1995, sees himself as the leader among the Gulf rulers in instituting political reform and a public role for women. The Amir's reform agenda has been bolstered by the high public profile of his favorite wife, Shaykha Moza al-Misnad. Amir Hamad also has carved out a foreign policy independent from that of Saudi Arabia, has garnered wide support internally and there has been little evidence of unrest. On the other hand, some indications suggest that Qatar could lack dynamic leadership if the Amir were to leave the scene unexpectedly; in August 2003 the Amir suddenly and unexpectedly changed his crown prince/heir apparent from Shaykh Jassim to Jassim's younger brother, Tamim, purportedly perceiving Jassim as insufficiently capable of leadership. Kuwait completed a peaceful but troubled transition following the January 15, 2006 death of Kuwait's long serving Amir Jabir al-Ahmad Al Sabah. A succession struggle among Al Sabah factions was resolved in favor of Sabah al-Ahmad Al-Sabah, about 76 years old, who was serving as Prime Minister. Shunted aside was the heir apparent, Sa'd Abdullah Al Sabah, on the grounds that he was too ill to become leader. However, the struggle left lingering tensions within the ruling family and between it and other elites. It also clouded the leadership futures of some younger potential successors, including Foreign Minister Mohammad Al Sabah and Ahmad al-Fahd Al Sabah, the latter of whom was dropped from the cabinet after the June 29, 2006, National Assembly elections in which government opponents were mostly victorious. Despite the political skirmishing, there is little anti-regime violence in Kuwait; most opposition is expressed within the National Assembly. On the other hand, some Al Qaeda or pro-Al Qaeda activists have carried out attacks against Kuwaiti security personnel, as discussed later. The Sultanate of Oman has seen little unrest since Sultan Qaboos bin Said Al Said took power from his father in 1970. Qaboos is about 65 years old, apparently in good health, and widely assessed as highly popular. However, the royal family in Oman is relatively small and there is no heir apparent or clear successor. This could lead to a succession crisis or power struggle if Qaboos were to leave the scene unexpectedly, as almost happened in 1995 when Qaboos was shaken up in a car accident in which one of his ministers was killed. Since an alleged Islamist plot in 1994 that led to a few hundred arrests, there had been little evidence of a radical Islamist element in the Sultanate until a similar wave of arrests on similar charges in January 2005. Thirty-one Omanis were convicted of subversion in the alleged plotting but were pardoned in June 2005. Political Liberalization Virtually all the Gulf leaders are opening the political process to some extent, in part to help them cope with the challenges of modernization and globalization. The Bush Administration has expressed strong support for political liberalization in the Gulf and the broader Middle East as a means of addressing what it sees as root causes of the September 11, 2001 attacks—the relative lack of popular influence in governance. However, most Gulf reform efforts predate Bush Administration urging and appear to be continuing without substantial U.S. prodding. Some of the Gulf leaders fear that more rapid liberalization could backfire by providing Islamist extremists a platform to challenge the incumbent regimes. As part of their liberalization efforts, all of the Gulf states except the UAE and Saudi Arabia now allow full female electoral participation, and all except Saudi Arabia have appointed at least one woman to a cabinet post. Kuwait has traditionally been at the forefront of political liberalization in the Gulf, but during the 1990s its progress was limited to expanding the all-male electorate for its 50-seat National Assembly. The Assembly has always had more influence in decision-making than any representative body in the Gulf states, consistently exerting its power to review and veto governmental decrees. It played a role in the succession struggle of January 2006 by confirming the accession of Shaykh Sabah as Amir. The appointment of Shaykh Sabah as Prime Minister in May 2005 was the key to finally achieving Assembly approval of legislation to allow female suffrage. It took effect as of the June 29, 2006, Assembly elections, although none of the women who ran were elected. The newly elected Assembly, which has a majority of reformists, has succeeded in persuading the government to accept a major reform: the consolidation of Kuwait's election districts to five (from 25). The reformists believe that the larger districts reduce the potential for vote-buying and other corruption. In the start of a series of initiatives to expand public participation, in March 1999 Qatar held elections to a 29-member municipal affairs council. In a first in the Gulf, women were permitted full suffrage and 6 women ran for the council, but all six lost. (One woman won in the 2003 municipal elections.) In April 2003, a constitution was adopted in a national referendum, in which women voted. Its approval (by 97% of the electorate) paved the way for elections to a one-chamber assembly, now planned for early 2007, according to Qatari officials. It would replace a 35 member consultative council in place since independence in 1971. Thirty seats of the 45-seat Assembly are to be elected, with the remaining fifteen appointed. Qatar has one woman minister (Education). Oman began holding direct elections to its 83-seat Consultative Council in September 2000. At that time, the electorate consisted of 25% of all citizens over 21 years old—mostly local notables and elites. The process contrasted with past elections (1994 and 1997) in which a smaller and more select electorate chose two or three nominees per district and the Sultan then selected final membership. At the same time, Qaboos appointed new members, including five women, to a 53-seat "State Council." The State Council serves, in part, as a check and balance on the elected Consultative Council; both combined form a bi-cameral "Oman Council." In November 2002, Qaboos extended voting rights to all citizens over 21 years of age, beginning with the October 4, 2003 Consultative Council elections. Those elections produced a body similar to that elected in 2000, including election of the same two women as the previous election (out of 15 female candidates). The Oman Council lacks binding legislative powers and there are no evident groupings or factions within it. Formal parties are banned. Since 2001, Qaboos has expanded the number of women of ministerial rank to four, with two heading full ministries. The King of Bahrain's decision to abandon his late father's refusal to accommodate Shiite Muslim demands to restore an elected national assembly has changed Shiite unrest from the violence of the 1990s to mostly peaceful election competition. In February 2002, Bahrain held a referendum on a new "national action charter," establishing procedures for electing a 40-member national assembly. Those elections (two rounds) were held in late October 2002, and the results were split between moderate Islamists and secular Muslims. None of the eight female candidates was elected. Some Shiite critics of the Sunni-dominated government boycotted the elections, claiming that the formation of an appointed upper body of the same size represented an abrogation of the government's promise to restore the 1973 parliamentary process. (No appointed upper body was established during the 1970s.) However, the major Shiite opposition bloc (Wifaq) says it will take part in the October 2006 National Assembly elections, hoping to use the Assembly to assert their demands and air grievances. The King has appointed two women to cabinet posts, and two others have been given ministerial rank. Saudi Arabia, now under King Abdullah, is beginning to accelerate political liberalization. During King Fahd's reign, the Kingdom expanded its national Consultative Council to 90 seats from 60 in 1997, to 120 seats in 2001, and to 150 in April 2005, but Fahd resisted national elections or the appointment of women to the Council. In 2004, the government approved new powers for the Council, including the ability to initiate legislation rather than merely review government proposed laws, and giving the Council increased ability to veto draft governmental laws. Observers in Saudi Arabia say the public is increasingly aware of the Council's activities and its growing role as a force in Saudi politics. In February 2005, Saudi Arabia held elections for half of the seats on 178 local municipal councils around the Kingdom, but women were not allowed to vote. In November 2005, two Saudi women won election to the Jeddah Chamber of Commerce, the first vote of any kind in the country in which women participated. The vote was viewed as a prelude to allowing female suffrage in the 2009 municipal elections, and it could presage a possible move by King Abdullah to allow women to drive. To date, the UAE has been the least active on political reform, but movement is now evident. In November 2005, the government announced that half the seats of the forty seat advisory Federal National Council (FNC) would be selected by a limited electorate in each emirate. Each of the seven emirates of the UAE federation has a fixed number of seats on the FNC, and the size of the electorate will be 100 times the number of seats each emirate has. The UAE constitution permits males or females to sit on the FNC (although no women have been on it to date), indicating that women might be selected to the FNC in the newly opened selection process. Since the November 2004 death of Shaykh Zayid, two women have been appointed to cabinet positions. Continued Human Rights Concerns The moves toward political openness in the Gulf states are praised by U.S. officials but still do not give Gulf citizens the right to peacefully change their government. The foreign workers on which the Gulf economies rely have virtually no political rights, although they are slowly acquiring labor rights, particularly in Bahrain, including the right to join unions. Some strikes by foreign workers have taken place in UAE for non-payment and poor working conditions. Almost all the Gulf states are cited by human rights organizations and U.S. human rights reports for varying degrees of religious discrimination, arbitrary arrests and detentions, suppression of peaceful assembly and free expression. Virtually all are criticized by the State Department for abuses against domestic workers who are mostly of foreign, and primarily Asian, origin. On November 28, 2005, the State Department condemned the UAE's arrest of a dozen same-sex couples and the announcement that they would be subjected to hormone treatment. On religious freedom, Saudi Arabia draws the sharpest U.S. criticism for actively prohibiting the practice of non-Muslim religions on its territory, even in private, with limited exceptions. In 2005, for the second year in a row, it was designated as a "Country of Particular Concern" under the International Religious Freedom Act (IRFA). Qatar prohibits public non-Muslim worship but tolerates it in private, although it has shifted its position in late 2005 and is now allowing church construction. In Kuwait, Bahrain, the UAE, and Oman, there are functioning Christian churches and congregations. Small Jewish communities in some Gulf countries are generally allowed to worship freely, and there is a Jewish member of the upper house of Bahrain's national assembly. The Gulf states appear to be falling short of U.S. expectations in preventing trafficking in persons, although some have pledged to improve their performance. Several, including Qatar and UAE, have taken steps to end the trafficking of young boys to the Gulf to work as camel jockeys. As of the 2006 State Department Trafficking in Persons report, only Saudi Arabia has remained in "Tier 3," the worst category, indicating it is not making significant efforts to address the problems of human trafficking. The other five Gulf states are designated as "Tier 2 'Watch List'" suggesting they might be placed in Tier 3 if they do not improve efforts to prevent this activity. This designation represents a downgrading of Oman's performance; it was Tier 2 in the 2005 report. Kuwait, Qatar, and UAE were Tier 3 in 2005 and have apparently taken some steps against trafficking since then. U.S. Democratization Efforts As the Bush Administration has made political and economic reform a priority, it has expanded the programs and policies used to promote that agenda. As noted in the State Department's "Supporting Human Rights and Democracy: The U.S. Record 2005-2006," released April 5, 2006, the Administration is promoting these reforms not only through diplomatic exchanges between U.S. diplomats in the Gulf and their counterparts but also with new programs run by the U.S. Agency for International Development (USAID), the State Department's Near East Bureau and its Bureau of Democracy, Human Rights, and Labor, and the "Middle East Partnership Initiative" (MEPI). Recent and ongoing U.S.-funded democratization programs in the Gulf focus on adherence to the rule of law, economic transparency, judicial reform, strengthening civil society organizations, including political societies in some Gulf states, improvement in the education system, media openness, and women's empowerment. Because U.S. diplomats in the region generally seek to maintain good relations with their counterparts and because U.S. interests in the Gulf are broad, most U.S.-funded programs are supported by—or at least not opposed by—the Gulf governments. Many of the programs bring Gulf government officials, students, journalists, and other civil society participants to the United States for training or to see firsthand how various functions are carried out in a democracy. Several programs using MEPI funds were used to help the Gulf countries comply with World Trade Organization and other requirements for the free trade agreements being negotiated with the United States (see below). Economic Liberalization and Integration Iran, Iraq, and the GCC states possess about 715 billion barrels of proven oil reserves, representing about 57% of the world's total, and 2,462 trillion cubic feet (tcf) of natural gas, about 45% of the world's proven reserves of that commodity. The countries in the Gulf (including Iran and Iraq) produce about 20 million barrels per day (mbd) of oil, about 30% of the world's oil production, according to the U.S. Energy Information Administration. Saudi Arabia and Iraq are first and second, respectively, in proven reserves. Iraq, which is relatively unexplored, might ultimately be proven to hold more oil than does Saudi Arabia. Iran and Qatar, respectively, have the second and third largest reserves of natural gas in the world; gas is an increasingly important source of energy for Asian and European countries. This resource concentration virtually ensures that the Gulf will remain a major source of energy well into the 21 st century. All of the countries of the Gulf, including Iran and Iraq, appear to have an interest in the free flow of oil, but past political conflict in the Gulf has sometimes led to sharp fluctuations in oil prices and increased hazards to international oil shipping. As noted in the below, oil export revenues still constitute a high percentage of GDP for all of the Gulf states. The health of the energy infrastructure of the Gulf producers is also a key concern of the United States—Gulf state oil exports comprise about 20% of the United States' approximately 13 million barrels per day (mbd) net imports. A sharp oil price decline in 1997-1998 prompted the GCC states to reevaluate their longstanding economic weaknesses, particularly the generous system of social benefits they provide to their citizens. However, the strong expectation in these countries of continued benefits led the Gulf regimes to look to other ways to reform their economies. In the current period of high oil prices (about $70 per barrel in August 2006), the Gulf leaders say they are determined not to discontinue economic reform at a time of high oil prices, as they did in the past to their economic detriment. The cornerstone of GCC economic reform efforts has been to ease underemployment problems by instituting programs, including job training in high-wage industries, to encourage their nationals to work in jobs traditionally held by foreigners. Some of the Gulf states have tried to reduce the percentage of foreign workers by requiring that certain percentages of jobs in some industries be held by nationals as of specified dates. Several of the Gulf states have made substantial strides to diversify their economies and to attract international capital and needed advanced technology to the energy and other sectors. Several Gulf states have developed relatively dynamic tourism industries, particularly UAE, but increasingly including Qatar and Oman. The Gulf states have passed laws allowing foreign firms to own majority stakes in projects and eased restrictions on repatriation of profits. Some, including UAE and Qatar, are now allowing outright foreign ownership of real estate. U.S. officials have applauded progress by the Gulf states in eliminating the requirement that U.S. firms work through local agents and in protecting the intellectual property rights of U.S. companies. As a result of the economic liberalization, several Gulf states now host companies that are of global scale and impact, such as the Kingdom Holding Co. established by Prince Walid bin Talal Al Saud in Saudi Arabia, Dubai Ports World of Dubai, and another UAE-based firm, Emaar Properties. Bahrain has largely rebuilt its reputation as a Gulf financial hub since the unrest there in the 1990s. On the other hand, some Arab and other critics say that the UAE emirate of Dubai, in particular, has gone away from its Arab roots by building huge towers, hotels, malls, and other projects designed to cater to Western expatriates. Others say that the need to attract tourism has led to a proliferation of bars and alcohol-serving establishments that has led to crime, drugs, prostitution, human trafficking, and other social ills not previously witnessed to this extent in the Gulf. Of the Gulf states, Saudi Arabia and Kuwait have not to date developed substantial tourist industries; both still prohibit alcohol consumption and do not want to risk the social consequences the other Gulf states are seeing from their tourism drives. In the oil and gas sector, Qatar has partnered with foreign investors such as Exxon Mobil, Totalfina Elf (France), and others to develop its North Field, the world's largest non-associated gas field, which now has customers in Asia and sells some liquified natural gas (LNG) to the United States. It is also the hub of the "Dolphin Project," in which underwater pipelines are to be constructed to link gas supplies in Qatar and Oman to the UAE, with possible future connections to South Asia. In January 2004, the first Omani supplies under the project began flowing to the UAE emirate of Fujairah; under a swap arrangement, those supplies are replaced by gas shipments from Qatar to Oman. At the same time, both Bahrain and Oman are confronting a declining oil sector; Bahrain and Oman are expected to exhaust their oil supplies in 15 and 20 years, respectively, at current rates of production. Kuwait and Saudi Arabia have been in discussions with Western oil companies, including several American firms, about further developing their oil and gas reserves. However, internal opposition to opening up this vital asset to foreign investors has significantly slowed the entry of international firms in the two countries. The Kuwaiti government has not, to date, obtained National Assembly approval for its "Project Kuwait," a plan under which foreign investors would develop Kuwait's northern oil fields. The government wants the development to compensate for declining older fields and to increase oil production to 4 million barrels per day by 2020, but the National Assembly wants to ensure that Kuwait retains full sovereignty over its oil sector. Similarly, King Abdullah's 1998 initiative to open the Kingdom's gas reserves to Western development was significantly delayed over commercial issues between the Kingdom and the international energy bidders. After gas development deals collapsed in 2003, the Kingdom signed agreements in June 2005 for the gas investments with Royal Dutch Shell (Netherlands), Totalfina Elf (Italy), Lukoil (Russia), Sinopec (China), ENI (Italy), and Repsol (Spain). The Dolphin project is an example of growing Gulf economic integration and coordinated action. In December 2002, the Gulf states agreed to implement a "customs union," providing for uniform tariff rate on foreign imports; that union is to be completed by the end of 2007. In October 2005, Saudi Arabia became the last Gulf state to formally join the World Trade Organization (WTO) after protracted negotiations mainly to assuage remaining U.S. concerns. U.S.-Gulf Free Trade Agreements As part of its strategy to promote reform and democracy in the Middle East, the Bush Administration has been negotiating bilateral free trade agreements (FTAs) with the Gulf states. The Administration decided that an overall U.S.-GCC FTA would likely take too long to negotiate; a similar joint agreement pursued by the European Union has still not been finalized after about a decade of negotiation. An FTA was signed with Bahrain on September 14, 2004. Legislation to approve and implement the agreement was passed by Congress ( H.R. 4340 , P.L. 109-169 , signed January 11, 2006). In conjunction with congressional review, Bahrain dropped the primary boycott of Israel. In September 2005, the United States and Oman agreed on the provisions of an FTA, and the agreement was signed on January 19, 2006. Implementing legislation on the U.S.-Oman FTA ( S. 3569 ) passed the Senate on June 29, 2006, by a vote of 60-34. Oman also has pledged to drop all Arab boycotts of Israel in conjunction with the FTA. Negotiations on an FTA with the UAE are making progress, according to U.S. negotiators, possibly because the wealthy UAE is unwilling to make many compromises to reach an agreement. Kuwait and Qatar have expressed interest in such FTAs as well. Other Foreign Policy and Counter-Terrorism Cooperation The United States has looked to the Gulf states to support U.S. policy on several other regional and international issues. One such issue is the Arab-Israeli dispute, which concerns most citizens in the Gulf countries. Other issues on which the United States seeks Gulf support would include such crises as may arise, such as the July–August 2006 Israel-Hezbollah conflict. Another is counter-terrorism, an issue on which the Gulf states have been increasingly cooperative since their interests in preventing Islamic extremist movements have converged with U.S. goals. In the case of the August 2005 Hurricane Katrina disaster, some Gulf states, particularly Kuwait, have sought to express solidarity with the American public by offering financial disaster assistance to the United States. Arab-Israeli Peace Process Since Iran's Islamic 1979 revolution began a period of instability and warfare in the Gulf, the Gulf states have not focused on the Arab-Israeli dispute to nearly the degree that "frontline states" such as Egypt, Syria, Jordan, and Lebanon have. Most of the Gulf states have tried to support U.S. mediation efforts in the Arab-Israeli dispute, but they also have sought to modify and shape U.S. policy on that issue, as well as on other issues such as the July-August 2006 Israel-Hezbollah conflict. In the aftermath of the 1993 Israeli-PLO mutual recognition agreement, the GCC states participated in the multilateral peace talks, even though Syria and Lebanon boycotted those talks. Bahrain, Qatar, and Oman hosted sessions of the multilaterals, and a regional water desalination research center was established in Oman as a result of an agreement reached in that forum. In 1994, all six GCC countries relaxed their enforcement of the secondary and tertiary Arab boycott of Israel, enabling them to claim that they no longer engage in practices that restrain trade (a key WTO condition). Oman and Qatar opened low-level direct trade ties with Israel in 1995 and 1996 and hosted visits by Israeli leaders during that period. In November 1997, at a time of considerable strain in the peace process, Qatar bucked substantial Arab opposition and hosted the Middle East/North Africa economic conference, the last of that yearly event to be held. At the same time, Saudi Arabia—to which the other Gulf states tend to defer on Arab-Israeli matters—is taking a more active role on this issue now that Abdullah is King. He has always been highly focused on this issue and has often tried to guide and support U.S. policy on this issue; he engineered Arab League approval of a vision of peace between Israel and the Arab states at a March 2002 Arab League summit. The Gulf states all publicly endorsed the Bush Administration's "road map" for Israeli-Palestinian peace. In September 2005, after Israel's unilateral withdrawal from the Gaza Strip, Qatar's foreign minister held a widely publicized meeting with his Israeli counterpart as part of what the Qataris said should be encouragement and praise for Israel's move. The final statement of the GCC summit in December 2005 "hailed" the August 2005 Israeli withdrawal from the Gaza Strip as a "step in the right direction" but expressed the hope it would be followed by a complete Israeli withdrawal from all occupied Palestinian territories. In October 2005, Qatar became the first Arab country to donate money to a town inside Israel, giving $6 million to build a stadium in the ethnically Arab city of Sakhnin in northern Israel. Oman and Bahrain have also dropped the primary Arab boycott in connection with their FTAs with the United States, as discussed above. On the other hand, the Gulf states, as Arab states, clearly support the Arab position on the dispute. After the latest Palestinian uprising began in September 2000, Oman closed its trade office in Israel and ordered Israel's trade office in Muscat closed. Qatar announced the closure of Israel's trade office in Doha, although observers say the office has been tacitly allowed to continue functioning at a low level of activity. (Qatar did not open a trade office in Israel.) That uprising also prompted the Arab League, with heavy Gulf financial support, to set up funds to support the Palestinian Authority (PA) and the Palestinian people. The funds, called the Al Aqsa fund and the Intifada fund, and managed by the Islamic Development Bank, were to provide up to about $1.2 billion in donated funds to the PA. Saudi Arabia pledged$270 million of that amount, and it has largely fulfilled that commitment. The other Gulf states have mostly been in arrears. A key difference between the United States and the Gulf states has been on how to treat Palestinian militant groups, particularly Hamas. The differences sharpened in the wake of Hamas' victory in the January 2006 Palestinian legislative elections, which enabled Hamas to form a cabinet for the Palestinian Authority (PA). The United States still sees Hamas as a designated foreign terrorist organization (FTO, as named by the State Department in 1997) that conducts attacks on Israelis and moved to curb aid to the PA in the aftermath of the Hamas win. The Gulf states see Hamas as a legitimate defender of Palestinian interests and resister of Israel's occupation of Palestinian territories. To help the Hamas-led PA cope with the reduction of Western aid, Saudi Arabia and Qatar pledged funds ($92 million and $50 million, respectively) to alleviate a PA budget crisis. In July 2006, Saudi Arabia announced a longer term program of reconstruction aid for the Palestinian territories in the amount of $250 million. Differences between the United States and the Gulf states was far less pronounced in the Israel-Hezbollah conflict of July-August 2006. Hezbollah is a named FTO and the United States supported Israel's decision to combat Hezbollah following Hezbollah's cross-border raid on July 12, 2006. Viewing the Shiite movement as an ally of Iran, Saudi Arabia criticized the Hezbollah raid as "adventurism," although it and the other Gulf states subsequently denounced Israel's raids on civilian targets and urged an immediate ceasefire. Qatar and the UAE were directly involved in negotiations leading to U.N. Security Council Resolution 1701 (August 11, 2006), which called for a ceasefire and the movement of Hezbollah's militia away from the border with Israel. The UAE flew in humanitarian aid to Lebanon during the crisis, and Saudi Arabia announced a $500 million grant to Lebanon on July 26, 2006—over and above a $50 million emergency relief grant—to help the country rebuild after the conflict. In August 2006, there reportedly was agreement among the GCC states that, in addition to the Saudi pledge, UAE would help rebuild schools and hospitals and remove landmines in south Lebanon, Qatar would rebuild the town of Bint Jubail, site of heavy Israeli-Hizballah fighting, and Kuwait would donate $800 million in reconstruction funds for Lebanon. Cooperation Against Al Qaeda The September 11 attacks stimulated some tensions between the United States and some of the Gulf monarchy states, particularly Saudi Arabia, over allegations that Gulf donors had, wittingly or unknowingly, been contributing to or tolerating groups and institutions linked to Al Qaeda. Many experts believe the Gulf states were tolerant of the presence of militants in order to avoid a backlash among citizens that agree with the militant's anti-U.S., anti-Western stances. Osama bin Laden's Saudi origins, coupled with the revelation that fifteen of the nineteen September 11 hijackers were Saudis, caused substantial criticism of Saudi Arabia among some U.S. experts and opinion-makers. Two of the hijackers were UAE nationals. The September 11 Commission report stated that Khalid Shaykh Mohammad, alleged mastermind of the September 11 plot, lived in Qatar during 1992-1996 at the invitation of Shaykh Abdullah bin Khalid Al Thani, the current Interior Minister and a former Minister of Islamic Affairs, adding that Khalid Shaykh was warned by Qatari officials in 1996 of a U.S. indictment, and fled. Qatar also hosts an outspoken Islamic cleric of Egyptian origin, Shaykh Yusuf al-Qaradawi. In September 2004, in one of his most hardline statements, Qaradawi said that it is a religious duty for Muslims to fight U.S. forces and civilians in Iraq. Despite his statements, Qaradawi meets with and sometimes appears at panel discussions with Qatari senior officials. Some Saudi clerics, and even some Saudi officials, such as Interior Minister Prince Nayef, have earned opprobrium in the United States for similar statements that appear to blame the United States and U.S. policy for Islamic terrorism against the United States. Others accept the official view of some Gulf states that they hoped to calm regional militancy through negotiations and by working with governments, such as the Taliban, in an effort to keep Al Qaeda militants contained. Saudi Arabia and the UAE were joined only by Pakistan in extending official recognition to the Taliban regime of Afghanistan during 1996-2001, breaking ties with the movement only after the September 11, 2001 attacks. Prior to September 11, the UAE had refused repeated U.S. requests to break ties with the Taliban and to stop hosting Ariana (Afghan national airline) flights to and from Dubai emirate; these flights were one of the few connections between the Taliban and the outside world. The September 11 Commission report on the attacks noted that the hijackers had made extensive use, among other means, of financial networks based in the UAE, in the September 11 plot. There has also been extensive public discussion about the use of Saudi charities and other Saudi-based networks to fund Al Qaeda and other terrorist networks, although the September 11 Commission found no evidence that the Saudi government or Saudi officials funded Al Qaeda. Since the September 11, 2001, attacks and the start of the Iraq war in March 2003, the Gulf states have been partners of the United States against Al Qaeda and pro-Al Qaeda movements as these militants have posed a threat to the Gulf states themselves. As noted in the table earlier in this paper, the United States has increased U.S. anti-terrorism assistance to almost all of the Gulf states to help them counter Al Qaeda and other terrorist and proliferation threats. As of mid-2006, the domestic Al Qaeda-related terrorist threat to the Gulf states appears to be receding as these states have moved assertively against the militants. In Saudi Arabia, there have been attacks on Westerners, regime installations, and those perceived as linked to the U.S. military or the U.S.-led war in Iraq. The most well known was the May 12, 2003 attack on a Western housing complex in Riyadh. In December 2004 there was an attack on the U.S. consulate in Jeddah. Saudi authorities have found and captured or killed several successive leaders of the Al Qaeda organization in Saudi Arabia, including Abdul Aziz al-Muqrin and his successor, Saleh al-Oufi, the latter of whom was reputedly killed in August 2005 shoot-out with Saudi authorities. In Kuwait, there have been sporadic attacks on Kuwaiti security personnel in attacks that might have been attempts to disrupt OIF-related U.S. military deployments there, but Kuwaiti authorities have taken actions similar to those of their Saudi counterparts. In addition, in December 2005, Kuwait convicted six men of belonging to a terror group ("Lions of the Peninsula") allegedly planning attacks on U.S. troops in Kuwait. Qatar's tranquility was disrupted in March 2005 when an Egyptian expatriate bombed a theater frequented by Westerners as a purported response to Qatar's hosting of U.S. forces in OIF. No similar incidents have occurred there since. In its most recent annual report on global terrorism, covering the year 2005 ("Country Reports on Terrorism: 2005," released April 2006), the Bush Administration generally praises Gulf state cooperation against such extremists, although noting some deficiencies: All of the Gulf states are credited with enacting at least some new measures to combat terrorism financing, including freezing suspected terrorist assets, requiring approval for charitable transaction, adopting anti-money laundering laws, or instituting laws and procedures to track suspicious financial transactions. Each of the Gulf states has joined the Middle East and North Africa Financial Action Task Force (MENA-FATF), and Bahrain hosted its inaugural meeting. U.S. officials continue to press their Gulf state counterparts to rigorously enforce these new measures, and some U.S. officials have criticized some Gulf governments, particularly Saudi Arabia, for failing to prosecute some individuals suspected of being terrorist financiers. Some Gulf states are credited with arrests of suspected Al Qaeda figures. The UAE is praised by U.S. officials for providing assistance in several terrorist investigations; it assisted in the 2002 arrest of at least one senior Al Qaeda operative in the Gulf, Abd al-Rahim al-Nashiri. In August 2004, the UAE emirate of Dubai, in cooperation with Pakistani investigators, arrested an alleged senior Al Qaeda operative, Qari Saifullah Akhtar. Bahrain has on a few occasions in 2003 and 2004 arrested suspected Al Qaeda activists, although it has later released many of them pending trial or because of a lack of legal justification for holding them. Qatar and Oman are generally cited by the 2005 State Department terrorism report for supporting or assisting U.S. counter-terrorism efforts, and the 2004 and 2005 State Department reports did not repeat language from the 2003 report that "Members of transnational terrorist groups and state sponsors of terrorism are present in Qatar." Several of the Gulf states are providing assistance on port and container security. In December 2004, the UAE emirate of Dubai, a major Gulf port hub, signed a statement of principles to participate in the U.S. "Container Security Initiative" to screen U.S.-bound container cargo in Dubai. Oman joined that initiative as well in November 2005. On the other hand, some in Congress have expressed concern, including during consideration of the U.S.-Oman FTA, that some GCC or non-GCC firms might try to use U.S.-Gulf FTAs to invest in operations of U.S. ports. The new concerns built on earlier security-related questions that scuttled a February 2006 U.S. decision to allow the Dubai-owned firm, Dubai Ports World, to take over operations at six U.S. ports. U.S. officials say that the FTA agreements with the Gulf countries would permit the United States to block such investments on security grounds. Appendix. Gulf State Populations, Religious Composition

The U.S.-led war to overthrow Saddam Hussein virtually ended Iraq's ability to militarily threaten the region, but it has produced new and un-anticipated security challenges for the Persian Gulf states (Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, and the United Arab Emirates). The Gulf states, which are all led by Sunni Muslim regimes, fear that Shiite Iran is unchecked now that Iraq is strategically weak. The Gulf states strongly resent that pro-Iranian Shiite Muslim groups and their Kurdish allies (who are not Arabs) have obtained preponderant power within Iraq. This has led most of the Gulf states, particularly Saudi Arabia, to provide only halting support to the fledgling government in Baghdad and to revive the focus on U.S.-Gulf defense cooperation that characterized U.S.-Gulf relations during the 1990s. The new power structure in Iraq has had political repercussions throughout the Gulf region, particularly as Sunni-Shiite violence in Iraq has come to overshadow direct insurgent violence against U.S. forces as the key threat to Iraqi stability. The Sunni-Shiite tensions in Iraq apparently are spilling over into the Gulf states. Shiite communities, particularly that in Bahrain, have been emboldened by events in Iraq to seek additional power, and Sunni-Shiite tension in the Gulf states is said by observers to be increasing. Some Shiite communities, which view themselves as long repressed, are attempting to benefit politically from the Bush Administration's focus on promoting democracy and political reform in the region. Domestically, all of the Gulf states are undertaking substantial but gradual economic and political liberalization to deflect popular pressure and satisfy U.S. calls for reform. However, the reforms undertaken or planned do not aim to fundamentally restructure power in any of these states. The Bush Administration advocates more rapid and sweeping political and economic liberalization as key to long-term Gulf stability and to reducing support in the Gulf states for terrorist groups such as Al Qaeda. The Administration is funding civil society programs in the Gulf states—funding that is not necessarily welcomed by the Gulf leaderships—but it is also promoting the bilateral free trade agreements that most of the Gulf leaders seek. The Bush Administration also is working to maintain or improve post-September 11 cooperation with the Gulf states against Al Qaeda. Some Gulf states allegedly tolerated the presence of Al Qaeda activists and their funding mechanisms prior to the September 11 attacks. Fifteen of the nineteen September 11 hijackers were of Saudi origin, as is Al Qaeda founder Osama bin Laden. This report will be updated as warranted by regional developments. See also CRS Report RL33533, Saudi Arabia: Background and U.S. Relations; CRS Report RS21513, Kuwait: Security, Reform, and U.S. Policy; CRS Report RS21852, The United Arab Emirates (UAE): Issues for U.S. Policy; CRS Report RL31718, Qatar: Background and U.S. Relations; CRS Report 95-1013, Bahrain: Reform, Security, and U.S. Policy; and CRS Report RS21534, Oman: Reform, Security, and U.S. Policy.

Background: An Independent Kosovo On February 17, 2008, Kosovo declared its independence from Serbia, sparking celebration among the country's ethnic Albanians, who form over 90% of the country's population. Serbia and the Kosovo Serb minority heatedly objected to the declaration and refused to recognize it. Serbia continues to view Kosovo as its province. The United States recognized Kosovo's independence on February 18, 2008. The Kosovo government claims their country has been recognized by 98 countries, a majority of UN member-states. Of the 27 EU countries, 22 have recognized Kosovo, including key countries such as France, Germany, Britain, and Italy. Five EU countries—Greece, Cyprus, Slovakia, Romania, and Spain—have expressed opposition to Kosovo's independence. These countries are either traditional allies of Serbia, or have minority populations for whom they fear Kosovo independence could set an unfortunate precedent, or both. Kosovo joined the International Monetary Fund and World Bank in 2009. Russia has strongly opposed Kosovo's independence. Russian opposition will likely block Kosovo's membership in the United Nations for the foreseeable future, due to Russia's veto power in the U.N. Security Council. Kosovo seeks to eventually join the European Union and NATO, although this is at best a distant prospect, due to the non-recognition of Kosovo by several NATO and EU states, as well as the country's poverty and weak institutions. When it declared independence, Kosovo pledged to implement the Comprehensive Proposal for the Kosovo Status Settlement, drafted by U.N. envoy Martti Ahtisaari. The provisions of the plan were incorporated into Kosovo's constitution. The status settlement called for Kosovo to become an independent country, initially supervised by the international community. The plan bars Kosovo from merging with another country or part of another country (a tacit reference to Albania or parts of other neighboring countries populated mainly by ethnic Albanians). The document contained provisions aimed at safeguarding the rights of ethnic Serbs and other minorities. The plan called for six Serbian-majority municipalities to be given expanded powers over their own affairs. They have the right to form associations with each other and receive transparent funding from Belgrade. Local police are part of the Kosovo Police Service, but their composition has to correspond to the local ethnic mix and the local police commander is chosen by the municipality. Central government bodies and the judiciary also have to reflect Kosovo's ethnic composition. Kosovo's constitution and laws have to guarantee minority rights. Laws of special interest to ethnic minorities can only be approved if a majority of the minority representatives in the parliament votes for them. Serbian religious and cultural sites and communities in Kosovo must be protected. An International Civilian Representative (ICR) was appointed by an international steering group of countries to oversee Kosovo's implementation of the plan. The ICR's mandate ended in September 2012. The EU Special Representative in Kosovo, currently Samuel Zbogar of Slovenia, continues to provide advice to Kosovo on the reforms needed to move closer to eventual EU membership. EULEX, which operates under the EU's European Security and Defense Policy (ESDP), monitors and advises the Kosovo government on all issues related to the rule of law, specifically the police, courts, customs officials, and prisons. It has the ability to assume "limited executive powers" to ensure that these institutions work effectively, as well as to intervene in specific criminal cases, including by referring them to international judges and prosecutors. In the past, critics have charged that EULEX hasn't been effective in fighting organized crime and corruption and that some of its efforts, particularly in the area of witness protection, have been amateurish. Due to the lack of unanimity within the EU on Kosovo's independence, EULEX functions as a "status-neutral" organization, providing assistance on rule-of-law issues to local authorities without endorsing or rejecting Kosovo's independence. EULEX has undergone substantial reductions in personnel and funding. Most of the cuts have come in the police side of the mission rather than the judiciary, where the need for assistance appears to be greatest. EULEX's mandate will end in June 2014. KFOR, the NATO-led peacekeeping force in Kosovo, has the role of ensuring the overall security of Kosovo, while leaving policing duties to local authorities and EULEX. KFOR also plays the leading role in overseeing the training of the 2,500-strong Kosovo Security Force (KSF) called for by the Ahtisaari plan. NATO and the United States are providing assistance and training to the KSF, which possesses small arms but not heavy weapons such as artillery and tanks. At a June 2009 NATO defense ministers' meeting, the Alliance agreed to gradually reduce KFOR's size to a "deterrent presence." The ministers decided that reductions were justified by the improved security situation in Kosovo. The decision may have also been provoked by the strains on member states' resources posed by deployments to Afghanistan and other places, as well as by the global economic crisis. Tasks previously undertaken by KFOR, such as guarding Kosovo's borders and key Serbian cultural and religious sites, have been gradually handed over to the Kosovo police. In January 2013, KFOR had 5,134 troops in Kosovo, of which 773 were U.S. soldiers. Further cuts in KFOR's size are on hold until the security situation in the country appears stable enough to permit it. In December 2012, press reports claimed that France proposed that KFOR be replaced by a smaller, EU-led force in late 2013. The idea was reportedly shelved after some NATO member states expressed opposition to the idea because of the still-unsettled situation in northern Kosovo. If the report is true, some NATO countries could revisit the idea of drawdowns if an April 2013 agreement on normalization of relations between Kosovo and Serbia shows promise in stabilizing the situation in the north. The Kosovo government wants NATO to certify this year that the KSF is fully operational. It wants the KSF to assume responsibility for Kosovo's security, with continuing assistance from the Alliance to prepare the country for eventual NATO membership. However, KFOR, like EULEX, functions as a "status-neutral" body, given that a few NATO member states do not recognize Kosovo's independence. Kosovo is seeking to join the U.S.-led Adriatic Charter as a full member. The Adriatic Charter encourages countries in the region to improve their military capabilities and cooperation with other Charter countries, with the goal of eventual NATO membership. Kosovo-Serbia Negotiations Serbia and Kosovo Serbs reject Kosovo's independence as illegitimate, and continue to assert Serbia's sovereignty over its former province. Serbia seemed to have won a diplomatic victory when the U.N. General Assembly voted on October 8, 2008, to refer the question of the legality of Kosovo's declaration of independence to the International Court of Justice (ICJ). However, in July 2010, the ICJ ruled that Kosovo's declaration of independence did not contravene international law. After the ICJ ruling, the EU pressed Serbia to agree to hold EU-facilitated talks with Kosovo on technical issues, rather than on the question of Kosovo's status. The talks began in March 2011. In July 2011, the two sides reached an agreement on freedom of movement. However, frustrated at the failure to secure Serbia's agreement to the free movement of goods bearing Kosovo's customs stamp across the border, Kosovo blocked Serbia's goods from entering Kosovo. Saying that EULEX refused to implement this policy, on July 25, 2011, Kosovo sent a special police unit to seize control of two customs posts in Serbian-dominated northern Kosovo. Local Serbs responded by erecting barricades blocking the routes to the posts. During the operation, a Kosovar policeman was killed by a sniper. On the 27 th , one of the posts was burned by a Serbian mob. KFOR then moved to take control of the two border posts. A "cat-and-mouse" game between KFOR and local Serbs over roadblocks and bypass routes to allow Serbs to avoid the customs checkpoints has continued sporadically until the present, although with less violence than occurred in 2011. In October 2011, the European Commission released a report on Serbia's qualifications to become a member of the EU. The Commission recommended that Serbia be given the status of a membership candidate if it re-engages in the dialogue with Kosovo and implements in good faith agreements already reached. The Commission recommended that Serbia be given a date to begin membership negotiations if it achieved further steps in normalizing its relations with Kosovo. These include "fully respecting the principles of inclusive regional cooperation; fully respecting the provisions of the Energy Community Treaty; finding solutions for telecommunications and mutual acceptance of diplomas; by continuing to implement in good faith all agreements reached; and by cooperating actively with EULEX in order for it to exercise its functions in all parts of Kosovo." In December 2011, the EU Council endorsed these recommendations. In March 2012, the EU accepted Serbia as a membership candidate. However, the EU reiterated that the granting of a date for the EU to begin negotiations with Serbia would depend upon reaching agreements on energy and telecommunications with Kosovo and the implementation of the accords already agreed to. In May 2012, Serbia held presidential and parliamentary elections, which led to the victory of the nationalist Progressive Party and the Socialist Party of Serbia, once led by Slobodan Milosevic, the chief instigator of the wars in the region of the 1990s. However, both parties have moderated their public stances in recent years. Prime Minister Ivica Dacic of the Socialist Party said the new government is committed to implementing the agreements the previous government reached with Kosovo and to continuing the Kosovo negotiating process, as well as beginning EU membership negotiations. In an effort to make better progress in the talks, in October 2012, the first high-level meeting between the two sides took place between Prime Minister Dacic and Kosovo Prime Minister Hashim Thaci. Such meetings become a regular feature of the negotiations in the following months. The agreements reached from the beginning of the talks until the end of 2012 included ones on free movement of persons, customs stamps, mutual recognition of university diplomas, cadastre (real estate) records, civil registries (which record births, deaths, marriages, etc. for legal purposes), integrated border/boundary management (IBM), and on regional cooperation. Implementation of most of these accords has lagged. A technical protocol on IBM went into effect at the end of 2012, with the opening of several joint Kosovo/Serbia border/boundary posts. The two sides also agreed to exchange liaison personnel (to be located in EU offices in Belgrade and Pristina) to monitor the implementation of agreements and address any problems that may arise. Northern Kosovo An issue that has proved particularly difficult to solve in the talks has been the status of the four Serbian-majority municipalities in northern Kosovo. The area, which borders directly on Serbia, is overwhelmingly ethnically Serbian. Belgrade exercises de facto control over the region through what the Kosovo government, the United States, and many EU countries call "parallel institutions." These range from municipal governments to healthcare and educational facilities to representatives of Serbian military and intelligences agencies, although the last of these are not formally acknowledged to be deployed there. In the talks, the Kosovo government has demanded the dissolution of the parallel institutions and insists that the region come under its control. Kosovar leaders claimed that the area would enjoy the same level of decentralization enjoyed by Serb-majority municipalities in the rest of Kosovo under Kosovo's constitution. The United States, Germany, and other countries that have recognized Kosovo have demanded the dismantling of Serbian military and intelligence structures in Kosovo. They have called on Belgrade to make its funding of healthcare, education, and other institutions in northern Kosovo more transparent. In December 2012, EU member states agreed that any agreement should ensure that Kosovo has a "single institutional and administration set-up." In the EU-mediated dialogue, Serbia pushed for the linking of Serb-dominated municipalities in northern Kosovo with Serbian enclaves in ethnic Albanian-dominated southern Kosovo in an association of Serb municipalities that would have executive powers. Kosovar leaders didn't dispute the right to form such an association but rejected giving it significant powers. Otherwise, Kosovar leaders feared, the association could result in the de facto partition of Kosovo, much as some observers see the existence of the Republika Srpska, the Serb-dominated largely autonomous "entity" within Bosnia and Herzegovina. A complicating factor has been the position of the Kosovo Serbs themselves. Kosovo Serb leaders in northern Kosovo have rejected even a symbolic Kosovo government presence in the area. In February 2012, Kosovo Serb leaders in the north organized a local referendum (which was not monitored by international observers) that rejected Kosovo government institutions by an overwhelming margin. Partition Proposals Some observers have called for Kosovo to be formally partitioned, with northern Kosovo formally recognized as part of Serbia and the rest of the country remaining part of Kosovo. It is often proposed that, in exchange for the Kosovars' formally ceding northern Kosovo, Serbia could cede the ethnic Albanian-majority areas in the Presevo valley in southern Serbia. These ideas are strongly opposed by the Kosovo government and by the international community. The United States and other countries fear that partition could destabilize the region by tempting some leaders, particularly in Bosnia and Macedonia, to try to redraw borders along ethnic lines, which could lead to armed conflict. In the past, Serbian leaders repeatedly and openly discussed the possibility of partition, but did not make formal proposals. However, they have refrained from raising the idea of partition in recent months, due to strong pressure from the United States, Germany, and other EU countries that have recognized Kosovo. The key EU countries have made clear to Serbia that continuing to discuss partition as a viable option would jeopardize Belgrade's EU membership prospects. "First Agreement of Principles Governing the Normalization of Relations" On April 19, 2013, in the 10 th round in their EU-mediated dialogue, Serbian Prime Minister Ivica Dacic and Kosovo Prime Minister Hashim Thaci initialed a "First Agreement of Principles Governing the Normalization of Relations" between Kosovo and Serbia. The 15-point agreement calls for the creation of an "Association/Community of Serbian-majority municipalities" in Kosovo. This "Association/Community" will have "full overview" of the areas of economic development, education, health, urban and rural planning, and any others that Kosovo's central government in Pristina grants. The police in northern Kosovo will form part of Kosovo's unified police force, and will be paid only by Pristina. The police commander in the north will be a Kosovo Serb selected by Pristina from a list of nominees provided by the mayors of the four Serb municipalities in the north. The ethnic composition of the local police in the north will reflect the ethnic composition there. The situation in the judicial system is to be resolved in a similar manner. The judicial system in northern and southern Kosovo will operate under Kosovo's legal framework, but the Appellate Court in Pristina will have a panel composed of a majority of Kosovo Serb judges to deal with all Kosovo Serb-majority municipalities. A division of the Appellate Court will be based in northern Mitrovica, the largest town in northern Kosovo. The agreement also calls for new municipal elections in the north in 2013, under Kosovo law and with the assistance of the Organization for Security and Cooperation in Europe. The two sides agreed that "neither side will block, or encourage others to block, the other side's progress in their respective EU path." On April 21, Kosovo's parliament overwhelmingly approved the agreement by a vote of 89 to 5. The Serbian government approved the agreement on April 22. Initial opposition in Serbia to the agreement was very sharp but limited in scope. The agreement was denounced by the Holy Synod of the Serbian Orthodox Church, and by many Kosovo Serb leaders. Several thousand people have held peaceful demonstrations against the accord in Belgrade and northern Kosovo. Nevertheless, the Serbian parliament approved the government's report on the negotiations with Kosovo on April 29 by an overwhelming vote of 173-24. In addition to support from the government parties, the report was also approved by most of the opposition parties as well. Opposing it was the nationalist Democratic Party of Serbia, and several other members of parliament, mainly those from Kosovo. On April 22, in part as a result of the signing of the agreement, the European Commission recommended that the EU grant Serbia a starting date for its EU membership talks. The Commission also recommended that the EU start talks on a Stabilization and Association Agreement (SAA) with Kosovo, which would enhance EU-Kosovo cooperation in many fields. EU member states will make decisions based on these recommendations at their next EU Council summit in late June. Despite approving the agreement, Serbia still refuses to recognize Kosovo as an independent state, considering it to be an autonomous province of Serbia. Belgrade's position could be viewed perhaps as a convoluted effort to present the "Association/Community" of Serbian-majority municipalities in Kosovo (at least to itself) as an autonomous entity within another autonomous entity within Serbia. For their part, Pristina and the Serbian government's opponents have portrayed the agreement as Serbia's de facto recognition of Kosovo as an independent country. The agreement faces serious challenges to its implementation, including the strong opposition of most Serb leaders in northern Kosovo. Prime Minister Dacic has said that, although he wants northern Kosovo leaders to voluntarily agree to implementation, the government also has the ability to bring pressure to bear, such as by cutting off salaries to those who refuse to cooperate. Dacic and other Belgrade leaders warn that the implementation process must be well underway before the end of June, when the EU Council will decide on whether to grant Serbia a date to begin membership negotiations. Key EU countries are particularly insistent that progress be made as soon as possible on dismantling Serbian security structures in Kosovo. Holding new local elections in northern Kosovo later this year under Kosovo laws also appears challenging. Turnout among Serbs may be very low, which could impair the perceived legitimacy of those institutions. KFOR is expected to play an important role in the agreement's implementation. During the talks, Serbia demanded that Kosovo pledge not to deploy the Kosovo Security Force or its special police units in northern Kosovo without the consent of local leaders. Pristina has not made such a formal pledge, but Prime Minister Dacic has said that during the talks he received a letter from NATO Secretary General Anders Fogh Rasmussen pledging that such deployments would not be made without KFOR's consent, and then only in cases of natural disaster and in consultation with local Serbian leaders. Kosovo's Other Challenges Kosovo faces daunting challenges as an independent state in addition to those posed by its struggle for international recognition and the status of its ethnic minorities. Kosovo suffers from the same problems as other countries in the region, but is in some respects worse off than many of them. Kosovo's problems are especially severe as it has had little recent experience in self-rule, having been controlled by Serbia and/or Yugoslavia until 1999, and by the international community from 1999 until 2008. Kosovo suffers from weak institutions, particularly in the area of the rule of law. In 2012, the Organization for Security and Cooperation in Europe released a report on Kosovo's judiciary. While praising the adoption of legislation on the courts, the vetting of judges, and on judges' salaries, the report noted serious problems, such as a legacy of strong executive influence, threats against judges and their families, and poor court infrastructure and security arrangements. Reports from the European Commission and other sources note Kosovo's severe problem with organized crime and high-level corruption. Kosovo's image suffered a blow as a result of a report approved by the Parliamentary Assembly of the Council of Europe (PACE) in January 2011. The report, authored by human rights rapporteur Dick Marty of Switzerland, linked Kosovo Prime Minister Hashim Thaci and others with the alleged murder of prisoners during the Kosovo Liberation Army's war with Serbia in the 1990s, and the extraction of their organs in Albania for sale on the international black market. Thaci and other former KLA leaders strongly deny the charges. An EULEX-appointed prosecutor, [author name scrubbed], an American, is conducting an investigation into the charges. He expects to conclude his investigation in 2014. In April 2013, a Kosovo court convicted five persons in another organ trafficking case, involving the Medicus clinic in Pristina. EULEX prosecutors are now investigating the possible complicity of high-level Kosovo government officials in the case. Marty claimed he had proof of close links between the crimes in the Medicus case (which occurred in 2008) and organ trafficking during the war in the 1990s. He was called to testify in the Medicus case, but did not, due to the failure of PACE to lift Marty's parliamentary immunity. As noted above, despite the differences between member countries on recognizing Kosovo's independence, the European Commission recommended on April 22, 2013, that the EU open negotiations on a Stabilization and Association Agreement (SAA) between Kosovo and the EU. An SAA would establish closer, contractual relations between Kosovo and the EU and has in the past been a steppingstone to eventual EU membership. The recommendation was in part a "reward" for Kosovo's signing of an agreement on northern Kosovo with Serbia. The EU Council will decide whether to accept this recommendation in June 2013. Kosovar leaders criticized EU decisions to permit visa-free travel to the EU for the citizens of other countries in the region in 2010, while continuing to require visas for Kosovo. In addition to the practical inconveniences involved, Kosovars may view the decision as a blow to the prestige of their country. Moreover, the country's European integration may be hindered if Kosovars, particularly young people, find it difficult to travel to the EU and see how EU countries function at first hand. In January 2012, the EU launched a dialogue with Kosovo on visa-free travel. However, Kosovo is unlikely to receive visa-free travel in the near future, given that the EU will likely demand substantial improvements in rule of law and border controls first. Moreover, several EU countries have complained about a surge in asylum-seekers from the region since 2010, and the EU has threatened to suspend the whole program unless the problem is resolved. Kosovo's Political Situation Kosovo's current government was formed in February 2011, after the December 2010 elections. Hashim Thaci, leader of the Democratic Party of Kosovo (PDK), was reelected as prime minister. In addition to the dominant PDK (which has 34 seats), the government, which was approved by 65 of the 120 members of the parliament, also includes the New Kosovo Alliance, led by wealthy construction magnate Behgjet Pacolli (8 seats). Most of the remaining coalition parties represent Serbs and other ethnic minorities. As part of the deal to set up the government, Pacolli was elected president of Kosovo by the parliament in February 2011. However, in March 2011, the Kosovo Constitutional Court ruled that Pacolli's election was illegal because not enough members of parliament were present for the vote. Pacolli resigned, and in April 2011 Atifete Jahjaga was elected as president of Kosovo. A non-political, compromise figure, Jahjaga was formerly deputy director of the Kosovo Police Service. The reportedly prominent role played by the U.S. ambassador in pushing for her election sparked some controversy in the Kosovar press. The acquittal of Ramush Haradinaj of war crimes charges at the International Criminal Tribunal for the former Yugoslavia in November 2012 has led to a rapprochement between his opposition Alliance for the Future of Kosovo (AAK) party and the ruling PDK. This has provided a more stable political basis for the government's negotiations with Serbia. Kosovo may hold early parliamentary elections in 2013, but will likely have to pass electoral reforms acceptable to the international community first. Kosovo's previous elections have been marred by fraud. The parliament could also agree on changes to the constitution, including to make the presidency a popularly elected post, and to hold early presidential elections along with ones for a new parliament. Kosovo's Economy and International Assistance Poverty, unemployment, and a lack of economic opportunity are serious problems in Kosovo. Kosovo is one of Europe's poorest countries. According to the World Bank, 34.5% of Kosovo's population fell below the country's poverty line in 2009. Poverty is particularly severe in rural areas and among Roma and other ethnic minorities. Unemployment in Kosovo is over 40%, according to the European Commission's October 2012 report on Kosovo, which notes that data on the subject is scarce and often unreliable. Youth unemployment is even higher, at about 70%. The unemployment is largely structural in character, with about 80% of the unemployed without work for a year or more. Small and inefficient farms are the largest employers in Kosovo. The country has little large-scale industry and few exports. However, Kosovo does have significant deposits of metals and lignite. Kosovo has to improve its investment climate in order to stimulate growth and attract foreign investment, according to the European Commission and World Bank. Due to a surge in government spending (including a sharp increase in government salaries) and a failure to rein in its budget deficit, the IMF cut off funding from a stand-by loan in 2011. This also led to the interruption of macro-financial funding from the EU. However, a new 106.6 million Euro stand-by arrangement was approved in April 2012, and Kosovo has received several tranches of the loan since then. Kosovo has been dependent on international aid and expenditures by international staff in Kosovo. These sources of income have declined in recent years. Kosovo is also dependent on remittances from the large number of Kosovars abroad. The first makes up about 7.5% of Kosovo's Gross Domestic Product, and the latter about 10%, according to the 2013 CIA World Factbook. However, Kosovo has not been as strongly affected by the global economic crisis as other countries, due to its low level of integration into the global economy. The IMF estimates that Kosovo's real Gross Domestic Product (GDP) grew by 2% in 2012. It expects GDP growth of 2.9% in 2013 and predicts 4.3% growth for 2014. In 2013, Kosovo is slated to receive 71.4 million Euro in aid under the EU's Instrument for Pre-Accession Assistance (IPA). The aid provides support for the rule of law, the economy, and for public administration reform. The EU hopes to determine by the end of June the amount to be allocated for Kosovo and other aid recipients for the period 2014-2020. U.S. Policy The United States recognized Kosovo's independence on February 18, 2008, one of the first countries to do so. The United States has urged other countries to extend diplomatic recognition to Kosovo, with mixed success. In December 2008, President Bush announced that Kosovo had been included under the Generalized System of Preferences, a program that cuts U.S. tariffs for many imports from poor countries. (Kosovo also receives similar trade privileges from the EU.) Vice President Joseph Biden set the tone for the Obama Administration's Balkans policy when he visited Kosovo in May 2009, after stops in Bosnia and Serbia. He received a hero's welcome in Kosovo, where he declared that the "success of an independent Kosovo" is a U.S. "priority." He offered U.S. support to Kosovo in dealing with its many challenges, including building effective institutions, fighting organized crime and corruption, and improving ties with ethnic minorities. He said he stressed to Serbian leaders the United States' own strong support for an independent Kosovo and urged them to cooperate with Kosovo institutions and EULEX instead of setting up separate institutions for Kosovo Serbs. On the other hand, when he was in Belgrade, Biden told Serbia's leaders that he did not expect them to recognize Kosovo's independence in order to have improved relations with the United States. Although strongly supporting the Serbia-Kosovo talks, U.S. officials have said the United States is a "guest," not a participant or mediator. However, the U.S. role is still significant, given that Kosovar leaders view the United States as their country's most powerful and reliable ally. On September 10, 2012, the White House issued a statement by President Obama hailing the end of supervised independence in Kosovo. He said Kosovo has made "significant progress" in "building the institutions of a modern, multi-ethnic, inclusive and democratic state." He added Kosovo had more work to do in ensuring that the rights enshrined in the country's constitution are realized for every citizen. President Obama also called on Kosovo to continue to work to resolve outstanding issues with its neighbors, especially Serbia. U.S. officials have also urged Serbia to come to terms with Kosovo's independence, including by normalizing ties with Pristina and dismantling parallel Serbian institutions in Kosovo. Secretary of State Hillary Clinton visited the region in late October and early November 2012, stopping in Bosnia, Serbia, Kosovo, Croatia, and Albania. In a move that underlines the U.S. focus on coordination with the EU, she visited Bosnia, Serbia, and Kosovo jointly with EU foreign policy chief Baroness Catherine Ashton. At every stop, Clinton emphasized the solidarity between Brussels and Washington on Balkan policy. During visits to Serbia and Kosovo, Clinton stressed the importance for both sides to negotiate in good faith in the EU-brokered talks aimed at normalizing their relationship so that they can integrate with the European Union. She praised Kosovo Prime Minister Hashim Thaci for meeting in Brussels with Serbian Prime Minister Ivica Dacic and Ashton. Clinton stressed that the United States regards Kosovo's sovereignty and territorial integrity as completely non-negotiable. Although most EU countries would agree with the statement, Ashton could not make such a comment, as the EU is divided on the issue of Kosovo's independence. Clinton's statement may have been aimed at offering reassurance to Thaci for the talks, which are about as controversial in Kosovo as they are in Serbia. It is considered likely that Kosovo will face pressure from Serbia and possibly from some EU countries to agree to wide-ranging de facto autonomy for Serbian-dominated northern Kosovo. On April 19, 2013, Secretary of State John Kerry issued a statement hailing the agreement on northern Kosovo, and calling on both sides to speedily implement it and the other agreements they have reached. Kerry also commended Baroness Ashton for her role in facilitating the talks. He said the United States remained deeply committed to seeing Serbia and Kosovo and the region achieve their goals of integrating into a Europe whole, free, and at peace. On April 24, the Subcommittee on Europe, Eurasia, and Emerging Threats of the House Foreign Affairs Committee held a hearing on Kosovo-Serbia relations. Acting Deputy Assistant Secretary of State Jonathan Moore expressed strong Administration support for the April 19 agreement and underlined that close U.S.-EU policy coordination helped bring it about. Subcommittee Chairman Representative Dana Rohrabacher expressed strong skepticism about the viability of the agreement. He reiterated his long-standing support for referendums to be held in Serb-majority areas of northern Kosovo and ethnic Albanian-majority areas of southern Serbia on which country the populations there want to belong to. Such referendums would likely result in a swap of territories between the two countries. Moore repeated the Administration's opposition to this approach, claiming it could lead to further conflict in the region. U.S. Aid to Kosovo U.S. aid to Kosovo has declined significantly in recent years. According to the FY2013 Congressional Budget Presentation for Foreign Operations, in FY2012, Kosovo received an estimated $67.45 million in U.S. aid. For FY2013, the Administration requested a total of $57.669 million for Kosovo. Of this amount, $42.544 million is aid for political and economic reforms from the Economic Support Fund (ESF), $10.674 million from the International Narcotics Control and Law Enforcement account (INCLE), $0.7 million in IMET military training aid, $3 million in Foreign Military Financing (FMF), and $0.75 million from the Nonproliferation, Antiterrorism, Demining and Related Programs (NADR) account. In its FY2014 budget, the Administration aid request for Kosovo includes $41 million in ESF funding, $10.7 million from the INCLE account, $0.75 million in IMET aid, and $4 million in FMF. U.S. aid programs include efforts to support the Kosovo Police Service and strengthen the judicial system and local government in Kosovo. U.S. aid is used to provide police officers and judges to EULEX. Technical assistance is used to build the capacity of Kosovo's government and parliament. U.S aid also assists Kosovo in improving its system of higher education. A significant part of U.S. aid is targeted at promoting the integration of the Serbian minority into Kosovo's government and society. Foreign Military Funding (FMF) and IMET military training aid help improve the capabilities of the Kosovo Security Force. Assistance from the Nonproliferation, Antiterrorism, Demining and Related Programs (NADR) account is aimed at boosting the capacity of Kosovo border police to fight proliferation and trafficking.

On February 17, 2008, Kosovo declared its independence from Serbia. The United States and 22 of the 27 European Union countries have recognized Kosovo's independence. The Kosovo government claims that 98 countries in all have extended diplomatic recognition to it. EULEX, a European Union-led law-and-order mission, is tasked with improving the rule of law in Kosovo. KFOR, a NATO-led peacekeeping force that includes more than 700 U.S. soldiers, has the mission of providing a secure environment. Serbia strongly objects to Kosovo's declaration of independence. It has used diplomatic means to try to persuade countries to not recognize Kosovo. It has retained parallel governing institutions in Serb-majority areas in Kosovo. Since March 2011, the EU has mediated negotiations between Serbia and Kosovo. The agreements reached include ones on free movement of persons, customs stamps, recognition of university diplomas, cadastre (real estate) records, civil registries (which record births, deaths, marriages, etc. for legal purposes), integrated border/boundary management, and on regional cooperation. However, the accords have not been implemented or only partly implemented. On April 19, 2013, Kosovo and Serbia reached a key agreement on normalizing relations. The agreement calls for the abolishing of the parallel institutions and the establishment of an "Association/Community" of Serb-majority municipalities within Kosovo, which would function according to Kosovo's laws. Most Kosovo Serb leaders are strongly against the agreement, and its implementation is uncertain. Kosovo faces other daunting challenges, aside from those posed by its struggle for international recognition and the status of its ethnic minorities. According to reports by the European Commission, the country suffers from weak institutions, including the judiciary and law enforcement. Kosovo has high levels of government corruption and powerful organized crime networks. Many Kosovars are poor and reported unemployment is very high. The United States has supported the EU-brokered talks between Serbia and Kosovo, but has stressed that it is an observer, not a participant in them. On September 10, 2012, the White House issued a statement by President Obama hailing the end of international supervision of Kosovo. He said Kosovo has made "significant progress" in "building the institutions of a modern, multi-ethnic, inclusive and democratic state." He added Kosovo had more work to do in ensuring that the rights enshrined in the country's constitution are realized for every citizen. President Obama also called on Kosovo to continue to work to resolve outstanding issues with its neighbors, especially Serbia. U.S. officials hailed the April 19, 2013, agreement between Serbia and Kosovo on normalizing relations. Since U.S. recognition of Kosovo's independence in 2008, congressional action on Kosovo has focused largely on foreign aid appropriations legislation. For FY2013, the Administration requested a total of $57.669 million for Kosovo. Of this amount, $42.544 million is aid for political and economic reforms from the Economic Support Fund, $10.674 million from the International Narcotics Control and Law Enforcement account, $0.7 million in IMET military training aid, $3 million in Foreign Military Financing, and $0.75 million in NADR aid to assist non-proliferation and anti-terrorism efforts. In its FY2014 budget, the Administration aid request for Kosovo includes $41 million in ESF funding, $10.7 million from the INCLE account, $0.75 million in IMET aid, and $4 million in FMF.

Background The territory now known as the Western Sahara became a Spanish possession in 1881. In the mid-1970s, Spain prepared to decolonize the region, intending to transform it into a closely aligned independent state after a referendum on self-determination. Morocco and Mauritania opposed Spain's plan and each claimed the territory. Although their claims were based on historic empires, the Western Sahara's valuable phosphate resources and fishing grounds also may have motivated them. At Morocco's initiative, the U.N. General Assembly referred the question to the International Court of Justice (ICJ). However, on October 12, 1975, the ICJ found no tie of territorial sovereignty between Morocco and the Western Sahara. In response, on November 6, 1975, King Hassan II of Morocco launched a "Green March" of 350,000 unarmed civilians to the Western Sahara to claim it. Ten days later, Spain agreed to withdraw and transfer the region to joint Moroccan-Mauritanian administration. The independence-seeking Popular Front for the Liberation of Saqiat al Hamra and Rio de Oro, or Polisario resisted the Moroccan-Mauritanian takeover. In the 1970s, a reported majority of Sahrawis (a term referring to the "indigenous" people of Western Sahara) left for refugee camps in Algeria and Mauritania. With Algeria's support, the Polisario established its headquarters in Tindouf, in southwest Algeria, and founded the Sahrawi Arab Democratic Republic (SADR) in 1976. Mauritania could not sustain a defense against the Polisario and signed a peace treaty with it, abandoning all claims in 1979. Morocco then occupied Mauritania's sector and, in 1981, began building a "berm," or sand wall, to separate the 85% of the Western Sahara that it occupied from the Polisario and the Sahrawi refugees (see Figure 1 ) . Morocco's armed forces and Polisario guerrillas fought a long war in the desert until the United Nations (U.N.) proposed a settlement plan in 1988 and arranged a cease-fire in 1991. U.N. Security Council Resolution 690 (1991) established the United Nations Mission for the Organization of a Referendum in the Western Sahara (MINURSO) and called for a referendum to offer a choice between independence and integration into Morocco. However, over the next decade, Morocco and the Polisario differed over how to identify voters for the referendum, with each seeking to ensure an electoral roll that would support its desired outcome. In March 1997, then-U.N. Secretary-General Kofi Annan named former U.S. Secretary of State James A. Baker III as his personal envoy to break the deadlock. Baker brokered an agreement to restart voter identification, which was completed in 1999 with 86,000 voters identified. MINURSO then faced over 130,000 appeals by individuals, backed by Morocco, who were denied voter identification. U.N. Security Council Resolution 1301 (2000) asked the parties to consider alternatives to a referendum. The U.N. concluded that processing appeals could take longer than the initial identification process and that effective implementation of the settlement plan would require the full cooperation of Morocco and the Polisario, and the support of Algeria and Mauritania. Because Morocco and the Polisario would each cooperate only with implementation that would produce its desired outcome, full cooperation would be difficult or impossible to obtain. The U.N. also stated that it lacked a mechanism to enforce the results of a referendum. The Baker Plan and Subsequent Settlement Efforts The Secretary-General's June 2001 Report on the Western Sahara proposed a framework agreement to confer on the population of the Western Sahara the right to elect executive and legislative bodies and to control a local government and many functional areas. The executive would be elected by voters identified as of December 1999, that is, by an electorate favoring the Polisario and excluding Moroccan-supported appellants. Morocco would control foreign relations, national security, and defense. A referendum on final status would be held within five years, with one-year residence in the Western Sahara then the sole criterion for voting. That electorate would favor Morocco by including "settlers" in addition to native Sahrawis. Morocco indicated that it would accept the framework, but Algeria and the Polisario were critical, in part because it did not spell out the options for the final status of Western Sahara. Annan hoped that the parties would negotiate changes acceptable to all. After Baker met representatives of Algeria, Mauritania, and the Polisario, however, Annan, on his and Baker's behalf, doubted the parties' political will to resolve the conflict and cooperate with U.N. efforts. He therefore proposed four options that would not require the parties' consent, including a possible division of the territory or the withdrawal of the U.N. from attempting to resolve the conflict. The Security Council could not agree on a new approach, and instead asked Baker for a new plan that would provide for the self-determination of the people of Western Sahara. In January 2003, Baker presented a proposal, known as the Baker Peace Plan, to which he called on all interested parties to agree. It proposed a U.N.-organized referendum in which voters would choose between integration with Morocco, autonomy, or independence. Voters would be Sahrawis on the December 1999 provisional voter list, on the U.N. Office of the High Commissioner for Refugees repatriation list as of October 2000, or continuously resident in the Western Sahara since December 30, 1999 (therefore including Moroccan settlers). The U.N. would determine the voters, without appeal. In the interim, a Western Sahara Authority would be the local government and Morocco would control foreign relations, national security, and defense. Morocco objected, mainly questioning why the U.N. was reviving the referendum option; it also was upset by the use of the word "independence" instead of the vaguer "self-determination" to describe an option. In April 2004, Morocco declared that it would accept only autonomy as a solution. It called for negotiations only with Algeria, arguing that the Western Sahara is a bilateral geopolitical problem. Underlying these views was a rejection of any challenge to Morocco's physical possession of the territory. Algeria had concluded that the Baker Plan was a "gamble" that should be taken, and the Polisario had accepted it, too, insisting on the right to choose self-determination in a referendum. Algeria declined to negotiate with Morocco, insisting that it is not a party to the dispute and not a substitute for the Sahrawis. In June 2004, James Baker resigned as the U.N. Secretary-General's personal envoy after Security Council Resolution 1541 seemed to express stronger support for a mutually acceptable political solution than for his peace plan. U.N. referendum-related activities subsequently ceased, and the Baker Plan has not been mentioned in Security Council resolutions since then. In July 2005, Annan appointed Danish diplomat Peter van Walsum as his new envoy. Van Walsum indicated that he could not draft a new plan because Morocco would only endorse one that excludes independence, while the U.N. could not endorse a plan excluding a referendum with independence as an option. He concluded that the remaining options were deadlock or direct negotiations. Since the former was unacceptable, he asserted, responsibility rested with the parties. Van Walsum also reported that the Western Sahara was not high on the international political agenda and that most capitals sought to continue good relations with both Morocco and Algeria. Hence, they acquiesce in the impasse. Security Council Resolution 1754 (2007) called on Morocco and the Polisario to negotiate without preconditions on a political solution that would provide for the self-determination of the people of the Western Sahara. In 2007 and 2008, the two sides met and held consultations with Van Walsum four times at Manhasset, NY, but neither was willing to discuss the other's proposals—that is, Morocco's for autonomy and the Polisario's for a referendum. Algeria, Mauritania, and other interested countries were present. In April 2008, Van Walsum stated that "an independent Western Sahara is not a realistic proposition," prompting the Polisario to accuse him of bias in favor of Morocco, call for his replacement, and refuse to return to negotiations. Secretary-General Ban Ki-moon did not reappoint van Walsum in August 2008. Moroccan and Algerian Views Almost since independence (1956 for Morocco, 1962 for Algeria), Morocco and Algeria have competed for regional preeminence, and the Western Sahara is a focus for that contest. The neighbors are rivals with different decolonization histories and political systems. Algeria emerged from a bloody anti-colonial revolution against France with a leftist orientation, while the centuries-old Moroccan monarchy survived relatively intact from a much less violent struggle. The Western Sahara issue has tended to unify Moroccans and reinforce support for the monarchy. King Mohammed VI has strongly reasserted Morocco's claim to Western Sahara since he ascended to the throne in July 1999. Although the territory may be a financial liability due to the cost of Moroccan infrastructure investments and reported financial benefits provided to Moroccan settlers, its known and potential resources may be a long-term economic boon. Beyond their insistence on territorial integrity, Moroccan authorities also see the Western Sahara as a check on Algeria's regional ambitions being pursued via what they consider to be Polisario surrogates. In April 2001, the king suggested decentralization as the best option for the Sahara and, in November 2002, he declared that any political solution must respect Morocco's territorial integrity. Morocco has poured investment into the region, seemingly in an effort to reinforce its claim to sovereignty. On April 11, 2007, Morocco presented an autonomy plan for the Western Sahara under Moroccan sovereignty, without the prospect of independence, for negotiation to the U.N. Secretary-General. In July 2011, Morocco adopted a new constitution via referendum; the king has stated that the document's broad provisions on government decentralization and regional development constitute the basis for a just resolution of the Western Sahara issue. Algeria's President Abdelaziz Bouteflika, in office since 1999, is a former activist in the Algerian revolution against French colonial rule. He and his countrymen see the Western Sahara as one of the world's last decolonization campaigns. If the Polisario won control of the region, Algeria would also benefit by gaining access to the Atlantic Ocean. Should the issue simply simmer, it is still a low-cost way to keep Morocco militarily bogged down and diplomatically isolated in parts of Africa. While insisting that it is not a party to the conflict, Algeria has unwaveringly supported the Polisario's independence claims. With its strong ties in Sub-Saharan Africa, Algiers may be partially responsible for the SADR's African Union (AU) membership and for many African governments' recognition of the SADR. (Some Latin American governments also have recognized it.) Morocco suspended its membership in the Organization for African Unity (OAU), the AU's predecessor, in 1984, over the OAU's recognition of the SADR. Morocco is therefore the only state on the continent not to be an AU member. Recent Developments A U.S. senior career diplomat, Ambassador Christopher Ross, has served as the Personal Envoy of U.N. Secretary-General Ban Ki-moon on the Western Sahara since 2009. Ross initially suggested that the parties hold small, informal preparatory meetings for full talks. However, several rounds convened by Ross did not deliver any progress. In March 2012, Ross stated that "each party continued to reject the proposal of the other as the sole basis for future negotiations, while reiterating their willingness to work together to reach a solution." In May 2012, Morocco announced it was withdrawing confidence in Ross, accusing him of giving "biased and unbalanced guidance." While this initially appeared to threaten Ross's tenure, U.N. Secretary-General Ban Ki-moon publicly reaffirmed his support for Ross, who has remained in his position. Moroccan officials continue to privately critique MINURSO and its personnel as biased. Ross made his first visit to Moroccan-administered Western Sahara in late 2012 as part of a regional tour. He then announced that he was stopping informal talks in favor of "a new approach to move the negotiating process beyond the current stalemate," which would focus on preparing for "shuttle diplomacy" between Morocco and the Polisario. Ross has also called for the expansion of U.N. High Commissioner for Refugees (UNHCR)-supported "confidence-building measures," such as family visits and phone communications between Western Sahara residents and the refugees. U.N. humanitarian family visit flights resumed in April 2014 after a hiatus. MINURSO continues to operate in a challenging political and security environment. The mission regularly reports violations of the cease-fire accord. According to the U.N. Secretary-General's April 2014 report to the Security Council, such violations "do not jeopardize [the cease-fire] in the medium term," but "they have resulted in a gradual shift in the military balance between the parties over the years," apparently in favor of Morocco. While advocating the extension of MINURSO's mandate, the report states that, given the increase in the military build-up on the Moroccan side of the berm, MINURSO's operational effectiveness "is being compromised by a shortage of military personnel." Mission personnel operating east of the berm, meanwhile, are "exposed" to terrorist threats emanating from neighboring regions. MINURSO's budget, to which the United States contributes (see below), has decreased slightly in recent years, from $65.4 million (July 2011-June 2012) to $58.1 million (July 2014-June 2015). In April 2014, the U.N. Security Council raised MINURSO's troop ceiling by 15 military observers, noting that it was supporting the Secretary-General's request for the increase "within existing resources." Human Rights Issues Human rights advocates, along with Polisario activists, have expressed concerns regarding freedom of expression, association, and assembly in Moroccan-administered Western Sahara. Within these areas and in Morocco, direct criticism of the king and expressions of support for the independence of Western Sahara are not tolerated. The State Department's most recent human rights report on Western Sahara notes "government restrictions on the civil liberties and political rights of pro-independence advocates," along with "the use of arbitrary and prolonged detention to quell dissent; and physical and verbal abuse of detainees during arrest and imprisonment." Moroccan security forces reportedly use disproportionate force to break up periodic protests by Sahrawis. Morocco also occasionally expels or denies entry to foreign visitors whom it deems to be overly sympathetic to the Polisario, and it maintains de facto restrictions on the ability of pro-independence civil society groups to register with the government and function legally. The U.S.-based organization Human Rights Watch and the U.N. Special Rapporteur on Torture have reported on evidence that torture and other forms of ill treatment are sometimes used to extract "confessions" from Sahrawi prisoners. In his 2014 report, the U.N. Secretary-General noted some "positive developments" on human rights, including expanded activities by Morocco's quasi-official National Human Rights Council, the initiation of judicial reforms, and increased visits by international representatives and observers. King Mohammed VI has also made efforts to publicly account for severe human rights abuses committed in the territory under the rule of his father, King Hassan II, and to compensate victims, through a 2004 Equity and Reconciliation Commission. Rights advocates, along with Moroccan officials, have also expressed concern over freedom of expression and movement in the Polisario-administered refugee camps in Tindouf, Algeria. Perhaps due to the logistical difficulties of accessing the camps, there are few recent independent, detailed reports on conditions there. In March 2014, the Polisario established a Sahrawi Committee for Human Rights, but it appears to have reported mainly on issues within the Moroccan-administered territory to date. The U.N. Secretary-General has called for "the sustained, independent and impartial monitoring of human rights" in both Moroccan-administered areas and the refugee camps. The Polisario, along with human rights advocates and some diplomats, has called for the U.N. Security Council to add human rights monitoring to MINURSO's mandate. Morocco, backed by its ally France (a veto-capable U.N. Security Council member), strongly opposes such a role for MINURSO. In 2013, U.S. officials reportedly proposed adding human rights monitoring to MINURSO's mandate, sparking high-level backlash from Morocco (see below). MINURSO's current mandate "stress[es] the importance of improving the human rights situation in Western Sahara and the Tindouf camps, and encourag[es] the parties to work with the international community to develop and implement independent and credible measures to ensure full respect for human rights." Security Concerns Concerns over terrorism and insecurity in the region surrounding Western Sahara have escalated with the spike in regional arms and combatant flows after the fall of the Qadhafi regime in Libya; the Mali crisis in 2012; and violent attacks on U.S. facilities and personnel in Libya, Tunisia, and Algeria in 2012-2013. Generally, a complex array of violent extremist groups have emerged in the region and appear to be pursuing varied aims. In October 2011, three European aid workers were kidnapped from the Polisario-administered refugee camps in Tindouf, Algeria. A splinter faction of the regional terrorist and criminal network Al Qaeda in the Islamic Maghreb (AQIM), known as the Movement for Unity and Jihad in West Africa (MUJWA), claimed responsibility. Some analysts report that AQIM and associated groups are working to expand their recruitment and involvement in smuggling operations in the Sahrawi refugee camps. Several individuals of Sahrawi descent were/are active in MUJWA, although this does not necessarily mean that they are from Western Sahara, or that they joined MUJWA there or in Tindouf. Moroccan officials and some analysts regularly cite fears that an independent Western Sahara would be a weak state vulnerable to terrorist and criminal infiltration; some contend that the Polisario itself has links to AQIM. The Polisario disputes this characterization, and has, for its part, accused the Moroccan security services of supporting terrorist and criminal networks. In April 2012, then-State Department Coordinator for Counterterrorism Daniel Benjamin testified before Congress, in response to a question on this topic, "I've seen reports of al-Qaeda involvement in Polisario camps and whenever we have dug deeper we have found that those reports were spurious." United States Policy The United States has recognized neither Moroccan sovereignty over Western Sahara nor the SADR. As a permanent, veto-capable member of the U.N. Security Council, the United States supported the U.N. settlement plan and the Baker Plan. In 2003, President George W. Bush expressed understanding of "the Moroccan people's sensitivity over the Sahara issue" and said that the United States did not seek to impose a solution. Then-U.S. Under Secretary of State Nicholas Burns described Morocco's 2007 autonomy plan as "a serious and credible proposal," and the State Department in 2008 urged the parties to focus on the possibility of establishing a mutually acceptable autonomy regime in their negotiations. In November 2009, during a visit to Morocco, then-Secretary of State Hillary Clinton stated that there had been "no change" in U.S. policy on Western Sahara—that is, that the United States supported the U.N.-led mediation effort and would not stake out positions about how U.N. mediation might best resolve the issue. In an appearance in 2011 with then-Moroccan Foreign Minister Fassi Fihri, Clinton referred to Morocco's autonomy plan as "serious, realistic, and credible—a potential approach to satisfy the aspirations of the people in the Western Sahara to run their own affairs in peace and dignity." She also reiterated U.S. support for the U.N.-backed talks aimed at "resolving this issue." In public remarks with Algerian Foreign Minister Mourad Medelci in January 2012, Clinton stated, "We continue to support efforts to find a peaceful, sustainable, mutually agreed upon solution to the conflict. We support the negotiations carried out by the United Nations, and we encourage all parties, including Algeria, to play an active role in trying to move toward a resolution." Former Secretary Clinton's 2011 phrasing regarding the autonomy plan was again used in a joint U.S.-Morocco statement released during the first session of the U.S.-Morocco Strategic Dialogue in Washington, DC, in October 2012; in a joint statement following President Obama's meeting with King Mohammed VI at the White House in November 2013; and during the second session of the Strategic Dialogue in Morocco in April 2014. U.S. statements on the Western Sahara issue may be viewed in the context of valued U.S.-Moroccan relations. U.S. officials view Morocco as a key regional ally, counterterrorism partner, constructive player in Middle East policy, and leader in Arab efforts to reform and democratize. U.S. officials would prefer a solution to the Western Sahara dispute that would not destabilize Mohammed VI's rule or negatively affect U.S.-Moroccan security cooperation. At the same time, successive Administrations have sought to avoid antagonizing Algeria, in part by emphasizing the U.N.-led process. They also appear to believe that a settlement could enhance regional stability and economic prosperity. Support for U.N. Peacekeeping Operation (MINURSO) U.S. officials appear to agree with the U.N. view that MINURSO has effectively maintained the cease-fire and should therefore be continued. The U.N. Security Council most recently reauthorized MINURSO on April 29, 2014, for one year, under U.N. Security Council Resolution 2152 (2014). The Resolution increased MINURSO's troop ceiling by 15 military observers, to a total authorized level of 237 military personnel and six police officers, an increase which the U.S. delegation supported. As of August 2014, the mission had not reached its authorized troop levels; it comprised 209 military personnel (27 troops and 182 military observers), and four police officers, in addition to civilian personnel. The United States does not currently contribute uniformed personnel to MINURSO, but does provide funding for the mission under the U.N. system of assessed contributions. The United States is contributing an estimated $15.9 million for MINURSO in funds appropriated in FY2014 via the State Department's Contributions to International Peacekeeping Activities (CIPA) account. The Obama Administration has requested $17.5 million for MINURSO in FY2015. In April 2013, as MINURSO's mandate renewal was under discussion at the U.N. Security Council, U.S. diplomats reportedly expressed support for adding human rights monitoring to MINURSO's mandate, although U.S. officials never made a public statement to this effect. In response, Morocco suspended a major annual bilateral military exercise and initiated a multi-country diplomatic effort to quash the motion. In the end, human rights monitoring was not added to the operation's mandate. No such proposal appears to have been made by the U.S. delegation during deliberations over MINURSO's most recent mandate renewal, in April 2014. Congressional Activities Many Members of Congress have endorsed Morocco's autonomy initiative. Others support a referendum and/or are concerned about human rights in Moroccan-administered areas of the territory. Congressional positions have been regularly expressed through provisions in foreign aid appropriations legislation and related reporting requirements: Implementation of Morocco aid in Western Sahara. The FY2014 Consolidated Appropriations Act ( P.L. 113-76 , January 17, 2014) states that bilateral economic assistance appropriated for Morocco "should also be available for assistance for the territory of the Western Sahara." This provision was carried forward into FY2015 via a continuing resolution. It has been the policy of successive Administrations that funds appropriated for bilateral foreign assistance to Morocco may not be programmed in Western Sahara, as this could represent a tacit acknowledgment of Moroccan sovereignty. Reporting on human rights conditions. The appropriators' explanatory statement accompanying the FY2014 Consolidated Appropriations Act ( P.L. 113-76 ) carries over a reporting requirement accompanying the Senate version of the act ( S.Rept. 113-81 on S. 1372 ) that directed the Secretary of State to "update" a report required in FY2012 on the government of Morocco's respect for human rights in Western Sahara. According to S.Rept. 113-81 , the update should include "steps taken during the previous 12 months by the Government of Morocco to release political prisoners and support a human rights monitoring and reporting role for the U.N. Mission in Western Sahara in cooperation with the Office of the U.N. High Commissioner for Human Rights." In August 2004, following "quiet and intense diplomatic efforts among the United States, Morocco, and Algeria," then-Senator Richard Lugar helped negotiate the release of 404 Moroccan prisoners of war who had been held for decades by the Polisario. Outlook To date, U.N. envoy Ross's efforts at shuttle diplomacy have not broken the stalemate. In his April 2014 report, the U.N. Secretary-General argued that "if ... no progress occurs before April 2015, the time will have come to engage the members of the [Security] Council in a comprehensive review of the framework that it provided for the negotiating process in April 2007." In 2013, the U.N. Secretary-General had reported to the Security Council that "the rise of instability and insecurity in and around the Sahel requires an urgent settlement of this long-standing dispute," and urged the international community to address the situation in Western Sahara "as part of a broader strategy for the Sahel." However, these broader regional problems have not made the sides more flexible in their respective positions. The Polisario continues to insist on self-determination through a referendum, while Morocco will not bend on its proposal for autonomy under Moroccan sovereignty. Some Sahrawis reportedly feel trapped between the two sides, indicating that neither represents their interests. The degree of international leverage is uncertain. Indeed, the specter of regional instability may have made U.S. officials and others "more reluctant than ever to take risks" regarding settlement efforts. The U.N. Secretary-General reported in April 2014 that "the cease-fire continues to hold and the people can live without fear of a resumption of armed conflict in the medium term." The Polisario periodically threatens a return to armed struggle, but it appears unable to resume a military campaign without the aid and presumably the permission of Algeria, which are not expected—despite enduringly poor Morocco-Algeria relations. Some of the Polisario's threats may be only rhetoric to enable entrenched leaders to appease restive young militants. In any case, the Polisario would appear to be vastly outmatched by the 180,000-person Moroccan army, much of which is reportedly deployed in Western Sahara. The Polisario has encouraged pro-independence protests against Morocco, but it has not resorted to terrorism that would cost it sympathy abroad, and denies all allegations that it has links to terrorist groups. In mid-2014, news reports indicated that the Polisario was facing a splinter movement challenging its leadership of the independence struggle, but these reports and their significance are difficult to assess. For its part, Morocco continues to insist that its autonomy proposal is the only basis for a solution. Morocco cites its extensive investments in the region, its stated commitment to governance reforms, and the fact that Sahrawis serve in official positions, as proof that its proposal represents the best prospect for the self-determination of the region's inhabitants. Between December 2012 and October 2013, Morocco's Economic, Social, and Environmental Council (CESE)—a state-supported body—issued a series of reports proposing a new development model for the territory that would focus on sustainability, participatory democracy, and social cohesion. These reports are designed to inform what King Mohammed VI has portrayed as a broader process of decentralization or "regionalization" that he says will empower residents of his "southern provinces" as well as other Moroccans. The modalities of implementation remain to be seen. International investor interest in the territory has increased over the past decade, amid ongoing offshore oil exploration by U.S. and French companies that have signed agreements with Morocco. The European Union also has a fishing agreement with Morocco that includes access to waters offshore Western Sahara. The Polisario adamantly opposes natural resource extraction agreements between private firms and the Moroccan state, and has concluded its own offshore agreements with other oil companies. The status of the territory under international law has complicated investor operations. If oil is found, it could conceivably heighten the stakes of the conflict for both parties. UNHCR, the World Food Program, and international humanitarian organizations—funded by donors, including the United States—provide aid to the Sahrawi refugees in Tindouf. The camps are administered by the Polisario, and Algeria has not permitted UNHCR to conduct a census of their inhabitants. This has led some observers to conclude that the total number of refugees may be lower than reported, and that the Polisario may divert aid or use it as leverage to control the refugee population. As noted, there are few independent reports on conditions in the camps, and the number of refugees is disputed. Socioeconomic hardships have reportedly contributed to "some degree of dissatisfaction" among the refugees, particularly the youth. As long as the Western Sahara issue is unresolved, relations between Morocco and Algeria are unlikely to be fully normalized. The border between the two countries has been closed by Algeria since 1994. The Western Sahara dispute is among the factors rendering the Arab Maghreb Union, of which both Morocco and Algeria are members, largely inactive.

Since the 1970s, Morocco and the independence-seeking Popular Front for the Liberation of Saqiat al Hamra and Rio de Oro (Polisario) have vied, at times violently, for control of the Western Sahara, a former Spanish colony. In 1991, the United Nations (U.N.) arranged a cease-fire and proposed a settlement plan calling for a referendum to allow the people of the Western Sahara to choose between independence and integration into Morocco. A long deadlock on determining the electorate for a referendum ensued. (The number of Sahrawis, as the indigenous people of Western Sahara are known, is disputed and politically fraught.) The U.N. then unsuccessfully suggested alternatives to the unfulfilled settlement plan and ultimately, in 2007, called on the parties to negotiate. In April 2007, Morocco offered a plan for increased regional autonomy under Moroccan sovereignty. The Polisario, for its part, has continued to call for a referendum on independence. The current Personal Envoy of the U.N. Secretary-General on Western Sahara, Christopher Ross, a U.S. diplomat, has attempted to facilitate negotiations. However, there has been no concrete progress toward a settlement due to an apparent unwillingness on either side to compromise. The stalemate has received new international interest due to concerns over regional security threats, but a breakthrough does not appear imminent. Morocco controls roughly 85% of the disputed territory and considers the whole area part of its sovereign territory. In line with his autonomy initiative, Morocco's King Mohammed VI has pursued policies of decentralization that he says are intended to empower residents of his Saharan provinces. The Polisario has a government in exile, the Saharawi Arab Democratic Republic (SADR), which is hosted and backed by neighboring Algeria. The Western Sahara issue has stymied Moroccan-Algerian bilateral relations, Moroccan relations with the African Union, and regional cooperation on economic and security issues. The United States has not recognized the SADR or Moroccan sovereignty over Western Sahara. The United States supports the U.N. mediation effort, has referred to the Moroccan autonomy proposal as "serious, realistic, and credible," and has urged the parties to reach a mutually acceptable solution—an outcome that would not destabilize its ally, Morocco. The United States contributes funds, but no manpower, to the U.N. Mission for the Organization of a Referendum in the Western Sahara (MINURSO). MINURSO was initially created to organize a referendum, but its role now is to monitor the 1991 cease-fire. Human rights advocates and some international diplomats support mandating MINURSO to monitor human rights, but Morocco is adamantly opposed, and portrays such proposals as an affront to its sovereignty. Morocco and the Polisario, and advocates on both sides, regularly appeal to Congress to support their positions. Many Members have expressed support for Morocco's position, while others support an independence referendum and/or are concerned about human rights conditions in Moroccan-administered areas. Congressional positions have been regularly expressed through provisions in foreign aid appropriations legislation and related reporting requirements. The FY2014 Consolidated Appropriations Act (P.L. 113-76, January 17, 2014) states that bilateral economic assistance appropriated for Morocco "should also be available for assistance for the territory of the Western Sahara." It has been the policy of successive Administrations that bilateral foreign assistance funds appropriated for Morocco may not be used in Western Sahara, as this could be interpreted as tacitly accepting Morocco's claim of sovereignty. See also CRS Report RS21579, Morocco: Current Issues, and CRS Report RS21532, Algeria: Current Issues.

Introduction In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that "[i]ssuing a policy of insurance is not a transaction of [interstate] commerce." United States v. South-Eastern Underwriters Ass ' n. (322 U.S. 533 (1944)) held that the federal antitrust laws were applicable to an insurance association's interstate activities in restraint of trade. Although the 1944 Court did not specifically overrule its prior determination, the case was viewed as a reversal of 75 years of precedent and practice, and created significant apprehension about the continued viability of state insurance regulation and taxation of insurance premiums. Congress' response was the 1945 McCarran-Ferguson Act. In addition to preserving the states' ability to tax insurance premiums, McCarran-Ferguson prohibits application of the federal antitrust laws and similar provisions in the Federal Trade Commission Act, as well as most other federal statutes, to the "business of insurance" to the extent that such business is regulated by State law —except that the antitrust laws are applicable if it is determined that an insurance practice amounts to a boycott. Inasmuch as "[t]he primary purpose of the McCarran-Ferguson Act was to preserve state regulation of the activities of insurance companies since it was the power of the states to regulate and tax insurance companies that was threatened after ... South-Eastern Underwriters ...," we first answer the questions, "What is insurance?"; and, "is it defined pursuant to state or federal law?" Then, given that the statute addresses itself to the "business of insurance," this report sets out some judicial opinions about just what does—and does not—constitute the "business of insurance," as well as state regulation of such business, and the scope of McCarran's "boycott" exception. Finally, it will note some McCarran-related legislation introduced in the 110 th and 109 th Congresses, and discuss, briefly, the possible consequences of the measures, especially in light of the non-statutory state-action doctrine in antitrust law. What Is "Insurance" and Whose Law Defines It? In response to the Securities and Exchange Commission's insistence that insurers issuing variable annuity contracts register them as securities under the federal securities laws, the insurers asserted that McCarran-Ferguson shielded them from federal regulation, but that even if it did not, they qualified for the insurance exemptions from the federal securities laws. The Supreme Court, reversing lower court decisions, held that neither state regulation of variable annuities nor their issuance by insurers qualified the annuities as "insurance." Accordingly, neither insurers nor state regulators could (1) invoke McCarran-Ferguson as a shield against federal regulation of variable annuities or (2) qualify as beneficiaries of the insurance exclusions in the federal securities laws. Moreover, the case established that the definition of "insurance" under McCarran-Ferguson is a federal, not a state, question. NationsBank v. VALIC made a similar determination concerning the sale of fixed annuities, which are sold both by insurers and by banks. The Court agreed with the Comptroller of the Currency that in the provision of fixed annuities, "banks are essentially offering financial investment instruments of the kind congressional authorization permits them to broker. Hence, [it was reasonable to characterize the] permission NationsBank sought as an 'incidental powe[r] ... necessary to carry on the business of banking.'" Statutory Terminology in McCarran-Ferguson The scope of McCarran-Ferguson protection—the statute's applicability in instances in which insurance companies are actors in an area in which the federal government clearly has not ceded its regulatory authority to the states—has been addressed numerous times, both by the Supreme Court and the lower federal courts. Generally, it has been found that federal statutes are not trumped by McCarran except where the "business of insurance" is directly involved, or where a state insurance regulatory scheme or state insurance administration would be adversely affected. "Business of Insurance" Securities and Exchange Commission ( SEC ) v. National Securities, Inc. , limited the scope of the term "business of insurance" to activities that involved only insurance companies' relationships with their policyholders. The merger of two insurance companies was challenged by the SEC, which alleged violations of federal securities laws, despite the merger's approval by the Arizona Director of Insurance. National Securities argued that the merger was in compliance with state law, and that the McCarran-Ferguson Act precluded application of an inconsistent federal law. The Court disagreed, holding that a state statute aimed at protecting the stockholders of insurance companies was not a statute regulating the "business of insurance": " whatever the exact scope of the statutory term, it is clear where the focus was [in McCarran]—it was on the relationship between the insurance company and the policyholder. [Only s]tatutes aimed at protecting or regulating this relationship ... are laws regulating the ' business of insurance. ' " About 25 years after National Securities limited the term "business of insurance" to activities involving only insurance companies' relationships with their policyholders, the Court extended that ruling. It held, in U.S. Department of Treasury v. Fabe , that state laws addressing the liquidation of insurers constitute "the business of insurance"—and, under McCarran-Ferguson, preempt conflicting federal statutes— but only to the extent that they are necessary to protect the insolvent's policyholders. The United States had argued that an Ohio statute determining the order in which claims against an insolvent insurance company are to be paid should be preempted by the federal priority statute authorizing the payment of U.S. claims against an insolvent entity. The Court disagreed, however, with respect to the payment of policyholder claims and payment of the administrative expenses "reasonably necessary to" the payment of policyholder claims, and said: "[t]he primary purpose of a statute that distributes the insolvent insurer's assets to policyholders in preference to other creditors is identical to the primary purpose of the insurance company itself: the payment of claims made against policies." Later decisions continued the distinction made by Fabe between statutes that address the "business of insurance" and may, therefore, "reverse-preempt" conflicting federal statutes, and those that will be preempted under traditional, constitutional principles. For example, International Ins. Co. v. Duryee involved an Ohio statute that "effectively prohibit[ed] out-of-state insurance companies from removing cases from [Ohio] state to federal court by barring such companies from further business in Ohio." The United States Court of Appeals for the Sixth Circuit emphatically stated there, that "[t]he McCarran-Ferguson Act was not meant to protect a statute so tangentially related to insurance from the general rule of federal law supremacy." The court first quoted from a 1922 Supreme Court ruling, Terral v. Burke Const. Co. , [A] state may not, in imposing conditions upon the privilege of a foreign corporation's doing business in the state, exact from it a waiver of the exercise of its constitutional right to resort to the federal courts, or thereafter withdraw the privilege of doing business because of its exercise of such right, whether waived in advance or not. And then it quoted from Fabe itself: the Fabe Court found that the "broad category of laws enacted 'for the purpose of regulating the business of insurance' ... necessarily encompasses more than just the 'business of insurance.'" Group Life & Health Insurance Co. v. Royal Drug Co. stands for the proposition that McCarran-Ferguson's "exemption is for the 'business of insurance,' not the 'business of insurers.'" Independent retail pharmacies charged Blue Shield of Texas with price fixing in the negotiation of Pharmacy Agreements, based on which the insurance company had issued policies that facially entitled policyholders to purchase prescription drugs from any pharmacy. In reality, the independents argued, insureds were more likely to choose pharmacies that had entered into the "Pharmacy Agreements" because at those establishments (mostly larger, chain pharmacies) policyholders were required to pay only $2 for each prescription drug purchased; a "Pharmacy Agreement"-pharmacy would be reimbursed for its costs and the $2 charge would be its profit. At nonparticipating pharmacies (mostly smaller, independent stores), insureds would be expected to pay the entire cost of any drug, and then seek reimbursement from Blue Shield for 75% of the cost. The Supreme Court rejected Blue Shield's argument that the McCarran-Ferguson Act made the Pharmacy Agreements immune to prosecution under the antitrust laws, the Court emphasizing that although "the agreements between Blue Shield and the participating pharmacies ... [may] serve ... to minimize the costs Blue Shield incurs in fulfilling its underwriting obligations," they "do not involve any underwriting or spreading of risk," are not integral to the relationship between the insurer and the insured, and are not limited to entities within the insurance industry. In Gilchrist v. State Farm Mutual Auto Ins. Co. , the United States Court of Appeals for the Eleventh Circuit appeared not to continue the Royal Drug reasoning. When policyholders challenged the practice of certain automobile insurers of improperly limiting the scope of insurance coverage for auto body repairs, the court distinguished some earlier decisions concerning the scope of the McCarran-Ferguson exemption. The appeals court first emphasized that Royal Drug (as well as a later case in which chiropractors challenged the insurance-company policy of peer reviewing chiropractic fees and practices ) concerned challenges by non-policyholders to insurance companies' agreements with third parties. But, it noted, "Gilchrist [on the other hand] is a policyholder whose claim is that Insurers have charged excessive premiums for inferior repair work on her automobile." That, it said, is a direct challenge to the insurance policy itself, and the company's rate-making decisions, "the paradigmatic example of the conduct that Congress intended to protect by the McCarran-Ferguson Act." "Regulated by State Law" Courts have almost unanimously determined that state regulation need not meet the standards of federal antitrust law in order for McCarran-Ferguson to apply, and that the federal government may not require "uniform state regulation." However, whether state regulation needs to meet any particular standard to qualify as preempted "regulation"has remained a question. In 1958, in Federal Trade Commission (FTC) v. National Casualty Co. , for example, the Court had already decided that McCarran-Ferguson "withdrew from the ... Commission the authority to regulate [insurers'] advertising practices in those States which are regulating those practices under their own laws"; and that the FTC could not, therefore, order the multistate-insurance-company defendants to stop using advertising that the Commission deemed false, deceptive, and misleading in violation of section 5 of the FTC Act. But the Court expressly declined to examine whether the states' laws had been effectively applied, finding it sufficient that "[e]ach State in question ha[d] enacted prohibitory legislation which proscribe[d] unfair insurance advertising and authorize[d] enforcement through a scheme of administrative supervision." Most decisions have found it sufficient for McCarran-Ferguson "regulated by state law" purposes that state insurance departments have jurisdiction over insurance practices and the authority to act, whether they exercise their authority or not. In 1982, however, a federal district court in Florida held that "it is essential to conduct some sort of inquiry into the adequacy and effectiveness of state legislation asserted to preempt the antitrust laws." Agreements to "Boycott, Coerce or Intimidate": The Boycott Exception Whether the boycott referred to in the statute is solely a boycott of entities within the insurance industry, or a consumer-protection facet of the otherwise industry-friendly McCarran law, was addressed in St. Paul Fire Marine Insurance Co. v. Barry, where the Supreme Court ultimately found in favor of the latter. In St. Paul, doctors sued four companies that sold medical malpractice insurance, alleging that one of the companies had changed its malpractice policy in a manner unfavorable to the doctors, who were then unable to take their business elsewhere because the other companies refused to sell them malpractice policies of any sort. This, the doctors charged, was the result of an unlawful conspiracy and constituted a boycott in violation of the antitrust laws. The district court held that the purpose of McCarran's "boycott" language was to protect industry members from being "black-listed." The court of appeals reversed, finding that the protection of insurance consumers by the "usual reading of 'boycott, coercion, or intimidation' does not ... pose a grave danger to state authority." The Supreme Court agreed, holding that the "conduct in question accords with the common understanding of a boycott": if Congress had intended to limit the scope of the boycott exception to industry members, the Court said, it would have done so explicitly. In Hartford Fire Ins. Co. v. California , however, a divided Court—differentiating between "conspiracy" and "boycott," refused to find for the nineteen states which alleged that the practices of several U.S. and foreign insurers—acting to force other insurers to sell only policies with terms similar to those in the defendants' policies—violated the antitrust laws. It distinguished between a true boycott (which the Court defined as a concerted refusal to deal on matters unrelated or collateral to the insurance contract at hand) and a McCarran-protected mere concerted refusal to deal on certain contract terms deemed to be central to the insurance contract, but noted that absent McCarran-Ferguson, either would violate the antitrust laws: A conspiracy is a combination of two or more persons acting in concert to accomplish a common unlawful purpose. ... Of course as far as the Sherman Act (outside the exempted insurance field) is concerned, concerted agreements on contract terms are unlawful. ... The McCarran-Ferguson Act, however, makes that conspiracy lawful ... unless the refusal to deal is a 'boycott.' Some Past Legislation Concerning McCarran-Ferguson 110th Congress At least two, bipartisan bills to "end the insurance industry's exemption from the requirements of [the antitrust] laws," by amending the McCarran-Ferguson Act were introduced in the 110 th Congress. The identical bills— S. 618 (Leahy, with the co-sponsorship of Senators Specter, Lott, Reid, and Landrieu) and H.R. 1081 (DeFazio, with the co-sponsorship of Representatives Taylor, Jindal, Melancon, Alexander, and Jones [NC])—would have specified that the Federal Trade Commission Act "as it relates to unfair methods of competition" would, in addition to the Sherman Act and Clayton Act, be applicable to the "business of insurance," thus eliminating the phrase "to the extent that such business is not regulated by State law." Both however, would have specified that the Federal Trade Commission Act, "as it relates to areas other than unfair methods of competition" would continue to be applicable to the "business of insurance to the extent that such business is not regulated by State law." Each would have restored the authority of the Federal Trade Commission, pursuant to its 15 U.S.C. § 46(a) powers, to investigate the insurance industry; that authority was removed in 1980 by section 5 of P.L. 96-252 , Federal Trade Commission Antitrust Improvements Act of 1980, except to the extent that such studies were specifically requested by Congress. Both measures would have deleted 15 U.S.C. § 1013, in which the 79 th Congress (1) made the antitrust laws inapplicable to the "business of insurance" until June 30, 1948; but (2) specified, at the same time, that the antitrust laws would nevertheless be applicable to boycotts, coercion, or intimidation, or agreements to create or further those activities. Lastly, each would have permitted the Department of Justice and the FTC to "issue joint statements of their antitrust enforcement policies regarding joint activities in the business of insurance." 109th Congress Measures in the 109 th Congress ( e.g. , S. 1525 ; H.R. 3359 ) would have, notwithstanding McCarran-Ferguson, prohibited commercial insurers who provide medical malpractice insurance from "price fixing, bid rigging, or market allocation in connection with" such provision. Joint rate setting, generally accepted as a method of establishing premium rates, has long been considered valid as a McCarran-Ferguson "business of insurance" activity, and many states explicitly authorize it. The courts' increasingly narrow interpretation of "the business of insurance" would, however, arguably exclude at least the latter two, specified activities, even absent such language; similarly, such language in future bills would not likely be necessary to enable courts to find, for example, that bid-rigging or market allocation are outside the scope of McCarran protection. H.R. 2400 would have established a Commission—the Emergency Malpractice Liability Commission (EMLIC)—to "examine the causes of soaring medical malpractice premiums and propose a comprehensive strategy to alleviate the impact of the crisis" there; and submit a report of its findings to Congress, which would have been obligated to hold hearings on the report within six months after it was received. The Commission would have been directed, for example, to "investigate and determine whether a causal relationship exists between skyrocketing malpractice insurance premiums, jury awards, decreased accessibility and affordability of health care; and the increase in the number of physicians moving, quitting or retiring from practices.... " The bill remained pending in committee. H.R. 2401 , unlike the bills discussed above, would have applied without reference to any specific line of insurance. It would have amended McCarran-Ferguson to clarify that the antitrust laws would be generally applicable, except with respect to the smallest entities in the insurance industry, to such activities as price fixing ( e.g ., currently permissible joint rate setting), geographic market allocation, "tying the purchase of insurance to the sale or purchase or another type of insurance," or monopolization of "any part of the business of insurance." Contracts or conspiracies for the purpose of joint collection of historical loss data, however, would be explicitly permitted. Again, however, given the courts' narrowing definition of the "business of insurance," they would not be likely, in any event, to find such activities as market allocation, tying, or monopolization protected by McCarran-Ferguson from the application of the antitrust laws. S. 4025 , "Insurance Industry Antitrust Enforcement Act of 2006," was introduced to "subject the insurance industry to Federal antitrust law." The bill would have amended § 2(b) of McCarran-Ferguson (15 U.S.C. § 1012(b)) to clarify that the federal antitrust laws would be applicable to the business of insurance "except to the extent [that] the conduct of a person engaged in the business of insurance is undertaken pursuant to a clearly articulated policy of a State [and] that is actively supervised by that State; ..." Those words appeared to represent tacit acknowledgment that (1) the original purpose of McCarran-Ferguson was to assure the ability of the states to regulate the business of insurance; and (2) the existence of the state action doctrine in antitrust law. That doctrine might easily afford immunity from prosecution under the federal antitrust laws to both (a) the narrowly interpreted "business of insurance" protection provided by McCarran-Ferguson, and (b) any other activity of insurance companies that the states choose to authorize and actively regulate. S. 2509 would have made, with certain exceptions, the federal antitrust laws applicable to federally licensed insurance producers "to the same extent as other businesses are subject to such laws," and would have retained the McCarran-Ferguson "business of insurance" exemption "to the extent that such insurers and producers are subject to State law." The State Action Doctrine and its Relevance to McCarran Immunity The state action doctrine, first enunciated by the Supreme Court in Parker v. Brown , has come to stand for the proposition that federalism dictates that the antitrust laws are not applicable to the states. It has, over the years since 1943, been interpreted, clarified and expanded to the point that it now confers antitrust immunity not only on the states qua states (including state agencies and officials acting in their official state capacities), or those private individuals who act in furtherance of state-directed activity, but also extends to those who act pursuant to state-sanctioned, but not necessarily mandated, courses of action. Its essence is captured in the two-part test set out in California Retail Liquor Dealers Ass ' n v. Midcal Aluminum Inc. There, the Court made clear first, that the challenged restraint must be "one clearly articulated and affirmatively expressed as state policy" (most generally via legislatively enacted statute), and second, the policy must be "actively supervised" (i.e., enforced) by the State itself. It is, thus, apparent that, since at least 1980, "regulated by state law" has been a prong of the judicially created state action doctrine in antitrust law, a doctrine which was developing simultaneously with McCarran-Ferguson case law. Conclusion As McCarran-Ferguson immunity for activities constituting the "business of insurance" has steadily been narrowed since the act's passage in 1945, and legislative action toward limiting or abolishing the exemption entirely has increased, the doctrine of state action immunity from prosecution under the federal antitrust laws has steadily been expanded since the doctrine was first announced in 1943. Presently, entities acting at the behest or authorization of a state regulatory scheme—so long as that scheme is envisioned by the state legislature in "clearly articulated" language, and so long as the state exercises sufficient "active supervision" over the authorized but possibly anticompetitive activities of private entities—become the equivalent of "derivative beneficiaries" of the states' own immunity from prosecution under the federal antitrust laws. Although virtually every state maintains some form of insurance regulation, whether existing state regulation of the insurance industry is sufficient to satisfy the "active supervision" prong of Mical may not, however, always be clear or assured. Whether, especially in view of the existence and potential application of the state-action doctrine, legislative efforts to circumscribe the scope of the McCarran-Ferguson Act will continue, is presently an unanswered question.

In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that "[i]ssuing a policy of insurance is not a transaction of [interstate] commerce." United States v. South-Eastern Underwriters Ass'n. (322 U.S. 533 (1944)) held that the federal antitrust laws were applicable to an insurance association's interstate activities in restraint of trade. Although the 1944 Court did not specifically overrule its prior determination, the case was viewed as a reversal of 75 years of precedent and practice, and created significant apprehension about the continued viability of state insurance regulation and taxation of insurance premiums. Congress' response was the 1945 McCarran-Ferguson Act. It prohibits application of the federal antitrust laws and similar provisions in the Federal Trade Commission (FTC) Act, as well as most other federal statutes, to the "business of insurance" to the extent that such business is regulated by State law—except that the antitrust laws are applicable if it is determined that an insurance practice amounts to a boycott. Early McCarran-Ferguson decisions mostly favored insurance companies. After 1969, however, the exemption for the "business of insurance" was generally limited to activities surrounding insurance companies' relationships with their policyholders. In 2003, the Supreme Court ruled that McCarran case law prohibiting the indirect application of federal antitrust (or other) laws to the "business of insurance" would no longer control with respect to those areas over which Congress has unquestionable legislative authority (e.g., ERISA, civil rights, securities), notwithstanding insurance-company involvement. The issue of amending McCarran Ferguson so as to further limit the scope of the exemption for the "business of insurance" continued to receive attention in the 110th Congress, with the introduction of at least two bipartisan measures. S. 618 would not only have eliminated the antitrust exemption provided by McCarran-Ferguson, it would also have restored the FTC's authority to investigate the insurance industry. An identical bill, H.R. 1081, was introduced in the House. Both bills would have retained the exemption for the applicability of the FTC Act, "as it relates to areas other than unfair competition." It is not known at this time whether the issue will be revisited in the 111th Congress. Even in the event the McCarran exemption were to be severely limited or totally eliminated, however, the state-action doctrine in antitrust law has the potential to mitigate the consequences of either. State action stands for the proposition that the federal antitrust laws do not apply to the states, nor to private individuals acting either under state order or authorization. To the extent that state regulation of insurance embodies "clearly articulated" state policy, and regulators "actively supervise" the activities of insurance companies, the industry's antitrust exemption could actually be broadened to include actions not clearly "the business of insurance." (Those phrases have been firmly embedded in the state-action-doctrine jurisprudence in the antitrust law for more than 25 years.) This report will be updated as needed. See, also, CRS Report RL31982, Insurance Regulation: History, Background, and Recent Congressional Oversight, CRS Report RL32789, Insurance Regulation: Issues, Background, and Current Legislation, CRS Report RL33439, Insurance Regulation in the United States and Abroad, CRS Report RL33892, Post-Katrina Insurance Issues Surrounding Water Damage Exclusions in Homeowners' Insurance Policies, and CRS Report RS22506, Surplus Lines Insurance: Background and Current Legislation for information on other issues affecting or concerning insurance regulation, including a discussion of issues surrounding the option of federal chartering and regulation of insurance companies, which would generally make the federal antitrust laws applicable to those entities opting for federal regulation.

Introduction This report examines the implications for agriculture of the ongoing but inconclusive debate about global climate change. Whatever the current or future Congresses may do regarding climate legislation, interest in existing and prospective governmental and private sector responses will surely continue. Existing governmental climate change activities affecting or potentially affecting agriculture include the Environmental Protection Agency's (EPA) initiative under the Clean Air Act to address emissions of greenhouse gases (GHGs); U.S. Department of Agriculture (USDA) conservation programs that can encourage practices affecting agriculture's emissions or sequestration of GHGs; and provisions of law encouraging the use of biofuels. Private sector concerns about climate change also could affect agriculture. For example, some companies increase investment in drought-tolerant seed technology in response to water resource pressures and potentially longer periods of extreme temperatures resulting from a changing climate. In the climate change debate, agriculture's role is multifaceted. Agriculture is both a source of several GHGs and a "sink" for absorbing carbon dioxide, the most common GHG, thereby partly offsetting emissions. Overall, agriculture is a comparatively modest source of U.S. GHG emissions: it accounts for approximately 7% of U.S. emissions, while transportation accounts for 27% and electricity generation for 35%. Further, it should be recognized that the data on various agriculture emissions are of varying precisions and that the implications of land use changes for emissions are not well understood and are hard to measure. Similarly, agriculture is a dynamic activity and emissions/sequestration can change and also can be manipulated to some degree. During the 111 th Congress, comprehensive climate change legislation passed the House and was reported by a Senate committee, but no comprehensive bill was enacted. At the same time, the Administration moved forward on several fronts to address climate change, including research, EPA's clean air initiative, and USDA's promotion of conservation practices that can diminish emissions. As these various initiatives progressed, the agriculture community weighed in at several points. One outcome was that the comprehensive climate change bills largely excluded agriculture from regulatory requirements, and another was that Congress through a funding bill excluded agriculture from certain EPA regulatory requirements concerning reporting of emissions (e.g., from manure management practices). This report places in context federal agricultural policymaking with respect to the climate change debate. It describes agricultural activities involving cropland and livestock production that contribute to emissions and sequestration of GHGs; it reviews recent climate change initiatives, agricultural stakeholder responses, and current status; and it summarizes the implications of ongoing federal programs affecting agricultural emissions and sequestration. Agricultural Emissions and Sequestration of Greenhouse Gases Agricultural activities can be both a source and a "sink" for GHGs, releasing several GHGs through plant and animal respiration and plant decomposition and removing carbon dioxide (CO 2 ) through photosynthesis, thus storing/sequestering it in vegetation and soils. Animal agriculture contributes directly to emissions of GHGs through a variety of processes such as enteric fermentation in domestic livestock (i.e., digestion) and manure management systems and practices. Non-livestock source categories in agriculture likewise emit GHGs, including rice cultivation, agricultural soil management, and field burning of agricultural residues. A range of land management, agricultural conservation, and other farmland practices also can reduce or abate emissions and/or sequester carbon to some extent. These include soil conservation, manure and grazing management, and land retirement, conversions, and restoration. As shown in Table 1 , agriculture is estimated to have emitted 6.9% of total U.S. greenhouse gas emissions in 2008, including CO 2 , methane (CH 4 ), and nitrous oxides (N 2 O). Conversely, agriculture is estimated to have been a sink for 5.4% of total GHG emissions that were sequestered in the United States. Unlike other prominent economic sectors (e.g., electricity generation and transportation), agriculture sector emissions are dominated by CH 4 and N 2 O, not CO 2 . Carbon Dioxide Billions of tons of carbon in the form of CO 2 are emitted to the atmosphere annually from anthropogenic sources and natural processes. Some agricultural land management uses and practices involve both emissions and removal of CO 2 from the atmosphere, a combination that is referred to as CO 2 flux. Agriculture directly emits CO 2 from fossil fuel combustion by transportation and other on-farm activities; fossil fuel combustion by agricultural sources accounted for an estimated 45.4 million metric tons of CO 2 equivalent (MMTCO 2 e) in 2008, or 76% of the CO 2 emissions shown in Table 1 . Agriculture soils also emit relatively small amounts of carbon through the application of liming and urea fertilizer (7.6 MMTCO 2 e in 2008). The U.S. agricultural sector is a minor source of CO 2 emissions—1% in 2008—while electricity generation accounts for 40%, and transportation accounts for 30%. On the other hand, agricultural soils sequester nearly nine times more carbon than they emit. Soil carbon sequestration is largely due to conversion of cropland, an increase in adoption of conservation tillage practices that preserve soil carbon, and an increase in the amount of organic fertilizer (manure and sewage sludge) that farmers apply to croplands in place of synthetic fertilizers. EPA's Greenhouse Gas Inventory reports on four categories of agricultural land use practices. Three of these categories—cropland remaining as cropland, grassland remaining as grassland, and land converted to grassland—demonstrated carbon sequestration in 2008, while the fourth—land converted to cropland—contributed emissions of about 6 MMTCO 2 e, not sequestration. Carbon sequestration on farm lands is currently estimated to contribute more than 5% of total sequestration by all sources (which occurs principally through forested lands remaining forest land) and to mitigate less than 1% of total annual GHG emissions in the United States (forested lands mitigate about 11% of total annual GHG emissions in the United States). There is ongoing debate about the permanence, or duration, of many carbon sequestration practices. Permanence depends on the practice itself and such site-specific factors as location, climate and land condition. For example, reforestation and similar forestry activities may be capable of long term emission reduction (from 20 to 200 years). However, cropping practices such as conservation tillage or other cropland changes (e.g., transitioning to improved pasture) may or may not be long term, depending on how long a farmer maintains the practice, whether a farmer receives and continues to receive financial or technical assistance as incentive for maintaining the practice, whether the farmer is able to withstand lower yields in the near-term, or whether high prices shift idle land back into production. Methane and Nitrous Oxides The two principal GHGs emitted by agricultural sources are CH 4 and N 2 O. An estimated one-half of global CH 4 comes from anthropogenic sources (i.e., from human activities), of which agriculture is the largest source; livestock production is a major component within the sector. EPA estimates that nearly one-third of U.S. CH 4 emissions come from livestock. Agricultural CH 4 is produced by ruminant animals, but it also is emitted during microbial degradation of organic matter under anaerobic conditions. Nitrous oxides are formed as a result of crop fertilization practices, directly via the microbial processes of nitrification and denitrification, and indirectly via volatilization and surface water runoff and leaching into ground water. In 2008, total anthropogenic emissions of CH 4 and N 2 O from all U.S. sectors were 885.8 MMTCO 2 e, while total agricultural sector GHG emissions of these two GHGs totaled 427.5 MMTCO 2 e, or 48% of total U.S. emissions of both GHGs. As shown in Figure 1 , agricultural emissions of CH 4 are predominantly from enteric fermentation in domestic livestock, with lesser contributions by livestock manure management, rice cultivation, and field burning of agricultural residues. Over 90% of agricultural emissions of N 2 O are from agricultural soil management, with small contributions by livestock manure management and field burning of agricultural residues. Methane Emissions from Agriculture Livestock sources were responsible for one-third of all U.S. CH 4 emissions in 2008. More than three-quarters of CH 4 emissions from livestock resulted from normal digestive processes (i.e., enteric fermentation ) in ruminant animals such as cattle, sheep, and goats. Cattle account for the majority of CH 4 emissions from U.S. livestock (because of their large population, large animal size, and particular digestive characteristics), and emissions changes over time tend to track changes in beef and dairy cattle populations. Feed quality and the amount of feed intake by animals also affect CH 4 emissions. The management of livestock manure also can produce CH 4 . Methane is produced from the decomposition of liquid-based livestock manure that is stored or treated in lagoons, ponds, tanks, or pits. Factors that affect the amount of CH 4 produced include temperature, moisture, and storage time, because they influence the growth of bacteria that are responsible for CH 4 formation. An animal's feed also can be a factor: in general, the greater the energy content of the feed, the greater the potential for methane emissions. When manure is handled as a solid or deposited on pasture, range, or paddock lands, it produces little or no CH 4 , and in fact, the majority of manure in the United States is handled as a solid. However, the general trend in manure management, particularly for dairy and swine, is towards use of liquid systems. According to EPA, states such as California, New Mexico, and Idaho have seen increases in dairy populations as the industry becomes more concentrated, along with greater use of liquid-based systems to manage and store manure. A consequence of the dairy industry's shift toward larger facilities translates into an increasing use of liquid manure management systems, which have higher potential CH 4 emissions than dry systems. Between 1990 and 2008, methane emissions from manure management increased on average 2.5% annually. The majority of this increase was from swine and dairy cow manure, where emissions increased 50% and 91%, respectively. Rice cultivation and field burning of agricultural residues also contribute CH 4 emissions, but they are small contributors of U.S. emissions (1.5% of all CH 4 emissions). Crop residue burning also produces small amounts of both CH 4 and N 2 O (see Figure 1 and Table A -1 ). Although field burning is not a widely used practice of farmers for disposing of crop residues, it is used throughout the United States for disposal of about 3% of the residue of wheat, rice, sugarcane, corn, barley, soybeans, and peanuts. According to EPA, annual emissions from this source have remained relatively constant since 1990. Nitrous Oxides Emissions from Agriculture Nitrous oxides emissions are produced by biological processes that occur in soil and water and by a variety of human activities involving agriculture, energy, industry, and waste management. Agricultural soil management practices (e.g., fertilizer application and other cropping practices) produce the majority of N 2 O emissions in the United States and accounted for nearly 68% of U.S. N 2 O emissions in 2008. Year to year fluctuations in agricultural soil emissions of N 2 O reflect variations in weather patterns, synthetic fertilizer use, and crop type. A number of agricultural activities increase mineral nitrogen availability in soils, thereby increasing the amount available for the microbial processes that produce nitrous oxide. Direct increases in soil mineral nitrogen occur as a result of practices such as fertilization, application of manure on soils, and production of nitrogen-fixing crops and forages such as clover and alfalfa. Direct N 2 O emissions from croplands tend to be high in the Corn Belt states where highly fertilized corn and nitrogen-fixing soybean crops are grown. Direct emissions also tend to be high from grasslands in the central and western states where a high proportion of land is used for cattle grazing (e.g., emissions by grazing animals whose manure is not managed and from retention of crop residues). Indirect emissions, which occur when mineral nitrogen is transported from the soil either in gaseous or aqueous forms and later is converted into N 2 O, comprise about 25% of emissions from agricultural soil management activities. These types of emissions occur in many of the same U.S. regions as direct emissions (e.g, central and western United States). There are two pathways leading to indirect emissions. The first results from volatilization of nitrogen to the atmosphere (e.g., from nitrogen fertilizer). Indirect emissions also occur through surface transport and runoff from farmland into nearby streams and lakes. Livestock manure management activities produce N 2 O emissions, as well as CH 4 . Direct N 2 O emissions are released from dry manure handling systems, pasture, solid storage, and—similar to agricultural soil management activities—indirect emissions result from volatilization of nitrogen or runoff of nitrogen during manure treatment, storage, and transportation. Both direct and indirect emissions of N 2 O have remained fairly steady since 1990, according to EPA. Data Uncertainty and Varying Estimates Scientists have considerable confidence in characterizing U.S. GHG emissions, particularly for major industrial sectors where statistics such as fossil fuel consumption are relatively accurate. At the same time, EPA and others recognize that there are uncertainties associated with some of the emission estimates data, especially for sectors that are smaller contributors of emissions, due to a lack of data or an incomplete understanding of how emissions are generated or may be measured. Uncertainty is apparent in much of the data on agriculture's emissions that are presented in EPA's Greenhouse Gas Inventory. Emissions estimated in the Inventory may vary from year to year based on new data and changes in assumptions and methodology. Regarding CH 4 emissions from enteric fermentation, which are the main agricultural source of those emissions, the Inventory states that the lower- and upper-bound uncertainties are -11% and +18%. However, regarding other emissions, such as N 2 O emissions from soil management, which is the main agricultural source of those emissions, there is greater uncertainty. For example, direct emissions, which account for the majority of N 2 O emissions from agricultural soil management, have lower- and upper-bound uncertainties of -24% and +63%, while indirect emissions (i.e., from volatilization) have greater uncertainties due to lack of data, as well as uncertainties regarding major crops and application of manure and other organic fertilizer amendments: the uncertainty range in the report is -48% and +142%. Notwithstanding specific uncertainties, whether agriculture's emissions are 7% of the U.S. total, as reported in EPA's Inventory, or 3%, or 11%, is not especially critical to policy debates about GHG emissions and climate change. What is evident in the data is that agriculture is a much smaller source of emissions than other economic sectors—especially electricity generation and transportation. Thus, while policy debate about climate change continues to occur internationally, nationally, and regionally, one question is where does agriculture fit in those discussions. Broadly speaking, there are three distinct policy tracks that could define agriculture's role. One option would be to regulate agriculture and other sources of GHGs in order to mitigate or abate emissions. A second would be to promote practices by agricultural sources that may diminish or mitigate the sector's emissions voluntarily. A third option would be to do nothing. EPA Activities Efforts have been underway in the Administration to develop policies and strategies to address GHGs and climate change. The 111 th Congress, too, considered legislation in this area: comprehensive climate and energy legislation passed the House in July 2009 and was reported by a Senate committee, but no comprehensive bill was enacted. Agriculture generally has been a major part of these discussions, but so far the agriculture sector has been largely excluded from regulatory and legislative proposals. Two sets of actions by the EPA concerning GHG emissions have drawn stakeholders' attention. Regulating GHGs under the Clean Air Act and the Tailoring Rule First, in July 2008, the Bush Administration published an Advance Notice of Proposed Rulemaking (ANPR) in connection with its consideration of how it should comply with Massachusetts v. EPA , in which the Supreme Court held that the Clean Air Act (CAA) authorizes EPA to regulate emissions from new motor vehicles on the basis of their climate change impacts. The Court held that the EPA Administrator must determine whether or not emissions of GHGs from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare (i.e., an endangerment finding), or whether the science is too uncertain to make a reasoned decision. Responding to this ruling with the ANPR, EPA discussed a wide range of CAA authorities and programs that could potentially be used to address climate change, including the permitting provisions in Title V of the act. The ANPR did not propose or recommend the use of any particular CAA authority, or commit to specific next steps to address GHGs from any category of emission sources. Agricultural sources were not specifically referenced in any of this ANPR discussion; nevertheless, agriculture stakeholders—especially many representing livestock operations—were highly critical of potential economic impacts on their operations and the possibility that Title V permits might be required. In the months following the ANPR, EPA officials said that the agency had no plans to tax livestock or pursue other "doomsday scenarios" for new regulations. The public comment period on the ANPR ended in November 2008; no further action on it occurred. However, in December 2009, EPA Administrator Jackson signed two endangerment findings about GHGs. First, the Administrator found that the current and projected concentrations of six GHGs in the atmosphere (including CH 4 and N 2 O) threaten the public health and welfare of current and future generations. Second, the Administrator found that GHG emissions from motor vehicles contribute to the atmospheric concentrations of the six key GHGs and hence to the threat of climate change. The endangerment finding does not itself impose any CAA requirements on industry or other entities or trigger regulation under the entire act. However, the endangerment finding is a prerequisite to finalizing proposed greenhouse gas emission standards for light-duty vehicles, which EPA proposed jointly with the Department of Transportation in September 2009. When EPA's proposed light-duty vehicle rule takes effect (expected to be January 2011), other CAA requirements will be triggered. In particular, stationary sources that emit any of the six GHGs covered by the endangerment finding will be subject to certain permitting requirements under the Title V operating permit and New Source Review (NSR) provisions in the law. Related to the CAA requirements that are triggered by the endangerment finding and light-duty vehicle rule, on May 13, 2010, EPA issued a rule specifying thresholds for GHG emissions that define when Title V and NSR permits would be required. In the absence of the rule, called the GHG Tailoring Rule, sources that emit as little as 100 tons per year of CO 2 equivalent of GHGs would be subject to CAA permits. In order to limit the number of facilities that would be required to obtain permits, in the Tailoring Rule EPA established a threshold of 100,000 tons per year of CO 2 equivalent of GHG emissions. EPA estimates that the rule will cover 67% of the nation's largest stationary source GHG emitters, while shielding small businesses and agriculture operations from new permitting requirements. EPA believes that livestock and production agriculture operations will not be subject to CAA permitting as a result of the Tailoring Rule, because of the high threshold in the rule and because the rule does not apply to so-called "fugitive emissions" from sources of enteric fermentation and animal manure management systems. The Tailoring Rule does apply to GHG emissions from internal combustion diesel engine generators, including those used on farms. However, because of the 100,000 tpy threshold in the rule, EPA estimates that no farm stationary fuel combustion sources emit GHGs (i.e., CO 2 ) at levels that would be subject to the rule. Mandatory Reporting of Greenhouse Gases A second EPA action that drew agriculture's attention was an April 2009 EPA proposal to require reporting by certain facilities that emit GHGs and by suppliers of fossil fuels and industrial GHGs. The proposal responded to a congressional directive in the FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) for EPA to develop a comprehensive national system for reporting emissions of CO 2 and other GHGs produced by major U.S. sources. Included in the categories of sources that would be subject to the proposed rule were manure management systems that emit, in the aggregate, methane and nitrous oxide in amounts equivalent to 25,000 metric tons of CO 2 equivalent or more per year. Because of the proposed reporting threshold, EPA initially estimated that fewer than 50 beef cattle, dairy cattle, and swine operations would be subject to the rule; an unknown number of poultry operations also would be covered. A number of agriculture stakeholders criticized the proposal. Many noted that agriculture as a whole is responsible for only a small percentage of total GHGs and questioned why manure management systems in particular were included in the proposal, since they are responsible for less than 1% of total U.S. GHGs (see Table A -1 ). Other categories of agricultural sources, such as livestock enteric fermentation and soil management, emit larger amounts of CH 4 and N 2 O, but were not included in the proposal. EPA explained that the proposal did not include reporting by the other agriculture categories such as field burning of agricultural residues because, for those sources, there are no direct GHG emission measurement methods available except for expensive and complex equipment. Using emissions estimates for such sources, instead of direct measurement, would have a high degree of uncertainty and likely would burden a large number of small emitters, EPA said. Some who commented on the proposal said that similar concerns—about a lack of accurate measurement methods and the costly burden of compliance with only very small benefits—apply equally to reporting by manure management systems. The EPA Administrator signed the final reporting rule on September 22, 2009. As in the proposal, the final rule applies to manure management facilities with the same reporting threshold of 25,000 metric tpy of CO 2 equivalent of GHGs, but not to other agricultural sources or agricultural land uses. In response to comments about the burden of the rule, EPA removed manure sampling requirements and instead will allow facilities to use default values for estimating emissions. EPA also made certain recalculations of affected facilities and now estimates that approximately 107 livestock facilities will be subject to the reporting rule. The final rule identifies population threshold levels below which facilities are not required to report emissions, such as fewer than 29,300 beef cattle and fewer than 3,200 dairy cattle. These thresholds would exclude 99% of beef feedlots, dairy farms, and others operations with manure management systems. Facilities subject to the rule would report annually beginning in January 2011. However, as discussed below, in passing EPA's FY2010 appropriations legislation ( P.L. 111-88 ), Congress included bill language barring EPA from using funds under that act to implement mandatory GHG reporting by manure management facilities. Congressional Interest The 111 th Congress showed interest in several aspects of issues concerning agriculture and GHGs, acting mainly to exempt or relieve agriculture from potential regulation of sources' GHG emissions. First, legislation was introduced in the 111 th Congress in response to concerns raised by EPA's July 2008 ANPR that the agency might require CAA permits for GHG emissions from agriculture, which some groups characterized as a "cow tax proposal." The legislation, S. 527 and H.R. 1426 , would have amended the Clean Air Act to mandate that no Title V permit be issued for controlling carbon dioxide, nitrogen oxide, water vapor, or methane emissions "resulting from biological processes associated with livestock production." In addition, in the FY2010 appropriations bill for EPA ( P.L. 111-88 ), Congress included a provision similar to the prohibitory language of S. 527 and H.R. 1426 . As adopted, the measure prohibits EPA from using funds under the act to promulgate or implement any rule requiring the issuance of CAA Title V permits for GHG emissions associated with livestock production. Second, also in final action on P.L. 111-88 , Congress blocked EPA from using funds in the bill to implement any rule that would require mandatory reporting of GHG emissions from manure management operations. This bill language applies to manure management systems of all sizes, not just to those that emit more than 25,000 metric tons of CO 2 equivalent per year, as contained in EPA's mandatory reporting rule. As noted previously, EPA's rule excludes reporting by 99% of farms with manure management systems; P.L. 111-88 excluded the other 1% of operations. Third, the 111 th Congress debated comprehensive climate change bills and in that context considered whether or how to include agriculture and other sources of GHGs in the legislation. In July 2009, the House passed the American Clean Energy and Security Act of 2009 ( H.R. 2454 ), legislation that covers clean energy, energy efficiency, reducing global warming pollution, transitioning to a clean energy economy, and agriculture and forestry related offsets. The complex and controversial legislation reflected compromises on various issues, including a number of negotiated changes sought by agriculture interests. A key feature of the House-passed bill was an economy-wide cap-and-trade system designed to reduce GHG emissions from covered entities. As passed, the legislation excluded any agricultural enterprise or any small business enterprise that emits less than 25,000 tons of CO 2 equivalent of GHG emissions per year. Animal agriculture sources were excluded entirely from the definition of "covered entities" in H.R. 2454 , because of their de minimis impact on the climate; thus, they would not have been subject to the cap or other mandatory provisions of the bill. A key feature of H.R. 2454 , as passed by the House, was the creation of a carbon offset provision for agriculture. The so-called "Peterson Amendment" was added to H.R. 2454 just prior to the floor debate, following negotiations between the Chairmen of the House Energy and Commerce Committee and the House Agriculture Committee. Among other provisions, the Peterson Amendment allowed for certain agricultural and forestry activities to become eligible to participate in a carbon offset program. Offsets (emission reductions from non-covered sources) could be purchased by covered entities and used to meet their compliance obligations. Thus, the agricultural and forestry sectors could earn income for any emission reductions that it undertakes, provided that the reductions are measurable and verifiable. The legislation also would have established the offset program under USDA (rather than EPA), a key difference sought by agriculture stakeholders. Comprehensive climate change legislation was reported from the Senate Environment and Public Works Committee in February 2010 ( S. 1733 , the Clean Energy Jobs and American Power Act). Regarding agriculture, this bill was similar to H.R. 2454 in that it used the same emissions threshold (25,000 metric tons of CO 2 equivalent per year) applicable to the cap-and-trade and other mandatory provisions and would exclude animal agriculture from the definition of "covered entities." Like H.R. 2454 , S. 1733 would have allowed for agriculture and forestry offsets as part of a cap-and-trade scheme. Also in the Senate, the Clean Energy Partnerships Act of 2009 ( S. 2729 ) was introduced by Senator Stabenow shortly after the Senate Environment and Public Works Committee completed work on S. 1733 . This bill (often referred to as the "Stabenow Amendment") would have expanded the agricultural and forestry carbon offset provisions in the comprehensive climate bills (e.g., S. 1733 ) and also would have allowed for certain other provisions benefitting U.S. farmers and landowners. Agricultural Conservation Practices and GHGs Some degree of GHG emissions reduction from agricultural activities can be achieved with existing conservation and land management practices, which also conserve and improve the quality of soil, water, air, energy, and plant and animal life. Thus, in addition to or in place of regulating agricultural emissions, another policy option could be to promote various voluntary on-farm practices—ranging from reduced tillage to prescribed grazing—that could mitigate emissions. The effectiveness, complexity, cost, and break-even point of the conservation practice varies based on the farm type, farm size, land management, and agricultural commodity, among other factors. A list of selected conservation practices that can reduce agricultural GHG emissions is displayed in Table 2 . Typically, conservation practices have been used for soil conservation and water quality improvement, not climate change abatement or mitigation. However, recent investigations have shown certain conservation practices can significantly reduce agriculturally based GHG emissions. Ideal conservation practices that also could reduce GHG emissions are associated with the primary agricultural sources of these emissions (described previously)—enteric fermentation, manure management, and agricultural soil management—or more simply, croplands and livestock. Conservation practices that fall under the domains of nutrient management, tillage operations, field management, precision agriculture, manure management, and dietary management will likely have the most influence on decreasing agricultural GHG emissions. A combination of practices may be necessary in some cases to significantly reduce GHG emissions. However, certain conservation practices may decrease a single GHG while simultaneously increasing others. Depending on the agricultural source of GHG emissions, different conservation practices would likely need to be used to obtain desired reductions. For instance, GHG control strategies for cropland differ from those used for livestock. Cropland GHG emissions generally are distributed over a vast area of land. Land management practices, sometimes referred to as "non-structural practices," work well to reduce GHG emissions from cropland. On the other hand, livestock GHG emissions may be widely dispersed (emissions originate from a herd of cattle grazing) or may emanate from a point-source (emissions originate from the manure handling system). A mixture of feed management, nonstructural practices, and structural practices may be used to reduce livestock GHG emissions. In addition to reducing GHG emissions directly, some conservation practices provide another climate change benefit: carbon sequestration (storage), which takes carbon out of the atmosphere. Wetland restoration is a prime example of a conservation practice that sequesters carbon by re-establishing a sustainable ecosystem that provides a relatively greater degree of permanence in CO 2 sequestration than some other practices. Strategies, technologies, and practices to reduce CH 4 and N 2 O emissions at the farm level are not mandated by federal policies. As discussed further below, current federal policies are voluntary and offer incentives for reducing GHG emissions. Absent mandates or increased incentives, financial and monitoring challenges have stalled large-scale adoption of certain practices and technologies. For example, CH 4 emitted from a dairy farm via enteric fermentation (i.e., digestion) and manure management can be reduced by feeding dairy cows a high-quality forage and using an anaerobic digestion system to capture methane from the manure. However, the high cost of anaerobic digestion systems is a significant barrier to their widespread use for methane capture. Similarly, N 2 O emitted from corn fields due to nutrient and soil management efforts (e.g., fertilization and tillage) can be reduced with efficient application of fertilizer and conservation tillage, but costs of adopting appropriate technologies and practices can be prohibitive. Overall, problems of quantifying, monitoring, and verifying emission reduction or carbon storage may make it impracticable to include many agricultural activities in some GHG reduction programs, such as trading, because they might not meet credible standards. USDA Activities and Programs Existing conservation and farmland management programs administered at the federal and state levels often encourage agricultural practices that can reduce GHG emissions and/or sequester carbon (see Table 2 ). Most of these programs are voluntary and were initiated mainly for other production or environmental purposes (such as soil fertility and water quality improvement). Few existing programs specifically address GHG emission concerns in the agriculture and forestry sectors. However, USDA and some states have started to focus additional attention on the potential for emissions reduction and carbon storage under certain existing programs. These include conservation, forestry, energy, and research programs within existing farm legislation. In general, conservation programs administered by USDA and state agencies encourage farmers to implement certain farming practices and often provide financial incentives and technical assistance to support their adoption. Participation in these programs is voluntary, and long-term maintenance of implemented practices is not mandatory following the completion of a contract. The effectiveness of these practices depends on the type of practice, how well it is maintained, and also on the length of time a practice is undertaken. These programs are generally designed to address site-specific improvements based on a conservation plan developed with the assistance of USDA technical field staff, state extension services, or private technical service providers. Conservation plans consider the goals and land resource base for an individual farmer or landowner and are typically a necessary precursor to participating in USDA's conservation programs. This section describes relevant USDA programs that can provide financial and/or technical assistance for the types of on-farm practices described above to mitigate agriculture's GHG emissions. Conservation Programs Most conservation programs administered by USDA are designed to take land out of production and improve it (i.e., land retirement/easement programs) or to improve management practices on land in production (working lands programs). Programs include some level of technical assistance to assist implementation and typically offer a cost-share contract to producers to implement practices necessary to achieve conservation goals. Many of these programs are provided for in Title II of the 2008 farm bill ( P.L. 110-246 , the Food, Conservation, and Energy Act of 2008). USDA has expanded some of its existing farmland conservation programs to further encourage agricultural emission reductions and carbon sequestration. As described previously, a number of conservation and land management practices can reduce net emissions directly, and many of the practices are encouraged under working lands programs, such as the Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP). USDA has provided additional technical guidance to make GHG a priority resource concern in working lands programs by giving greater weight to projects that promote anaerobic digestion, nutrient management plans, and other types of cropland practices, such as installing shelter belts and windbreaks, encouraging conservation tillage, and providing resources for biomass energy projects. Several working lands programs list a reduction in emissions as a national priority for the program, which affects the overall funding and ranking of projects. USDA has modified how it scores and ranks offers to enroll land in the Conservation Reserve Program (CRP) in order to place greater weight on installing vegetative covers that sequester carbon. USDA also has an initiative under CRP's continuous enrollment provision to plant up to 500,000 acres of bottomland hardwoods, which are among the most productive U.S. lands for sequestering carbon. Some programs offer only technical assistance to producers and no financial assistance. USDA has also expanded these programs to encourage GHG emission reductions. For example, the Conservation Technical Assistance (CTA) program lists a reduction in GHG emissions as a national priority. Also, many CTA activities support the scientific underpinnings of the conservation practices that are encouraged by the financial assistance programs, as well as providing the conservation planning requirement for program participation. Compliance programs such as conservation compliance, sodbuster, and swampbuster do not always require specific practices; however, conservation plan requirements under these programs include land management components that could have significant GHG benefits (e.g., tillage requirements, cover crops, and land conversion requirements). Similar to the conservation programs offering financial assistance, technical assistance programs are voluntary and were initiated predominantly for other production or environmental purposes. Table B -1 highlights conservation practices affecting GHG emissions and USDA programs that offer possible financial or technical assistance for implementation. USDA recognizes that conservation practices implemented through many of these programs reduce GHG emissions. It estimates that select conservation programs mitigated as much as 68 MMTCO 2 e of GHG in 2007 and could potentially mitigate over 81 MMTCO 2 e of GHG by 2020 (see Table 3 ). USDA also recognizes that marketable credits may be generated by these conservation programs. Consequently, USDA has recently changed many of its conservation program rules to remove any claim on these credits. Environmental Services Markets In addition to expanding several existing conservation programs that were created mainly for purposes other than GHG emission reduction, the 2008 farm bill also included a new conservation provision intended to facilitate the participation of farmers and ranchers in emerging carbon and emissions trading markets. Section 2709 of the bill directed USDA to establish guidelines for standards, accounting procedures, reporting protocols, and verification processes for carbon storage and other types of environmental services markets. This provision was also intended to help address some of the measurement and quantification issues surrounding agricultural and forestry carbon credits, as well as to expand existing voluntary conservation and other farm bill programs, providing incentives that could accelerate opportunities for agriculture and forestry to reduce emissions associated with climate change, adopt energy efficiency measures, and produce renewable energy feedstocks. In response to the farm bill provision, USDA created a federal "Conservation and Land Management Environmental Services Board" to assist USDA with the "development of new technical guidelines and science-based methods to assess environmental service benefits which will in turn promote markets for ecosystem services including carbon trading to mitigate climate change." A federally chartered public advisory committee, consisting of farmers, ranchers, forest landowners, and tribal representatives, as well as representatives from state natural resource and agriculture departments, plus public members, was set up to advise the board. USDA also established an Office of Ecosystem Services and Markets to provide administrative and technical assistance in developing the uniform guidelines and tools needed to create and expand markets for ecosystem services in the farming and forestry sectors. Activities of this Office or the Board cannot be identified. Other USDA Farm Programs In addition to USDA's conservation programs, several farm bill programs are intended to encourage renewable energy projects and activities that can reduce GHG emissions and/or sequester carbon. Renewable energy projects received additional program funding in three titles of the 2008 farm bill: Title II (Conservation), Title IX (Energy), and Title VII (Research). One provision in the energy title, the Rural Energy for America Program (REAP), provides mandatory funding for grants for energy audits, renewable energy development, and financial assistance to promote energy efficiency and renewable energy development for farmers and rural small businesses . This program also provides funding to support construction of anaerobic digesters in the livestock sector. Limited information is available regarding the current number of anaerobic digesters installed through REAP. According to a USDA report, since 2003, the Section 9006 grants (precursor to REAP) funded approximately $26 million for anaerobic digesters and have leveraged $123 million in private investment. Over 90 digesters have been funded, of which 19 are operational, 6 are near completion, and 66 are under development. Renewable energy funding also is available through other federal programs. The 2008 farm bill created the Biomass Crop Assistance Program (BCAP) to assist in the development of renewable energy feedstocks, including cellulosic ethanol, and to provide incentives for producers to harvest, store, and transport biomass. BCAP incentivizes the conversion to dedicated energy crops, which is suggested to help mitigate the negative effects of GHG emissions. Concerns remainder, however, regarding the impact of energy crops on other aspects of the environment (e.g., biodiversity and wildlife habitat). The farm bill's Title VII (Research) also provides for research on renewable fuels, feedstocks, and energy efficiency and for competitive grants for on-farm research and extension projects. Conclusion Questions of whether and how to address human-induced climate change have been widely debated in recent times. Issues of science, economics, values, geopolitics and a host of other concerns have been contentious. The economic stakes in these debates are potentially large—with both the costs of controls and the "costs of inaction" ranging, by some estimates, into trillions of dollars over several decades. Results of the 2010 congressional elections have altered political dynamics in Congress on many issues, and leaders of both political parties have indicated that they currently do not plan to pursue comprehensive approaches to addressing climate change in the 112 th Congress, although some elements of previous proposals may move through the legislative process—for example, certain energy policy elements. How agriculture fits in these discussions has drawn interest in the past and likely will do so again. Appendix A. Agricultural Sector Emissions of Methane and Nitrous Oxides As shown in Table A -1 , agricultural activities contributed an estimated 34.2% of all CH 4 emissions and 73.3% of all N 2 O emissions in the United States in 2008. Livestock-related categories (enteric fermentation and manure management) were 32.7% of total U.S. CH 4 emissions and 5.4% of total N 2 O emissions in 2008, while various land management practices were 8.2% of total U.S. CH 4 emissions and 68% of total N 2 O emissions. Between 1990 and 2008, estimated CH 4 emissions from agricultural activities increased by 14.4%, while estimated N 2 O emissions fluctuated from year to year, but overall increased by 7.0%. Appendix B. Conservation Practices and Programs Affecting GHGs

This report examines the implications for agriculture of the ongoing but inconclusive debate about global climate change. In that debate, agriculture's role is multifaceted. Agriculture is both a source of several greenhouse gases (GHGs) and a "sink" for absorbing carbon dioxide, the most common GHG, thereby partly offsetting emissions. Overall, agriculture is a comparatively modest source of U.S. GHG emissions: it accounts for approximately 7% of U.S. emissions, while sectors such as transportation and electricity generation account for much larger shares. Agriculture's GHG emissions are principally in the form of methane and nitrous oxides emissions. Whatever the current or future Congresses may do regarding climate legislation, interest in existing and prospective responses by government and others will continue. Administration efforts to develop policies and strategies to address GHGs and climate change have been underway for some time. Two actions by the Environmental Protection Agency (EPA) have drawn the attention of the agriculture industry. One is regulating emissions of GHGs under the Clean Air Act (CAA) and subsequent GHG emission standards for new motor vehicles which, in turn, trigger certain CAA permitting requirements. A second, related action is a rule to require reporting of GHG emissions by certain facilities. Regarding both, EPA took steps to focus on the largest emitters and ensure that few agricultural sources would be subject to new GHG requirements. Still, EPA's overall initiatives have been widely criticized, and the 111th Congress intervened through a funding bill to largely exclude agriculture from EPA's regulatory requirements. During the 111th Congress, the House passed a comprehensive climate change bill (H.R. 2454), and a Senate committee reported a companion (S. 1733). Although no legislation was enacted, both bills included provisions excluding agriculture from regulatory requirements and promoting agricultural practices to reduce or offset emissions from regulated sources. Traditionally, practices such as conservation tillage have been used for soil conservation and water quality improvement, but their value for climate change abatement or mitigation is receiving increased attention. A number of strategies, technologies, and practices exist to reduce methane and nitrous oxides emissions at the farm level, but implementation faces financial and monitoring challenges. Programs administered by the U.S. Department of Agriculture (USDA) provide financial incentives and technical assistance to encourage implementation of certain farming practices. While the focus of most programs is not on GHG emission reduction, USDA is giving greater attention to GHGs in administering its suite of existing programs. Results of the 2010 congressional elections have altered political dynamics in Congress on many issues, and leadership of both political parties have indicated that neither currently plans to pursue comprehensive approaches to addressing climate change in the 112th Congress, although some elements of previous proposals may move through the legislative process. How agriculture fits in these discussions—both as a source of GHG emissions and contributions that the sector can make to mitigating climate change—has drawn interest in the past and likely will do so again.

Background Trafficking in persons (TIP), also commonly referred to as human trafficking, forced labor, or modern slavery, is considered to be one of today's leading criminal enterprises that affects virtually all countries around the globe. In 2012, the International Labor Organization (ILO) estimated that there were some 20.9 million victims of forced labor, which includes trafficking in persons. Of these, the ILO estimates that some 1.8 million victims are in Latin America. In 2014, the ILO analyzed the financial value of forced labor and estimated that it results in roughly $12 billion in illegal profits annually in Latin America (out of a global estimate of $150 billion). The accuracy of these and other estimates, however, is difficult to assess given the clandestine nature of human trafficking. Internal trafficking generally flows from rural to urban or tourist centers within a given country, and trafficking across international borders generally flows toward more developed nations. Countries are generally described as source, transit, and/or destination countries for TIP victims. Research indicates that countries are more vulnerable to human trafficking if they have experienced political upheaval, armed conflict, economic crisis, or a natural disaster. For example, the hundreds of thousands of Haitian children who were orphaned after a catastrophic earthquake hit that country in January 2010 proved vulnerable to trafficking. Some assert that hosting major international events can exacerbate preexisting human trafficking problems, whereas others maintain that those fears may be overblown. This report describes the nature and scope of the problem of trafficking in persons in Latin America and the Caribbean. It then describes U.S. efforts to deal with trafficking in persons in the region and discusses recent country and regional anti-trafficking efforts. The report concludes by raising issues that may be helpful for Congress to consider as it continues to address human trafficking as part of its authorization, appropriations, and oversight activities. Definition Trafficking in persons, also known as human trafficking, could be simply defined as the subjection of men, women, and children to compelled service for the purposes of exploitation. Examples include sex trafficking, forced labor (including domestic servitude), and the use of child soldiers. Severe forms of TIP have been defined in U.S. law as "sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age; or ... the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery." Most members of the international community agree that the trafficking term applies to all cases of this nature involving minors, whether a child was taken forcibly or voluntarily. TIP does not require the movement of victims from one place to another, a concept that is still misunderstood by officials in some Latin American countries. Trafficking vs. Migrant Smuggling In 2000, the United Nations (U.N.) drafted two protocols, known as the Palermo Protocols, to deal with trafficking in persons, on the one hand, and human (migrant) smuggling, on the other. Trafficking in persons is often confused with human smuggling. Human smuggling involves the provision of a service, generally procurement of transport, to people who knowingly consent to that service to gain illegal entry into a foreign country. It ends with the arrival of the migrant at his or her destination. The Smuggling Protocol considers people who have been smuggled as willing participants in a criminal activity who should be given "humane treatment and full protection of their rights" while being returned to their country of origin. Many observers contend that smuggling is a "crime against the state" and that smuggled migrants should be deported, whereas trafficking is a "crime against a person" whose victims deserve to be given government assistance, protection, and immigration relief. The State Department asserts that the existence of "force, fraud, or coercion" is what distinguishes trafficking from human smuggling. Under U.S. immigration law, a trafficked migrant is a victim, whereas an illegal alien who consents to be smuggled is complicit in a criminal activity and may therefore be subject to prosecution and removal (deportation). Distinguishing the difference between a trafficking victim and a smuggled migrant can be difficult, particularly in cases involving unaccompanied children. Since June 2014, the annual State Department Trafficking in Persons Report has identified migrants from Central America as vulnerable to human trafficking in Mexico. A 2016 report by Polaris asserts that 34% of cases it recorded of Latin American women trafficked into sex slavery in the United States since 2007 involved smuggling-related recruitment methods. As those victims were in the process of being smuggled into the United States, they were either abducted and sold to human traffickers or told that they must labor against their will to pay back their smuggling debts. Trafficking and Illegal Immigration Incidences of human trafficking are often affected by migration flows, particularly when those flows are illegal and unregulated. In recent years, several factors have influenced emigration flows from Latin America and the Caribbean. Factors that have fueled Latin American migration to the United States include family ties, poverty and unemployment, political and economic instability, natural disasters, proximity, and crime and violence. Aside from proximity, those factors have also driven smaller emigration flows to Europe and Canada. Primary destination countries for Latin American immigrants have included the United States, Spain, Italy, Canada, the Netherlands, and Britain. These countries, many with low birth rates and aging populations, came to rely on migrant laborers from Latin America in recent decades to fill low-paying jobs in agriculture, construction, manufacturing, and domestic service. At the same time, concerns about security, competition for jobs, and other issues related to absorbing large numbers of foreign-born populations have led many developed countries to tighten their immigration policies. These factors have led to a global rise in illegal immigration. In the Western Hemisphere, illegal migration flows have been most evident in Mexico, particularly along its 1,951-mile northern border with the United States and its southern border with Guatemala (596 miles) and Belize (155 miles). Whereas unauthorized migration flows from Mexico to the United States have decreased significantly since the mid-2000s, flows from Central America have increased. In FY2014, apprehensions of unauthorized Central American migrants along the southwestern border by U.S. Customs and Border Protection (CBP) exceeded apprehensions of Mexicans for the first time. After declining in FY2015, by August 2016 apprehensions of family units from Central America had exceeded the record total reported in FY2014. As U.S. border security has tightened, illegal immigrants increasingly have turned to smugglers to lead them through Mexico and across the U.S.-Mexican border. U.S. officials estimate that 75%-80% of unaccompanied minors now travel with smugglers. To avoid detection by Mexican immigration agents, smuggling routes have become more dangerous and therefore more costly. Some smugglers have sold undocumented migrants into situations of forced labor or prostitution to recover their costs. Illegal immigrants transiting Mexico often fail to report abuses committed against them by criminals or officials in their home countries or along their journey because of fears of deportation. There is also a lack of legal and psychological support provided to foreign trafficking victims in Mexico who likely would qualify for asylum. Human Trafficking in Latin America and the Caribbean Human trafficking is a growing problem in Latin America and the Caribbean, a region that contains major source, transit, and destination countries for trafficking victims. Major forms of TIP in the region include commercial sexual exploitation of women and children, labor trafficking within national borders and among countries in the region (particularly in South America), and the trafficking of illegal immigrants in Mexico and Central America. According to the U.N. Office on Drugs and Crime (UNODC), the share of victims trafficked for forced labor outside the commercial sex industry in Latin America (44%) is higher than in Europe and Central Asia. The two countries in Latin America and the Caribbean with the largest percentages of their populations subjected to "modern slavery," a term associated with human trafficking, are Haiti and the Dominican Republic, according to the Walk Free Foundation. Factors That Contribute to Human Trafficking in the Region Both individual factors and outside circumstances contribute to human trafficking within and from Latin America and the Caribbean. Individual risk factors include poverty, unemployment, membership in an indigenous group, illiteracy, a history of physical or sexual abuse, homelessness, drug use, and gang membership. The State Department also has highlighted the vulnerability of lesbian, gay, bisexual, and transgender people to human trafficking. The factors that may "push" an individual toward accepting a risky job proposition in another country have been compounded by "pull" factors, such as the hope of finding economic opportunity abroad, which is fueled by television, Internet, and social media images of wealth in the United States and Europe. Outside factors contributing to human trafficking include the following: (1) the high global demand for domestic servants, agricultural laborers, sex workers, and factory labor; (2) political, social, or economic crises, as well as natural disasters occurring in particular countries, such as the January 2010 earthquake in Haiti; (3) lingering machismo (chauvinistic attitudes and practices) that tends to lead to discrimination against women and girls; (4) existence of established trafficking networks with sophisticated recruitment methods; (5) public corruption, especially complicity between law enforcement and border agents with traffickers and alien smugglers; (6) restrictive immigration policies in some destination countries that have limited the opportunities for legal migration flows to occur; (7) government disinterest in the issue of human trafficking; and (8) limited economic opportunities for women in Latin America. Although women have achieved the same (or higher) educational levels as men in many countries, women's employment continues to be concentrated in low-wage, informal-sector jobs. Child Trafficking Considerably less research exists on the extent and nature of TIP in Latin America and the Caribbean than in Asia and Europe. Most of the research that does exist has focused, at least until recently, on trafficking in children for sexual exploitation. Trafficking of children for sexual exploitation is most common in countries that are both popular tourist destinations and centers of sex tourism. Street and orphaned children are particularly vulnerable to trafficking into the sex industry, although some children who have been trafficked live with their families and engage in commercial sex activity to contribute to household income. Other factors associated with children at risk of trafficking include poverty, infrequent school attendance, physical or sexual abuse, drug or alcohol addiction, and involvement in a criminal youth gang. Children are also trafficked both internally and across international borders. State Department officials have estimated that as many as 1 million children may work as domestic servants in Latin America, many of whom are vulnerable to verbal, physical, and sexual abuse. Human trafficking of Haitian restavesks (domestic servants) has been of particular concern for many years. Latin American children also have been trafficked for illegal adoptions, for use as soldiers in armed conflict, and to work for organized criminal groups, sometimes as sex slaves. Forced recruitment into Central American gangs is a major problem in many communities. Finally, the ILO and the U.S. Department of Labor (DOL) have documented instances from across the region of children forced to work under dangerous circumstances in agricultural or mining industries. For example, a 2014 DOL report found continued evidence of the use of child labor in the production of a wide range of goods in many countries in Latin America. Examples of some of the goods cited in that report include bricks, gold, coffee, sugarcane, and other agro-export crops, as well as illicit crops such as coca. Although a 2013 ILO global report estimated that the number of child laborers had declined slightly in Latin America as compared to 2008, the report still estimated that 12.5 million children in the region worked, 9.6 million in hazardous conditions. Trafficking for Sexual Exploitation While trafficking for forced labor is a serious problem in Latin America and the Caribbean, trafficking for sexual exploitation has, until recently, been perceived as a more widespread and pressing regional problem. Most victims are trafficked for prostitution, but others are used for pornography and stripping. Children tend to be trafficked within their own countries, while young women may be trafficked internally or internationally, sometimes with the consent of their husbands or other family members. One study estimated that some 10,000 women from southern and central Mexico are trafficked for sexual exploitation to the northern border region of Mexico each year. State Department officials have estimated that tens of thousands of Latin Americans are trafficked internationally each year, with large numbers of victims coming from Colombia and the Dominican Republic, among others. According to a 2016 report by the United Nation's Children's Fund, a combination of gangs, crime families, and drug trafficking organizations run sex trafficking rings in Guatemala that may involve some 48,500 victims. There are also intraregional trafficking problems. Argentina and Brazil are destination countries for women trafficked from the Andes and from Caribbean countries such as the Dominican Republic. Panama has been a destination for women from Colombia and Central America, trafficked to work in the sex industry. Trafficking also has occurred at border crossings throughout Central America and Mexico, especially the Mexican-Guatemalan border, as undocumented women who have not been able to get to the United States end up being forced into prostitution. Trafficking for Forced Labor The ILO reported that some 1.8 million people in Latin America were engaged in forced labor, including TIP victims in 2012. Although that number only represents roughly 3.1% of the region's estimated population, a lower prevalence rate than in other regions, it is nonetheless significant. These numbers do not include the increasing numbers of Latin Americans who have ended up in situations of forced labor after migrating to Europe or the United States. Until recently, more forced labor victims had been identified in South America and some parts of the Caribbean than in Central America. In Brazil, forced labor is most common in rural areas on cattle ranches; in logging and mining camps; and on plantations, where soybeans, corn, and cotton are produced. Indigenous peoples in Peru, Bolivia, and Paraguay are particularly at risk of being trafficked for forced labor. Forced labor is used in the mahogany, brick-making, and gold-mining industries in the Amazonian regions of Peru and Ecuador. Illegal gold mines in Peru, Colombia, Venezuela, and other countries have become hotspots for human trafficking. Migrants from Haiti who lack proper documentation in the Dominican Republic have been vulnerable to trafficking and other abuses. The 2014 DOL report on goods produced by forced labor also identifies products from Mexico and Central America, including coffee, sugarcane, fireworks, melons, tomatoes, and shellfish, among others. In the past few years, the Department of Justice has prosecuted an increasingly large volume of cases of foreigners trafficked into forced labor in the United States. Although the majority of these cases have involved trafficking for prostitution, a significant number have involved the agricultural sector. Annually some 1.5 million seasonal farm workers, mostly from Latin America and the Caribbean, plant and harvest produce in the United States. Low wages, harsh working conditions, and a lack of legal protection, combined with an ever increasing demand for cheap labor, have resulted in growing numbers of forced labor abuses. Relationship to Organized Crime and Terrorism In many parts of the world, trafficking in money, weapons, and people is largely conducted by criminal gangs or mafia groups. Human trafficking can be a lucrative way for organized criminal groups to fund other illicit activities. In Guatemala, relatively large crime groups are transporting women from other countries—primarily from other countries in Central America—for sexual exploitation. Mexican drug trafficking organizations, particularly Los Zetas, have been increasingly involved in the smuggling and trafficking of people. According to the Bilateral Safety Corridor Coalition (BSCC), criminal gangs from Mexico, Central America, Russia, Japan, Ukraine, and several other countries have been caught attempting to traffic victims across the U.S.-Mexican border. According to the State Department officials, this is still a new area of study where additional research is needed. However, officials noted that there was evidence on children forced to commit crimes in Ecuador, Chile, and Brazil, among others. Some U.S. Defense Department officials are concerned about the potential for terrorist groups to use the same networks used by Latin American smugglers and human traffickers to gain entry into the United States. Others maintain that terrorists may turn to human trafficking to fund their operations, as they have long used drug trafficking. Trafficking and Health Problems One of the serious public health effects of human trafficking is the risk of victims contracting and transmitting HIV/AIDS and other diseases. On the global level, women engaged in prostitution, whether voluntarily or not, have a high prevalence of HIV/AIDS. Researchers maintain that sex trafficking may be linked to the spread and mutation of the AIDS virus. In Latin America, trafficking victims, along with other irregular migrants working in situations of forced labor, are at high risk of contracting tuberculosis and other serious health problems. Factors that put these groups at risk include poverty, discrimination, exploitation and dangerous working conditions, lack of legal protection and education, cultural biases, and limited access to health services. U.S. Policy Congressional Action39 Legislation Anti-TIP efforts have accelerated in the United States since the enactment of the Victims of Trafficking and Violence Protection Act of 2000 (TVPA, P.L. 106-386 ). The TVPA established minimum standards to combat human trafficking applicable to countries that have a significant trafficking problem and authorized U.S. international anti-TIP assistance. The act directed the Secretary of State to provide an annual report by June 1, listing countries that do and do not comply with minimum standards for the elimination of trafficking. In the report, the act directed the Secretary to rank countries on the basis of their efforts to combat TIP, with Tier 1 as the best countries. Tier 3 are the countries whose governments are deemed as not fully complying with the minimum standards and not making significant efforts to do so. The TVPA called for the United States to withhold non-humanitarian assistance and instructed the U.S. executive director of each multilateral development bank and the International Monetary Fund to vote against non-humanitarian assistance to Tier 3 countries, unless continued assistance is deemed to be in the U.S. national interest. Congress is continuously reevaluating the efficacy of U.S. anti-trafficking laws and programs and, since 2000, has reauthorized the TVPA several times. In 2003, for example, Congress approved the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2003 ( P.L. 108-193 ). The TVPRA of 2003 refined and expanded the "minimum standards" for the elimination of trafficking that governments must meet and created a "Tier 2 Watch List" of countries that the Secretary of State determined were to get special scrutiny in the coming year. The William Wilberforce Trafficking Victims Reauthorization Act of 2008 ( P.L. 110-457 ) added a new requirement that Tier 2 Watch List countries must be dropped to the Tier 3 category after two consecutive years on the Tier 2 Watch List, unless the President issues a waiver. Most recently, the TVPA was reauthorized through FY2017 when Congress enacted the Violence Against Women Reauthorization Act of 2013 ( P.L. 110-457 ). The 114 th Congress has considered a number of bills related to human trafficking. In February 2016, Congress enacted legislation referred to as the International Megan's Law ( P.L. 114-119 ) requiring registered sex offenders to carry passports with "unique identifiers" and U.S. agencies to notify foreign governments when registered sex offenders are visiting their countries. Several nonprofit organizations have presented lawsuits challenging the law's constitutionality on the grounds that it violates an offender's constitutional rights. Import Restrictions Congress also enacted the Trade Facilitation and Trade Enforcement Act of 2015 ( P.L. 114-125 ) eliminating an exception (the "consumptive demand" clause) to the Tariff Act of 1930 (19 U.S.C. 1307), which had allowed goods produced by forced labor to be imported if demand for those items could not be met by U.S. producers. Even with the removal of the consumptive demand clause, identifying specific goods produced with forced labor, as well as manufacturers of such goods, is likely to remain a challenge for U.S. customs officials. Conditions on Foreign Assistance Asserting that the FY2014 influx of migrants was a reminder that "the security and prosperity of Central America are inextricably linked to our own," the Obama Administration introduced a new whole-of-government U.S. Strategy for Engagement in Central America in March 2015. For FY2016, the Administration requested more than $1 billion of foreign assistance to implement the strategy for promoting economic prosperity, improving security, and strengthening governance. On December 18, 2015, Congress enacted the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), providing "up to" $748 million through the State Department and the U.S. Agency for International Development (USAID) to implement the Central America strategy. This figure includes up to $68 million for El Salvador, $128 million for Guatemala, and $98 million for Honduras. It also provides up to $349 million for the Central American Regional Security Initiative (CARSI), a security assistance package for which Congress appropriated nearly $1.2 billion from FY2008 to FY2015. The act places numerous conditions on the aid for Central America, including a requirement that 25% of the funds for the "central governments of El Salvador, Guatemala, and Honduras" be withheld until the Secretary of State can certify that the governments are "taking effective steps" to deter emigration, combat alien smuggling and human trafficking, improve border security, and receive and reintegrate citizens repatriated from the United States. The State Department submitted a report that satisfied those conditions to congressional appropriators in March 2016. Similar conditions have been included in the House and Senate versions of the FY2017 foreign aid appropriations bills. Section 7045(a)(3) of S. 3117 would require 75% of the funds for the "central governments of El Salvador, Guatemala, and Honduras" to be withheld until the Secretary of State certifies that those governments are "taking effective steps" to address 16 concerns, including combating human trafficking. Section 7045(a)(3) of H.R. 5912 would enact similar withholding requirements but would condition 100% of the funds. In the absence of final FY2017 appropriations legislation, President Obama signed into law a continuing resolution ( P.L. 114-223 ) on September 29, 2016, that funds most foreign aid programs and activities at the FY2016 level, minus an across-the-board reduction of 0.496%, until December 9, 2016. TIP Reports and Sanctions: Latin America In June 2016, the U.S. government released its latest edition of the flagship annual publication on international human trafficking, the Trafficking in Persons Report . The report categorized 188 countries into tiers based on their government's level of effort to address human trafficking: Tier 1 (best), Tier 2, Tier 2 Watch List, and Tier 3 (worst). The report also includes three "special case" countries that are unranked. Only Tier 1 countries, approximately 19.5% of those assessed, are fully compliant with U.S.-established minimum standards to eliminate severe forms of human trafficking; the other countries are noncompliant and vary in terms of their level of effort to improve. In 2016, the Trafficking in Persons Report listed 27 countries as Tier 3. As required by law, Tier 3 countries are subjected to selected foreign assistance restrictions, unless the President determines that such provisions of aid are in the U.S. national interest. For FY2017, the President issued full waivers to 18 countries and partial waivers to 7 countries; aid to 2 countries was restricted pursuant to U.S. anti-trafficking requirements. As in previous years, most Latin American countries fall somewhere in the middle of the tier rankings (see Table 1 ), with several small Caribbean nations, which arguably may have resource constraints that inhibit their efforts, garnering low rankings. The Bahamas, Chile, and Colombia are the only countries on Tier 1 from Latin America. Colombia earned an upgrade to Tier 1 by convicting 31 traffickers, appointing 14 new prosecutors to handle trafficking cases, and strengthening its internal coordination to combat trafficking. Countries on the Tier 2 Watch List include Antigua and Barbuda, Bolivia, Costa Rica, Cuba, St. Vincent and the Grenadines, and Trinidad and Tobago. Cuba remained on the Tier 2 Watch List, where it has been since 2015. Belize, Venezuela, and Haiti are the only Latin American countries identified as Tier 3. Belize remained in Tier 3 because even though the government initiated investigations, it did not begin any new prosecutions and identified fewer victims of trafficking than last year. Venezuela's ranking was mostly due to unclear data from the government of its efforts against trafficking. Venezuela reportedly has made some efforts since the report's publication to arrest those who are recruiting its citizens to perform forced labor in nearby Trinidad and Tobago. Overall, Colombia, Guyana, and Jamaica upgraded their tier rankings, whereas Haiti, St. Lucia, and Suriname fell in the rankings. Guyana earned a Tier 2 ranking after convicting a trafficker and ordering her to pay restitution to her victims. The government of Guyana also provided funding for nongovernmental organizations (NGOs) working with victims. Jamaica upgraded its ranking from Tier 2 Watch List to Tier 2 by increasing the number of TIP convictions and prosecutions, developing a national anti-TIP plan, and increasing funding for victims' services. By contrast, St. Lucia—a country that has never convicted a trafficker—was downgraded because it did not increase efforts compared to last year. Suriname, which has been on the Tier 2 Watch List since 2012, was automatically downgraded to Tier 3. Suriname had 10 convictions last reporting period but none this year. After four years on the Tier 2 Watch List, Haiti was downgraded to Tier 3 due to a lack of enforcement efforts and minimal protection to victims. U.S. Government Anti-Trafficking Programs in Latin America In FY2016, the U.S. government provided more than $11 million to support anti-TIP projects in Latin America. Anti-trafficking programs are administered by a variety of U.S. agencies, including the State Department, the U.S. Agency for International Development, and the Department of Labor. Whereas regional programs in Latin America support initiatives necessary to address the cross-cutting nature of human trafficking, bilateral programs aim to help governments solve specific challenges they have had in addressing human trafficking. A significant percentage of the total U.S. anti-TIP obligations are provided by the State Department's Office to Monitor and Combat Trafficking in Persons (J/TIP). Each year, J/TIP awards grant funding to NGOs around the world through a competitive bidding process. In FY2015, J/TIP provided some $2.7 million in grant funding to help Haiti, Mexico, Uruguay, and the Caribbean. In addition to foreign aid programs, various agencies within the Department of Homeland Security (DHS) are stepping up joint efforts with Mexican officials to identify, arrest, and prosecute human trafficking and smuggling rings that operate along the U.S.-Mexican border. In 2015, the U.S. Immigration and Customs Enforcement's Homeland Security Investigations Attaché Office in Mexico City and the State Department hosted the first-ever seminar on anti-human trafficking with state-level Mexican law enforcement officers. DHS officials are also helping train Mexican border officials to recognize trafficking victims among those detained on Mexico's southern border. The Department of Justice's (DOJ's) Office of Overseas Prosecutorial Development, Assistance, and Training (OPDAT) has provided training and technical assistance courses to foreign officials in the United States and overseas. For example, OPDAT has provided training and mentoring to Mexican investigators to build TIP investigative and prosecutorial capacity. OPDAT also has trained Bahamian officials in regards to TIP "victim identification, interviewing techniques, and preservation of evidence." Regional and Country Anti-Trafficking Efforts Organization of American States Since 2005, the General Secretariat of the Organization of American States (OAS) has organized, facilitated, and implemented training programs; promoted anti-trafficking policies; and provided opportunities for the exchange of information and best practices to assist member states in their anti-TIP efforts. The organization hosts regular gatherings of the highest-level national governmental officials responsible for combating human trafficking through a process called the Meetings of National Authorities on Trafficking in Persons. The most recent meeting was held on December 4-5, 2014, in Brasilia, Brazil. At that meeting, government representatives approved by consensus two important documents: the Second Work Plan Against Trafficking in Persons in the Western Hemisphere 2015-2018 and the Declaration of Brasilia. During 2016-2017, the OAS will follow up on levels of implementation of the work plan, by, in part, helping member states develop common indicators in the areas of prevention, prosecution, and punishment, and assistance for and protection of victims. The findings will be presented during the Fifth Meeting of National Authorities on Trafficking in Persons, tentatively scheduled to take place during the first part of 2017. International Organization for Migration The International Organization for Migration's (IOM's) efforts to combat TIP began in 1994. IOM's programs include efforts to increase public awareness of human trafficking through education and information campaigns, build government capabilities to identify and assist victims through training, and support the rehabilitation of trafficking victims after they have been rescued. IOM has developed a Global Human Trafficking Database, which contains primary data on victims of trafficking. In July 2016, IOM virtually trained 35 Mesoamerican counter-trafficking specialists from Costa Rica, El Salvador, Honduras, Guatemala, Mexico, and Panama. Country Efforts: Progress and Remaining Challenges Over the last few years, most Latin American governments have taken steps to address the growing problem of human trafficking. As evidenced in Table 1 , a majority of countries in the region have signed and ratified several international protocols in which they have pledged to combat various aspects of the trafficking problem. Those agreements include the U.N. Protocol to Prevent, Suppress, and Punish Trafficking in Persons; ILO Conventions on Abolishing Forced Labor and the Worst Forms of Child Labor; the Optional Protocol to the U.N. Convention on the Rights of the Child (CRC) on the Sale of Children, Child Prostitution, and Pornography; and the Optional Protocol to the CRC on the Involvement of Children in Armed Conflict. With Barbados's signature, every country in the region is now a party to the U.N. TIP convention. Six countries passed new or amended anti-trafficking legislation in 2015, and several others created national TIP coordinators, task forces, or plans to guide anti-TIP programs and initiatives. According to some, the general problem with the new international commitments, legal reforms, and human trafficking initiatives that have emerged in Latin America is that many countries appear to lack the resources and perhaps the political will to fund and implement their anti-trafficking programs. Many governments are facing other crime challenges (such as drug trafficking and gang violence) that they perceive as larger problems than human trafficking. Sometimes country efforts are thwarted by other factors, such as political instability, as in the cases of Haiti and Venezuela. Many countries have few, if any, shelters for trafficking victims and no follow-up plans to help victims after they return from overseas to their former residences. Mexico, a large, middle-income country, funds one federal government shelter for TIP victims. Public corruption is also a major obstacle to effective anti-trafficking programming, as there is often complicity between traffickers and corrupt border officials, customs agents, law enforcement personnel, and politicians. Finally, conviction and prosecution rates for TIP offenders are low compared to other regions, particularly for forced labor and domestic servitude. Issues for Policy Consideration U.S. interests in Latin America are multiple and, at times, conflicting. These interests include strengthening democracy, promoting economic growth through free trade, stemming the flow of illegal narcotics and migrants, and cooperating on border security and antiterrorism measures. These broad interests either directly or indirectly affect all U.S. policy in the region and may at times conflict with specific human rights goals, such as fighting human trafficking. As is the case with many human rights issues, ethical concerns about human trafficking must be balanced against broader U.S. geopolitical goals and interests in each country. Broader U.S. foreign policy goals may influence the TIP report and sanctions process in several ways. Some observers maintain that certain U.S. allies in the region could never be sanctioned for political reasons. Others contend that the repeated inclusion of Cuba on the Tier 3 list until 2014 constituted "selective indignation" on the part of the U.S. government. U.S. officials working in the region have noted that it is sometimes difficult to produce an unbiased account of government efforts against trafficking without being swayed by underlying foreign policy concerns. Others say that it is difficult to deal with trafficking in persons when a country is undergoing extreme political instability and that were TIP sanctions actually enforced, they might undermine the broader U.S. goals of preventing democratic breakdown in the hemisphere. Issues that may be considered when evaluating the implementation of U.S. anti-trafficking policies are discussed below. Aid Restrictions: Are They Useful? Since 2003, no governments in Latin America except Cuba and Venezuela have been subject to partial or full restrictions on U.S. assistance for failing to meet the minimum standards of TVPA. Ecuador appeared on the Tier 3 list in both 2004 and 2005 but did not lose assistance. Some argue that restrictions will probably only be applied to countries already subject to sanctions—such as North Korea—and that threatening other countries aid cuts may actually encourage them to become less open to working with the United States. Others argue that this may be the case with China or Saudi Arabia, but most Latin American countries depend on good political and economic relations with the United States, as well as U.S. tourism, and fear the negative press that comes with a Tier 3 designation nearly as much as reduced U.S. assistance. How to Measure Success It is often difficult to measure success in the fight against human trafficking. Many countries in Latin America have reported increases in the number of training courses provided, conferences held, and workshops convened as evidence of their commitment to combat human trafficking. However, as stated in the 2009 TIP report, the State Department prefers countries to focus on "concrete actions" when determining the adequacy of a particular country's anti-TIP efforts. Concrete actions include enacting new or amended TIP legislation; expanding victim assistance and prevention programs; and, perhaps most importantly, securing prosecutions, convictions, and prison sentences for TIP offenders. Although many countries in Latin America have passed or amended their existing TIP laws, until very recently, the number of TIP-related arrests, prosecutions, and convictions remained low in comparison to other regions. Some have questioned the adequacy of the State Department's indicators. They maintain that more credit should be given to countries that are seeking to address the underlying factors that put people at risk for trafficking, such as gender and racial discrimination, violence against women and children, and economic inequality. Enforcement In 2015, there were 1,744 prosecutions of suspected traffickers, up from 944 prosecutions last year. Convictions also increased, from 470 in 2014 to 663 in 2015. Although prosecutions and convictions are higher than five years ago, they still pale in comparison to Europe, which recorded 4,990 prosecutions and 1,692 convictions in 2015, and to South and Central Asia, which secured 6,915 prosecutions and 1,462 convictions. They also pale in comparison to the number of victims that have been identified in Latin America (9,661 in 2015 alone). To continue improving enforcement of TIP legislation in Latin America, some observers have urged U.S. officials and other donors not to encourage countries to pass laws modeled entirely after those from other countries (such as the TVPA). Instead, countries should develop trafficking laws that respond to their particular TIP problems and law enforcement capacities. Once legislation is in place, more attention and resources may be needed to help countries implement that legislation, and that assistance may need to go beyond training for law enforcement and legal professionals. According to the State Department, some of the current laws in Latin America are insufficient. For example, Mexico's federal anti-TIP law defines human trafficking too broadly, thereby diluting the crime of trafficking. Costa Rica defines trafficking only as a movement-based crime. Attention also may be needed to address broader weaknesses in criminal justice systems that hinder TIP investigations and prosecutions. Corruption could be addressed by stiffening penalties for police, border guards, or other officials caught assisting traffickers. Handling of victims could be improved by training and mentoring provided by external entities, such as UNODC or U.S. law enforcement, aimed at changing misperceptions that victims are complicit in crimes such as prostitution and reinforcing victims' need for specialized services and, if applicable, immigration relief. As previously mentioned, DOJ's OPDAT regularly mentors Mexican prosecutors who are now operating in an accusatorial justice system in which securing a victim's testimony may be crucial for obtaining a trafficking conviction. Debates About Prostitution and Trafficking The current U.N. definition of TIP assumes that there are at least two different types of prostitution, one of which is the result of free choice to participate in the prostitution business and one that is the result of coercion, vulnerability, deception, or other pressures. Of these, only the latter type is considered TIP. Based on the TVPA, as amended, sex trafficking is not considered a "severe form of TIP" unless it is associated with commercial sex acts induced by force, fraud, or coercion or in which the person induced to perform such acts is a minor. Several groups in the United States have sought to redefine TIP to include all prostitution, but many countries have rejected those attempts. Proponents of this broader definition of TIP argue that prostitution is "not 'sex work;' it is violence against women [that] exists because ... men are given social, moral and legal permission to buy women on demand." Several European and Latin American countries, which have legal or government-regulated prostitution, reject such a definitional change and argue that this broader definition would impede the capacity of the international community to achieve consensus and work together to combat trafficking. Some policymakers and researchers assert that prostitution and TIP are inextricably linked, with countries where prostitution is legal experiencing greater inflows of human trafficking. Others, including Amnesty International, maintain that legalizing prostitution and improving working conditions for sex workers reduces the pool of potential TIP victims and helps those workers gain access to police protection in the event they are victimized. Regardless of whether prostitution is legal or illegal, the State Department has reiterated the importance of not punishing victims of TIP who have been forced into prostitution for their actions, even in places where prostitution is illegal. The European Union and the Council of Europe have adopted that principle as part of their directives on combating human trafficking. Forced Labor: Adequacy of Country Efforts Research suggests that although TIP for sexual exploitation is both a highly prevalent and particularly visible form of human trafficking, TIP for forced labor exploitation may account for a large, often unreported, and possibly growing share of TIP globally. Recent interest in forced labor as a form of TIP has sparked calls for greater research in analyzing the prevalence of forced labor, increased international efforts to combat this form of TIP, and more awareness to prevent and educate potential victims. The State Department's TIP reports since 2005 have placed an added emphasis on evaluating country efforts to combat trafficking for forced labor, and several other programmatic efforts to combat TIP for forced labor are under way at the State Department. Other international groups, particularly the ILO, also play a large role in efforts to combat forced labor. According to the 2016 Global Slavery Index by the Walk Free Foundation, Brazil has been one of the countries recognized for its efforts to address forced labor despite not having as many resources as wealthier countries. It has done so by investigating businesses allegedly using slave labor and publicly holding those businesses accountable for their actions. At a regional level, labor trafficking prosecutions and convictions went from one prosecution and one conviction in the 2007 reporting period to 369 prosecutions and 107 convictions in 2012, before falling back to 83 prosecutions and 26 convictions in 2015. Some Latin American countries have yet to broaden their anti-TIP efforts out from focusing largely on the commercial sexual exploitation of women and children. Even in countries with well-established efforts against forced labor, like Brazil, many perpetrators have been able to avoid jail time by paying fines to settle cases.

Countries in Latin America serve as source, transit, and destination countries for trafficking in persons (TIP). Victims are exploited within their own countries and trafficked to other countries in the region. Latin America is also a primary source region for people trafficked to the United States, including by transnational organized crime groups. In FY2015, Mexico was the primary country of origin for foreign trafficking victims certified as eligible to receive U.S. assistance. Recent victims identified in the United States also have originated in Brazil and Central America. Smaller numbers of Latin Americans are trafficked to Europe and Asia. Latin America also serves as a transit region for Asian victims. On June 30, 2016, the State Department issued its 16th annual congressionally mandated report on human trafficking. The report categorizes countries into four "tiers" according to the government's efforts to combat trafficking. Only Tier 1 countries, approximately 19.5% of those assessed, are fully compliant with U.S.-established minimum standards to eliminate severe forms of human trafficking. Those countries that do not cooperate in the fight against trafficking (Tier 3) have been made subject to U.S. aid restrictions. Chile, Colombia, and the Bahamas received the top Tier 1 ranking in this year's report. Belize, Haiti, Suriname, and Venezuela are the only Latin American countries ranked in Tier 3, as Cuba remained in the Tier 2 Watch List. Other countries in the region—Antigua and Barbuda, Bolivia, Costa Rica, St. Vincent and the Grenadines, and Trinidad and Tobago—are on the Tier 2 Watch List. Since enactment of the Victims of Trafficking and Violence Protection Act of 2000 (TVPA; P.L. 106-386), Congress has taken steps to address human trafficking through legislation (including reauthorizations of the TVPA in 2005, 2008, and 2013), appropriations, and oversight. In February 2016, Congress enacted the International Megan's Law (P.L. 114-119) requiring U.S. agencies to notify foreign governments when registered sex offenders are visiting their countries. Congress also enacted the Trade Facilitation and Trade Enforcement Act of 2015 (P.L. 114-125) eliminating an exception that had allowed goods produced by forced labor to be imported if demand for those items could not be met by U.S. producers. Congress provided funding for anti-TIP programs in the FY2016 Consolidated Appropriations Act (P.L. 114-113), including $5 million for programs in Guatemala and $4 million for forensics to solve TIP cases in Central America. P.L. 114-113 withheld some aid to the governments of El Salvador, Guatemala, and Honduras until they demonstrated anti-TIP efforts. Congress is monitoring human trafficking trends in the region and overseeing U.S.-funded anti-TIP programs, including U.S.-Mexican law enforcement efforts to disrupt cross-border TIP networks. For more information, see CRS Report R44581, Trafficking in Persons and U.S. Foreign Policy Responses in the 114th Congress, by [author name scrubbed], and CRS Report R42497, Trafficking in Persons: International Dimensions and Foreign Policy Issues for Congress, by [author name scrubbed].

Constitutional and Legal Basis for Executive Authority Constitutional Text Article II of the Constitution establishes the office of President of the United States, creates an executive branch of government, and forms the textual basis for much of the President's authority and power. Of specific importance to separation of powers and presidential authority scholars are several clauses in Article II. The first two are found in Article II, § 1, clause 1. The first, commonly referred to as the "Vesting Clause," states that "The executive Power shall be vested in a President of the United States of America." The second establishes the executive departments, stating that "[the President] may require the Opinion, in writing, of the principal Officer in each of the executive Departments, upon any Subject relating to the Duties of their respective Offices." Additionally, there is the language of the Appointments Clause, under which the President may "nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law." Finally, there is the "Take Care Clause" at Article II, § 3, which states that the President "shall take Care that the Laws be faithfully executed." Decisions of the United States Supreme Court In addition to the Constitution's text, there have been several influential decisions by the Supreme Court that expound upon the notion of separation of powers and presidential authority. The first is Youngstown Sheet & Tube v. Sawyer , which addresses the scope and nature of the President's implied constitutional authority. Also central to discussions of Presidential authority are three cases dealing with the President's power of appointment and removal of "Officers of the United States," Myers v. United States , Humphrey' s Executor v. United States , and Morrison v. Olson . Youngstown Sheet & Tube v. Sawyer While there is little doubt that the Constitution vests significant legal authority in the President, a central tenet of its structure is the notion that each branch of government is confined to its own sphere of influence. Thus, although the President has plentiful authority with respect to the execution of the laws, he may not exercise his powers in a manner that encroaches upon the powers and duties of the other branches. Similarly, Congress and the Judiciary arguably cannot encroach upon powers that are committed to the President and the executive branch. This bedrock principle was addressed by the Supreme Court in the seminal case Youngstown Sheet & Tube Co. v. Sawyer , in which the Court was faced with an attempt by the executive branch to usurp the legislative power of Congress. In Youngstown , the Court dealt with President Truman's executive order directing the seizure of steel mills, in an effort to avert the effects of a workers' strike during the Korean War. Invalidating the President's order, Justice Black writing for the majority held that under the Constitution, "the President's power to see that laws are faithfully executed refutes the idea that he is to be a lawmaker." Specifically, Justice Black maintained that presidential authority to issue such an order "must stem either from an act of Congress or from the Constitution itself." Applying this reasoning, Justice Black's majority opinion determined that because no statute or constitutional provision authorized such presidential action, the seizure order was in essence a legislative act. The Court further noted that Congress had rejected seizure as a means to settle labor disputes during consideration of the Taft-Hartley Act. Given this characterization, the Court deemed the executive order to be an unconstitutional violation of the separation of powers doctrine, explaining "the founders of this Nation entrusted the lawmaking power to the Congress alone in both good and bad times." While Justice Black's majority opinion in Youngstown arguably refutes the notion that the President possesses implied constitutional powers, it is perhaps Justice Jackson's concurrence that has proven to be the most influential opinion from Youngstown . In his concurring opinion, Justice Jackson articulates a three-part analytical framework for assessing the validity of presidential actions in relation to constitutional and congressional authority. Justice Jackson's first category focuses on whether the President has acted according to an express or implied grant of congressional authority. If so, according to Justice Jackson, presidential "authority is at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate," and such action is "supported by the strongest of presumptions and the widest latitude of judicial interpretation." With respect to the second category, Justice Jackson maintained that, in situations where Congress has neither granted nor denied authority to the President, the President acts in reliance only "upon his own independent powers, but there is a zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain." In the third and final category, Justice Jackson stated that in instances where presidential action is "incompatible with the express or implied will of Congress," the power of the President is at its minimum, and any such action may be supported pursuant to only the President's "own constitutional powers minus any constitutional powers of Congress over the matter." In such a circumstance, presidential action must rest upon an exclusive power, and the Courts can uphold the measure "only by disabling the Congress from acting upon the subject." Applying this framework to President Truman's seizure order, Justice Jackson determined that analysis under the first category was inappropriate, due to the fact that President Truman's seizure of the steel mills had not been authorized by Congress, either implicitly or explicitly. Justice Jackson also concluded that the second category was "clearly eliminated," in that Congress had addressed the issue of seizure, through statutory policies conflicting with the President's actions. Employing the third category, Justice Jackson noted that President Truman's actions could only be sustained by determining that the seizure was "within his domain and beyond control by Congress." Justice Jackson established that such matters were not outside the scope of congressional power, reinforcing his declaration that permitting the President to exercise such "conclusive and preclusive" power would endanger "the equilibrium established by our constitutional system." Appointment and Removal Cases Equally critical to discussions of presidential authority and the separation of powers is the concept of appointment and removal of executive branch officials. As previously noted, the Constitution specifically provides for the presidential appointment of executive branch officials, but is silent with respect to their removal from office. The Constitution's silence regarding removal authority has been the subject of intense debate and disagreement since the creation of the Department of Foreign Affairs (now known as the Department of State) by the first Congress. During debate on the bill to create the department, the House of Representatives, relying principally on arguments from James Madison, overcame considerable objection and remained silent with respect to the President's power to remove appointees, thereby implying that removal authority was reserved to the President by the Constitution. The Senate, however, much less sanguine about abdicating such power, split evenly on the question. Vice President John Adams cast the tie-breaking vote in favor of allowing the President unfettered removal powers. Notwithstanding this history, until its 1926 decision in Myers v. United States , the Supreme Court had yet to render a decisive pronouncement regarding the removal power, its extent, and location. The question presented by Myers was the constitutionality of a Postmaster's General order, acting by direction of the President, to remove from office a first-class postmaster. The removal order was issued despite the fact that in 1876 Congress enacted the following restriction on the terms of a postmaster's office: "Postmasters of the first, second, and third classes shall be appointed and may be removed by the President by and with the advice and consent of the Senate, and shall hold their offices for four years unless sooner removed or suspended according to law." Chief Justice William H. Taft, formerly the President of the United States, issued the opinion for a divided Court. The opinion upheld the order of removal and declared the statutory provision adopted by Congress unconstitutional. According to the Chief Justice, Article II grants to the President the executive power of the Government, i.e. , the general administrative control of those executing the laws, including the power of appointment and removal of executive officers—a conclusion confirmed by his obligation to take care that the laws be faithfully executed; that Article II excludes the exercise of legislative power by Congress to provide for appointments and removals, except only as granted therein to Congress in the matter of inferior offices; that Congress is only given power to provide for appointments and removals of inferior officers after it has vested, and on condition that it does vest, their appointment in other authority than the President with the Senate's consent; that the provisions of the second section of Article II, which blend action by the legislative branch, or by part of it, in the work of the executive, are limitations to be strictly construed and not to be extended by implication; that the President's power of removal is further established as an incident to his specifically enumerated function of appointment by and with the advice of the Senate, but that such incident does not by implication extend to removals the Senate's power of checking appointments; and finally that to hold otherwise would make it impossible for the President, in case of political or other differences with the Senate or Congress, to take care that the laws be faithfully executed. Thus, Myers stands for the proposition that the Constitution endows the President with an un-constrainable power to remove all officers in whose appointment he has participated, the only exception being federal judges, whose tenure is constitutionally prescribed. As a result of this broad holding, the constitutional validity of several "independent agencies" that existed at the time—such as the Interstate Commerce Commission, and the Federal Trade Commission—whose appointees enjoyed statutory protection from at-will removal by the President, was called into question. A mere seven years after Myers , the Court was again faced with a controversy involving the scope of the President's removal authority. Humphrey's Executor v. United States involved the decision of President Franklin D. Roosevelt to remove from office Humphrey, a member of the Federal Trade Commission (FTC), based solely on their differing policy opinions. Humphrey, who enjoyed statutory "for cause" removal protection, sued for salary. The Court, in an opinion by Justice Sutherland, limited the holding of Myers to only units of the executive department. The Court distinguished, but did not overrule, Myers , concluding that the President could not remove Humphrey because the FTC performs both quasi-legislative and quasi-judicial functions. According to the Court, there is a legal difference between executive departments and independent agencies which, by congressional design, are intended to exercise functions that are to be free from executive control. Thus, the Court held that the Congress possesses the necessary authority when creating such entities to fix the period during which they shall continue in office, and to forbid their removal except for cause in the meantime. For it is quite evident that one who holds his office only during the pleasure of another, cannot be depended upon to maintain an attitude of independence against the latter's will …. The tension between the scope of the President's removal power with respect to executive departments as opposed to independent agencies, as well as between the holdings in Myers and Humphrey's Executor , would eventually come to a head in the 1988 case, Morrison v. Olson . In Morrison , the Court was faced with questions regarding the constitutionality of the Independent Counsel Act. In adopting the statute, Congress had declared that an independent counsel, who was appointed by a special court upon application by the Attorney General, may be removed by the Attorney General "only for good cause, physical disability, mental incapacity, or any other condition that substantially impairs the performance of such independent counsel's duties." Given the nature of the duties of the independent counsel, the Court was confronted directly with the tension created by its holdings in Myers and Humphrey's Executor . On one hand, insofar as independent counsels exercised "purely" executive functions, it was argued that the holding in Myers governed and, thus, required the invalidation of the statute. Conversely, it remained far from clear that the broad dicta from Myers , stating that the President must be able to remove at will officers performing "purely" executive functions, had survived Humphrey's Executor . Rather than rely solely on bright-line distinctions between the functions of the officials at issue (i.e., executive versus quasi-legislative or quasi-judicial), the Court shifted the analytical focus to the question of whether "the removal restrictions are of such a nature that they impede the President's ability to perform his constitutional duty …." Analyzing the question this way, the Court could discern no compelling reason to find that the Independent Counsel Act's good cause limitation interfered with the President's performance of his constitutional duties. Although the independent counsel did exercise executive-type, law-enforcement functions, the jurisdiction and tenure of each counsel was either limited with respect to policymaking authority, or significant administrative power was lacking. Regardless, according to the Court, the removal authority did afford the President, acting through his Attorney General, with adequate power to ensure the "faithful execution" of the laws, and that the independent counsel is competently performing the statutory duties of the office. After Morrison , it is now affirmed that Congress may not involve itself in the removal of officials performing purely executive functions. It is also established that, in creating offices both in the executive branch and in creating independent agencies, Congress has considerable discretion in statutorily limiting the President's or another appointing authority's power to remove. Furthermore, it is evident from the opinion that Congress's discretion is not unbounded, as there remain offices which may be essential to the President's performance of his constitutionally assigned powers and duties such that limits on removal would be constitutionally impermissible. While after Morrison there are no longer bright lines demarking one type of office from another, the decision requires close case-by-case analysis. Theories of Executive Power Prior to Professor Kagan's 2001 article, separation of powers and presidential authority analysis was largely divided into two camps, the "traditional view," and the "unitary theory of the executive." Both of these camps rely, in various ways, on the constitutional text and Supreme Court opinions discussed above, but reach very different conclusions about the scope of presidential power and Congress's control with respect to the powers and duties of executive departments and agencies. The "Traditional" View Adherents to the "traditional" view of separation of powers and presidential authority generally assert that Congress possesses the constitutional authority to vest discretionary decision-making authority directly in the heads of the departments and agencies that it creates. Thus, while traditionalists accept that the President can supervise and guide agency policymaking, they argue that where Congress has, by statute, specifically vested the decision-making authority in the agency head, the President cannot "go so far as to displace the agency head's discretion to make decisions vested in that officer by law." The legal basis most often offered for the "traditional" view is based on both the text of the Constitution and in the principles of statutory construction as applied to Congress's delegation of authority to the agency head. Traditionalists will often cite two provisions of the Constitution that directly refer to duties and powers being assigned to officers who are not the President. Initially, there is the "Necessary and Proper Clause," which confers on Congress the authority to "make all Laws which shall be necessary and proper for carrying into Execution … all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof ." In addition, as mentioned above, Article II, § 1, cl. 1 states that "[the President] may require the Opinion, in writing, of the principal Officer in each of the executive Departments, upon any Subject relating to the Duties of their respective Offices. " With respect to statutory construction, traditionalists will often point to the plain language of statutory delegations employed by Congress. When Congress delegates decision-making authority to the heads of agencies, it typically does so directly and unequivocally. For example, with respect to the regulation of air pollution, Congress has specifically stated that "[t]he Administrator [of the Environmental Protection Agency] is authorized to prescribe such regulations as are necessary to carry out his functions under this chapter." Thus, by focusing on what Congress actually does—namely, vesting decision-making authority directly with the agency head—it has been argued by traditionalists that had Congress wanted the President to have final authority it would have expressly so provided. This construction derives further support from examples where Congress has specifically provided the President with the statutory authority to suspend or overturn the agency head's discretionary decision under certain circumstances, usually ones involving national security or other emergency situations. For instance, a provision in the Clean Air Act allows for the President, and only the President, to determine that a national or regional emergency of such severity exists that portions of the applicable air quality control standards can be suspended. As a result, according to one commentator, "[i]f the [P]resident has express authority to overturn the legal consequences of agency decisions in some circumstances, but not others, the argument for inferring congressional intent to permit the [P]resident generally to displace agency decisions is somewhat weaker." The "Unitary Theory of the Executive" In contrast to traditionalists, advocates of the "unitary theory of the executive" or "unitarians" generally ascribe to a view of presidential authority that has three prongs: First, unitarians often argue that the President has a constitutionally based duty to provide policy direction to officers of the United States; second, unitarians claim that the President possesses the unfettered power to remove from office any officer who does not comply with the President's policy directives; and finally, unitarians generally assert that Congress cannot constitutionally assign executive powers to agencies or other entities that are independent or outside the scope of the President's control. As a matter of law, unitary theory supporters look to the plain text of several constitutional provisions, which were discussed above. Supporters of the "unitary theory of the executive" have argued that the "Vesting Clause" of Article II, is best read and most properly understood to be a general grant of power to the President. Focusing on the language "shall be vested," unitarians believe that this construction, identical to the construction used to grant judicial power to Article III courts, creates a single and exclusive executive actor, namely, the President. Further bolstering this argument, unitarians argue, is the language of the "Take Care Clause." According to two prominent unitary executive scholars, the President's constitutional obligation to "take care that the Laws be faithfully executed" cannot be "fulfilled unless the Article II Vesting Clause was, in fact, already a substantive grant of executive power to the President. Accordingly, the use of the verb 'take care' in the Take Care Clause bolsters the power-grant reading of the Vesting Clause of Article II." In other words, according to unitarians, the only way that the "Take Care Clause" makes sense is if the "Vesting Clause" is read to grant all executive powers to the President. The remaining two prongs of the "unitary theory of the executive" are premised on the President's power to appoint and remove "officers of the United States." Relying on both the historical actions of the First Congress in creating the Department of Foreign Affairs, President Andrew Jackson's removal of Treasury Secretary William Duane for his failure to withdraw funds from the Second Bank of the United States, as well as Chief Justice Taft's opinion in Myers v. United States , supporters of the unitary theory of the executive assert that Presidents should have the power to remove at will all persons exercising executive authority on their behalf. Customary arguments advanced to support this theory include an increase in political accountability, as the President is the sole person responsible for the performance of the executive. In addition, it has been argued that dividing executive authority among multiple governmental entities decreases the general public's ability to hold executive officials accountable, can increase administrative bargaining costs, and may lead to debilitating collective action problems. Presidential Administration According to Professor Kagan, neither the traditional model nor the "unitary theory of the executive" adequately describes the reasons that she believes President Clinton enjoyed success in controlling the vast bureaucracy of the executive branch. By adopting and building on the directives and policies of the Reagan Administration and its regulatory review process, President Clinton was able to dramatically increase the President's level of participation in the administrative decision-making process. Professor Kagan's article posits that it was President Clinton's "articulation and use of directive authority over regulatory agencies, as well as his assertion of personal ownership over regulatory product" that led to the development of a new and distinctive form of administrative control. This new form of administrative control includes two parts. First, the use of "directive authority," which Kagan defines as "commands to executive branch officials to take specified actions within their statutorily delegated discretion." The second component is what Professor Kagan termed "Presidential ownership," and includes, for example, the public announcement of many regulatory decisions and accomplishments directly by the White House rather than by the responsible agency officials. The combination of these two concepts as well as the changed relationship between the President and the administrative agencies under Professor Kagan's theory of "presidential administration," raise significant legal questions, as conceptually these notions do not fit into either of the existing models of separation of powers and presidential authority analysis. Professor Kagan addresses these legal issues by employing the very same analytical framework as both the traditionalists and unitarians. According to Professor Kagan, at the core of the legal framework for "presidential administration" is a re-conceptualization of how congressional delegations are to be interpreted. Specifically, under her theory of "presidential administration," delegations by Congress granting discretion to executive branch officials should be read and interpreted as leaving ultimate decision-making authority with the President. Similar delegations to independent agencies, however, are not to be interpreted in the same manner, and, thus, Congress can retain oversight and control over the decisions of those entities. The first legal hurdle that such a theory must overcome is that it seems to run directly contrary to Justice Black's majority opinion in Youngstown Sheet & Tube , as it would appear that the President, by asserting decision-making authority where Congress has expressly delegated it elsewhere, is acting as a "lawmaker." Professor Kagan, however, distinguishes her concept of presidential administration from President Truman's steel seizure order by noting that in Youngstown , Congress had specifically reserved the decision regarding seizures to itself. Conversely, according to Professor Kagan, President Clinton's directives were always issued in situations where Congress had expressly delegated authority to an entity other than itself. Thus, the Court in Youngstown never reached the question of the President's authority in these types of contexts, much less rendered a decision. Thus, while Youngstown establishes that the President cannot encroach into decisions that Congress has reserved for itself, it says nothing about the President's ability to assume the decision-making function from a subordinate agency official that Congress has specifically authorized to act. Next, Professor Kagan addresses her theory in correlation with the removal line of cases previously discussed. Accepting the removal cases as "certain to remain the law," Kagan turns to a statutory construction argument to support her claim of broad presidential authority over agency decision making. According to Professor Kagan, delegation statutes can, and should, be read to "assume that the delegation runs to the agency official specified, rather than to any other agency official, but still subject to the ultimate control of the President." For example, when Congress delegates decisions related to implementation of the Medicare statute to the Secretary of Health and Human Services (HHS), Professor Kagan not only accepts the proposition that the statute should be read to mean that the Secretary of HHS and not the Secretary of Treasury is legally empowered to make the decision, but also adds the presumption that, unless specifically excluded by Congress, the President is legally entitled to participate in the process by issuing directives to the Secretary of HHS. For Professor Kagan, this additional presumption is expressly based on the reasoning of the removal cases. Relying on the distinction between delegations to independent agencies and delegations to executive branch agencies, she notes that, in the former, Congress has already acted by limiting the President's appointment and removal authority to insulate the agency's decision making from presidential control. Thus, according to Professor Kagan, "the agency's heads are not subordinate to the President in other respects; making the heads subordinate in this single way would subvert the very structure and premises of the agency." In the latter, the presumption works the other way. Congress, when delegating to an executive branch agency head, already knows that the official is subordinate to the President, can be terminated at will, and is subject to procedural oversight. Therefore, according to Professor Kagan, "these powers establish a general norm of deference among executive officials to presidential options, such that when Congress delegates to an executive official, it in some necessary and obvious sense also delegates to the President." Responses to Traditionalist Arguments In articulating her theory of "presidential administration," Professor Kagan directly addresses several of the arguments and concepts put forward by the two existing separation of power camps. Principally, Professor Kagan's concept and interpretation of congressional delegations run directly contrary to both the views of the traditionalists as well as the unitarians. Professor Kagan responds to three arguments that may be advanced by those supportive of the "traditional" perspective. First, she suggests that the traditionalists may attack her concept of congressional delegation on pure statutory interpretation grounds, arguing that Congress's silence with respect to the President's role in the process is a denial of any such authority. To make this argument, the traditionalists may rely on the canon of construction "expressio unius est exclusio alterius," arguing that by specifically delegating to the agency head, Congress has expressly excluded the President from having any role in the process. Professor Kagan responds by first noting that the canon is unreliable and, second, that it fails to account for the superior-subordinate relationship between the President and his cabinet officials. Interpreters of statutes, according to Kagan, should read delegation statutes in light of this long-standing relationship that has been left in place by Congress. With that background understanding, delegation statutes that are silent as to the President's role should be read as permitting the use of the President's directive powers. A second argument that may be advanced by holders of the traditional point of view is that Congress knows how to, and has, delegated decision-making authority directly to the President. Thus, when Congress delegates authority to an administrative official other than the President, it is to be interpreted as meaning that Congress wishes to insulate the official from Presidential control. In response, Professor Kagan argues that delegations to the President are fundamentally different in nature from delegations to other administrative officials; therefore, the conclusion that Congress intends no presidential involvement when delegating to other officials does not follow. Professor Kagan asserts three arguments to support her contention: First, delegations to the President are, by statute, subject to further delegation by the President, whereas delegations to other officials deprive the President of that authority; second, delegations to the President express a preference by Congress that the President participate in the process; and third, that delegation to the President gives notice that Congress intends to hold him responsible and accountable for any and all decisions made. For these reasons, Professor Kagan contends that congressional delegations "logically coexist with a presumption that the President has ultimate control over all agency decisions." Finally, traditionalists argue that Professor Kagan's theory conflicts with congressional intent because permitting such overarching involvement by the President runs contrary to Congress's institutional interests. Congress, as this argument would contend, generally prefers that decision making be done by administrative agencies which are dependant on and responsible to it as opposed to the President. However, as Professor Kagan points out, if this were actually the case then the independent agencies would greatly outnumber, both in terms of size and authority, their executive branch counterparts. Rather, and seemingly contrary to its interests, Congress has increasingly delegated authority directly to officials within the executive branch. Thus, "[t]here seems little reason to presume that as to the single matter of directive authority, Congress self-consciously has adopted such an uncommonly self-protective posture." Response to the "Unitary Theory of the Executive" At first glance, it would appear that Professor Kagan's theory of "presidential administration" has much in common with the "unitary theory of the executive"; however, Professor Kagan's article specifically declines to adopt the "unitary theory of the executive" for two reasons: First, although I am highly sympathetic to the view that the President should have broad control over administrative activity, I believe, for reasons I can only sketch here, that the unitarians have failed to establish their claim for plenary control as a matter of constitutional mandate. The original meaning of Article II is insufficiently precise and, in this area of staggering change, also insufficiently relevant to support the unitarian position. And the constitutional values sometimes offered in defense of this claim are too diffuse, too diverse, and for these reasons, too easily manipulable to justify removing from the democratic process all decisions about the relationship between the President and administration especially given that this result would reverse decades' worth of established law and invalidate the defining features of numerous and entrenched institutions of government. Second and equally important, the cases sustaining restrictions on the President's removal authority, whether or not justified, are almost certain to remain the law (at least in broad terms, if not in specifics); as a result, any serious attempt to engage the actual practice of presidential-agency relations must incorporate these holdings and their broader implications as part of its framework. Professor Kagan's rejection of the "unitary theory of the executive" is perhaps best articulated by her consistent differentiation between delegations by Congress to executive branch agencies (that provide the President with broad "directive authority") and delegations to independent agencies (that provide the President with no "directive authority"). Supporters of the "unitary theory of the executive" often insist that "the Constitution provides the President with plenary authority over administration, so that Congress can no more interfere with the President's directive authority than with his removal power." Professor Kagan's express acceptance of Congress's power to create agencies that are insulated and separate from Presidential control arguably represents a significant distinction between her concept of "presidential administration" and the "unitary theory of the executive." To place Professor Kagan's views in context, if a horizontal line were to be drawn with the traditional view on the far left end and the "unitary theory of the executive" at the far right end, it would seem reasonable to assert that the concept of "presidential administration" articulated falls somewhere in the center, albeit closer to the right end of the line. Exactly where on the right of center Professor Kagan's article falls has been a matter of academic debate since the publication of the article. Although the paper has generated a significant amount of academic scholarship, and has been cited over 300 times, its views on the nature of congressional delegation and executive control of the administrative process are not likely to generate cases and controversies that will require adjudication by the courts, rather they are most often resolved by negotiations between the political branches of government. As such, it is very difficult to extrapolate a judicial philosophy from the text of Presidential Administration . The limited instances of judicial review indicate that, at least thus far, courts have been reluctant to address the constitutionality of presidential involvement in the rulemaking process. For example, in Public Citizen Health Research Group v. Tyson , the court addressed the validity of a rule promulgated by the Occupational Safety and Health Agency governing ethylene oxide, including a challenge based on the argument that a critical portion of the proposed rule had been deleted based on a command from the Office of Management and Budget (OMB). While stating that "OMB's participation in the rulemaking presents difficult constitutional questions concerning the executive's proper rule in administrative proceedings and the appropriate scope of delegated power from Congress to certain executive agencies," the court nonetheless found that it had "no occasion to reach the difficult constitutional questions presented by OMB's participation" given its finding that the agency's decision to delete the material in question was not supported by the rulemaking record. The absence of judicial involvement in these types of constitutional issues indicates that they are often settled during the lawmaking process as the President, through his administration, and Congress work to draft delegations in a manner consistent with traditional practice and existing understandings of the Constitution. Thus, it appears unlikely that a case involving the type of administrative structures and presidential activities discussed in Presidential Administration will arise and require adjudication by the Supreme Court. Presidential Administration and Administrative Law Having laid out her theory of "presidential administration," Professor Kagan turns to the field of administrative law as fertile ground for developing judicial doctrines that should embrace and support her concept. Professor Kagan specifically focuses her analysis on two doctrines of administrative law for which the application of "presidential administration" could be judicially recognized; namely, the non-delegation doctrine and judicial review of agency action. The Non-Delegation Doctrine The non-delegation doctrine is a separation of powers principle that serves to preserve the "integrity and maintenance of the system of government ordained by the Constitution." Pursuant to the concept of non-delegation, Congress cannot delegate general legislative authority to another coordinate branch of government. The Supreme Court, however, has invalidated congressionally delegated grants of authority only twice. In both instances it was determined that Congress had improperly delegated its Article I legislative power to the executive branch by imbuing it with the ability to make unfettered law and policy decisions. Since 1935 and despite the concept of non-delegation, the Court has—largely because of the practical requirements of modern government—granted broad power to Congress to delegate legislative authority to the coordinate branches where Congress establishes "by legislative act an intelligible principle to which the person or body authorized to [exercise delegated authority] is directed to conform ...." Because of Congress's ability to delegate power under broad standards, legal concern over legislative grants of authority does not focus simply on the act of delegation, but rather hinges on congressional abdication of core legislative functions. Thus, the practical effect of the intelligible principle maxim is to require that Congress, not the delegee, render the underlying policy decision and delineate reasonable legal standards for its enforcement, thereby avoiding separation of powers conflicts. Professor Kagan's analysis and application of the non-delegation doctrine starts with an observation that the doctrine has been applied only when Congress has delegated power directly to the President. In other words, the only decisions by the Court which have struck down a federal statute for violation of the non-delegation doctrine have occurred when Congress delegated lawmaking authority directly to the President of the United States. Properly understood, Professor Kagan asserts that the non-delegation doctrine is a government accountability principle and, as such, "should welcome active and open presidential involvement in administration, whether pursuant to a direct delegation or superimposed on a delegation to an agency official." Phrased another way, Professor Kagan posits that courts, when reviewing congressional delegations, should grant maximum protection from non-delegation challenges when the agency action is taken with the full imprimatur and authority of the President. Rather than presuming, as the Supreme Court appears to have done to date, that delegations of congressional authority to the President are violations of the non-delegation doctrine, Professor Kagan asserts the opposite. She argues that her version of "presidential administration" provides for greater accountability, increased transparency, and is more consistent with democratic values than traditional bureaucratic decision-making mechanisms; therefore, the concerns of the non-delegation principle should not apply to delegations to the President, or where the President is actively involved in the decision-making process. Judicial Review of Agency Action Recognizing that non-delegation cases before the courts are rare, Professor Kagan turns her attention to applying her theory of "presidential administration" to an area where the judiciary has been quite active, namely, the judicial review of agency action. Noting that there are two types of judicial review—review of agency legal conclusions under Chevron U.S.A., Inc. v. Natural Resources Defense Council (Chevron) and review of agency decision-making processes under the "hard look" doctrine as espoused by Motor Vehicle Manufacturers Ass'n of the United States v. State Farm Mutual Automobile Insurance Co. (State Farm) —Professor Kagan proposes that a "sounder version of both these doctrines … would take unapologetic account of the extent of presidential involvement in administrative decisions in determining the level of deference to which they are entitled." In Chevron , the Supreme Court established a two-part test for judicial review of agency statutory interpretations. First, a reviewing court must first determine "whether Congress has directly spoken to the precise question at issue." If a court finds that there has been an express congressional statement, the inquiry is concluded, as the court "must give effect to the unambiguously expressed intent of Congress." In the event that Congress has not unequivocally addressed the issue, a reviewing court must respect an agency's interpretation, so long as it is permissible. The Court further stated that If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to that agency to elucidate a specific provision of the statute by regulation ... Sometimes the legislative delegation to an agency on a particular question is implicit rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency. The Court went on to note that "[j]udges are not experts in the [technical] field, and are not part of either political branch of the Government," while agencies, as part of the executive branch, appropriately make "policy choices–resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities." Thus, the rationale for this deference is predicated upon the notion that it is not the role of the judiciary to "assess the wisdom" of policy choices and resolve the "struggle between competing views of the public interest," as well as an agency's greater expertise regarding the subject matter of the regulations. Professor Kagan notes that courts in applying Chevron have completely ignored the role of the President in the administrative process, granting deference to agency regulations "irrespective of whether the President potentially could, or actually did, direct or otherwise participate in their promulgation." In her view, this oversight by the judiciary is inconsistent with Chevron 's primary rationale. According to Professor Kagan, Chevron deference flows from political accountability, which is greatest when the President is exercising control over the various appendages of the executive branch. Thus, Kagan concludes that a proper application of Chevron would be one that promotes "actual[,] rather than assumed[,] presidential control over administrative action." As Professor Kagan notes, one potential consequence of such an application of Chevron , would be a weakening of deference afforded to the independent agencies. This conclusion logically follows because, by their very design, independent agencies are insulated from presidential control and, thus, the President cannot and does not participate in their decision making to the level necessary under Professor Kagan's theory to justify application of Chevron deference. In other words, under Professor Kagan's formulation "courts could apply Chevron when, but only when, presidential involvement rises to a certain level of substantiality, as manifested in executive orders and directives, rulemaking records, and other objective indicia of decisionmaking processes." Review of an agency's decision-making processes is performed not under Chevron , but rather pursuant to the "hard look doctrine." The doctrine was adopted by the Court in State Farm , which reviewed a decision by the Secretary of Transportation to rescind a rule issued by a prior administration requiring new cars to be equipped with automatic seatbelts or airbags. This decision was based on the agency's determination that the rule would be ineffective due to the ability of customers to simply detach the automatic seatbelts. The Court began its analysis of the agency's decision by determining that arbitrary and capricious review was appropriate, and that such review is "narrow and a court is not to substitute its judgment for that of the agency." The Court then went on to state, Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Applying this standard, the Court rejected the agency's action for two reasons. First, the Court found that the agency had failed to consider the possibility that inertia would have caused a substantial number of people to leave the seatbelts attached. Additionally, the Court found it significant that the Department of Transportation had failed to explain why it did not consider implementing a mandatory airbag or non-detachable restraint option. Given these omissions, the Court held that the agency had "failed to offer the rational connection between facts and judgment required to pass muster under the arbitrary and capricious standard." Finally, while noting that an "agency's view of what is in the public interest may change, either with or without a change in circumstances," the Court stressed that "an agency changing its course must supply a reasoned analysis" for such a change. Holding that "the agency has failed to supply the requisite 'reasoned analysis' in this case," the Court remanded the matter to the agency for further consideration. Like Chevron , the "hard look doctrine" developed in State Farm arguably ignores presidential involvement in the agency's process. Professor Kagan's proposed revision to the doctrine would "promote an alternative vision centered on the political leadership and accountability provided by the President." This change would be implemented by reducing the rigors of the "hard look" analysis when evidence is presented to the reviewing court that the President has taken an active role and assumed responsibility for the administrative decision in question. Professor Kagan does not merely suggest that any evidence will require such a reduction in the level of scrutiny, rather, she posits a standard for evidence of presidential involvement and responsibility. Specifically, if presidential policy is to be sufficient to sustain administrative action, "the relevant actors should have to disclose publicly and in advance the contribution of this policy to the action—in the same way and for the same reasons that they must disclose the other bases for an administrative decision to receive judicial credit." Unlike the issues raised by executive-legislative disputes, which are rarely the subject of judicial review, the changes to administrative law doctrines proposed by Professor Kagan potentially provide some insight as to how a prospective Justice Kagan would approach issues that are likely to come before the Supreme Court. Arguably, should the application of Chevron proposed by Professor Kagan be adopted, it may result in fewer administrative actions being entitled to deference from the courts. In addition, such an application could potentially mean that a greater number of regulatory agencies will look to the President for not only directives and guidance, but also to ensure that their decisions receive deferential treatment from the judiciary when challenged. Similarly, it might be argued that should a future Justice Kagan convince a majority of the Court to adopt her version of the "hard look doctrine," the result could potentially be a substantial reduction in the number of administrative decisions rejected and remanded by the judiciary. This combination of reduced judicial review and increased presidential involvement in administrative decision making may be of concern to those who believe that independent, expert-based decision making subject to strong judicial review is what Congress intends when delegating authority to administrative agencies. Conversely, it appears possible to argue that the combination of increased executive influence and reduced scrutiny by the judiciary will greatly reduce administrative ossification, thereby freeing the administrative agencies to act more quickly and more decisively to address pressing regulatory needs. Presidential Administration, Foreign Affairs, and National Security Despite its length, Professor Kagan's Presidential Administration is silent with respect to the authority of the President regarding the conduct of foreign affairs and national security. Written prior to September 11, 2001, and focusing largely on the success of the Clinton Administration with regards to domestic policy initiatives, it is difficult to ascertain from the text of the article itself what, if any, views Kagan holds on national security and foreign affairs related issues such as detention, surveillance, interrogation, and rendition. Although there is arguably some overlap between her theory of presidential power and arguments that have been advanced in the areas of foreign affairs and national security, the legal questions involve and implicate clauses in the Constitution and lines of Supreme Court cases that are not addressed or discussed by Professor Kagan in Presidential Administration . That said, Kagan's views of executive power generally have led some scholars and commentators to speculate on what those views might be. Criticism of Kagan's views of executive power have come from both the progressive and conservative ends of the political spectrum, and are not always limited to the views and analysis expressed in Presidential Administration. From the progressive point of view, it has been suggested that Professor Kagan's embrace of certain parts of the "unitary theory of the executive," necessarily leads to a strong view of presidential power and, therefore, could be used to justify positions similar to those taken by the administration of George W. Bush. Conversely, some conservative writers have criticized Kagan's article for not accepting in its entirety the precepts of the "unitary theory of the executive." Specifically, commentators have noted Kagan's express rejection of the theory that the Constitution mandates a unitary executive by permitting the unfettered removal of officers and officials. For strong unitarian supporters, Professor Kagan's failure to fully accept these unitarian principles calls into question her acceptance of all the President's powers. Conclusion In sum, Presidential Administration presents a complex and multifaceted view of executive-congressional relations focused exclusively on domestic policy. Using the case law, arguments, and structures of both the traditional and "unitary theory of the executive" views, Professor Kagan articulates a view of executive power that envisions strong personal involvement by the President and the White House in the policy decisions and actions of administrative agencies. While arguably, Professor Kagan's theory is favorable to the executive branch, it nevertheless permits Congress to continue to develop and delegate executive functions to independent agencies that remain beyond the scope and control of the President. Furthermore, as recognized by the article, Professor Kagan's theory has some significant real world legal consequences, specifically with respect to administrative law, that may come before the Supreme Court. Whether, and to what extent, the theories and ideas presented in an academic paper like Presidential Administration inform her potential decision making as a Supreme Court Justice on issues related to foreign affairs and national security, however, remains to be seen.

In light of Elena Kagan's nomination to serve as an Associate Justice of the United States Supreme Court, this report analyzes then-Professor Kagan's views of executive power and the doctrine of separation of powers as laid most extensively out in her 2001 Harvard Law Review article Presidential Administration. This report will proceed as follows. First, it will briefly describe the constitutional and legal basis for presidential authority with respect to domestic policy, focusing on the relevant constitutional text as well as the Supreme Court jurisprudence that forms the foundation for almost all discussions of executive authority. Second, the report will provide a discussion of the well-established and competing theories of executive power, the traditional view as well as the "unitary theory of the executive." Third, the report will discuss Professor Kagan's theory of "presidential administration" and her legal responses to both of the aforementioned theories. Fourth, the report will turn to the application of Professor Kagan's theory to the field of administrative law, with an emphasis on the non-delegation doctrine and the level of deference often afforded to executive branch agencies by the judiciary, often referred to as Chevron deference. Finally, the report will provide a discussion of some of the criticism of Professor Kagan's views, especially as they relate to the President's legal authority in the areas of foreign policy and national security, both of which are expected by many to be issues that the Supreme Court will adjudicate in future terms.

Introduction The September 11, 2001 attacks reinforced the importance of efforts to stop the proliferationof weapons of mass destruction. In particular, many analysts agree that some countries need greaterprotection against terrorist access to weapons of mass destruction (WMD) on their territories. Thereport of the 9/11 Commission called for continued support for threat reduction assistance to keepWMD away from terrorist groups. Pakistan, because of its location, the nature of its relationship to the Taliban and Al Qaeda, and its weapons of mass destruction programs, has generated particular concern. Repeated assassinationattempts on President Musharraf, AQ Khan's nuclear sales to North Korea, Iran, and Libya, and acontinuous battle with terrorist elements within the country, have made Pakistan the most crucialnode of the nexus of terrorism and WMD proliferation. Moreover, a combination of doctrinalpreference (for first use of nuclear weapons) and conventional force inferiority has given Pakistanstrong incentives to forward-deploy its nuclear forces, leading many observers to conclude thatassistance to secure Pakistan's nuclear warheads could be critical. Analysts inside and outsidegovernment have raised the possibility of U.S. assistance to help reduce the threat of nuclearweapons losses in India and Pakistan. (1) Suggestedmeasures have ranged from "guards and gates"around nuclear sites to permissive action links (which act as locks) on nuclear weapons to preventunauthorized use. In a speech in December of 2001, Senator Lugar noted that concerns had been raised immediately following September 11, 2001 about the security of Pakistan's nuclear weaponsprogram and that "similar questions will be raised about India's." He then noted uncertainties aboutthe WMD programs of Iraq, Iran, Syria, Libya and North Korea. (2) In contrast to those five countries,four of which are on the State Department's list of state sponsors of terrorism, Senator Lugar notedthat "the closer ties that have developed since September 11th with India and Pakistan offer newopportunities to discuss nuclear security with both countries, including safe storage andaccountability. We must attempt to establish programs that respect their sovereignty and go far tohelp insure their security." Lugar also suggested that cooperative programs with Iran, Syria, or Libyashould not be ruled out. In an article published in July 2002, Senator Lugar explained that The precise replication of the Nunn-Lugar program will not be possible everywhere, but the experience of Nunn-Lugar in Russia has demonstrated that thethreat of weapons of mass destruction can lead to extraordinary outcomes based on mutualinterest...Nations cooperating on securing instruments of mass destruction might also pledge to workcooperatively on measures to retrieve weapons or materials that are in danger of falling into thewrong hands, and to come to the aid of any victim of nuclear, chemical, or biological terrorism (3) In the specific case of India and Pakistan, there may be key differences from the FSU that limit the program's applicability. Many of those differences stem from the fact that India and Pakistanare not "legal" nuclear weapon states under the Nuclear Nonproliferation Treaty (NPT), as Russiawas. The United States is currently prohibited from providing many kinds of assistance to non-nuclear weaponstates, particularly those without full-scope nuclear safeguards. (4) Most types ofassistance the United States can feasibly provide would probably focus on helping secure nuclearmaterials and providing employment for personnel, rather than on security of nuclear weapons. Extreme sensitivity in India and Pakistan about their nuclear weapons and programs will also likelyrestrict access to facilities, which in turn will limit how well assistance can be tailored to potentialproblems. Also, technical measures to make weapons safer from unauthorized use may make thoseweapons more deployable or usable and thus inadvertently undermine the goal of reducing thenuclear threat. Nonetheless, some measures may be useful. This paper takes CTR programs as a starting point and analyzes their potential application to India and Pakistan. In providing context for assessing U.S. policy options, the paper outlines theproliferation threat in South Asia and U.S. nonproliferation policy. The paper distinguishes betweenassistance oriented toward making nuclear weapons more secure, and assistance oriented towardmaking nuclear material more secure. Given the existing framework of nonproliferation-related lawsand policies, measures focused on nuclear material and personnel may be more feasible in the shortterm. Congressional Action Congressional action on expanding the application of CTR began in the 107th Congress, when Senator Lugar introduced a bill ( S. 206 ) to allow DoD to use up to $50M in unspentCTR funds in countries outside the former Soviet Union (FSU). The provision would have allowedDoD to "respond to emergency proliferation risks and less urgent cooperative opportunities to furthernonproliferation goals." The House bill prohibited such uses of CTR funds, and in conference, bothsides agreed to drop the provisions. The 107th Congress also specifically addressed Indian and Pakistani nonproliferation issues in the Foreign Relations Authorization Act Fiscal Year 2003 ( P.L. 107-228 ), which contained aprovision on nuclear and missile proliferation in South Asia . That provision stated that it will bethe policy of the United States to encourage India and Pakistan to "establish a modern, effectivesystem to protect and secure nuclear devices and materiel from unauthorized use, accidentalemployment, or theft." P.L. 107-228 stipulated that any assistance must be consistent with U.S.obligations under the Nuclear Nonproliferation Treaty (NPT). Section 1601 in Title XVI states thatit shall be the policy of the United States, consistent with its obligations under the Treaty on the Non-Proliferationof Nuclear Weapons, to encourage and work with India and Pakistan to achieve thefollowing by September 2003: nuclear test moratorium commitment not to deploy nuclear weapons or ballistic missiles that couldcarry nuclear weapons and to restrain the ranges and types of missiles developed ordeployed agreement by both countries to align their export controls with internationalnonproliferation regimes establishment of export control system for sensitive dual-use items, technology,technical information and material used in the design, development, or production of WMD andballistic missiles bilateral meetings between senior Indian and Pakistani officials to discusssecurity issues and establish confidence-building measures with respect to nuclear policies and programs. A separate subsection stated that it shall be the policy of the United States, consistent with its NPT obligations, to encourage, and where appropriate, work with the governments of India andPakistan to achieve not later than September 30, 2003, the establishment of "modern, effectivesystems to protect and secure nuclear devices and materiel from unauthorized use, accidentalemployment, or theft." The conferees noted that "any such dialogue with India or Pakistan wouldnot be represented or considered, nor would it be intended, as granting any recognition to India orPakistan, as appropriate, as a nuclear weapon state." (5) The section required the President to submita report to Congress no later than March 1, 2003 on U.S. efforts to achieve the objectives andlikelihood of success by September 2003. In the 108th Congress, the FY2004 National Defense Authorization Act ( P.L. 108-16 , Sec. 1308) authorized the Bush Administration to spend $50 million of unobligated funds from theCooperative Threat Reduction Program in states outside the former Soviet Union. As of January2005, the Administration had spent such $20 million only in Albania for the purpose of eliminatingchemical weapons stockpiles. On November 16, 2004, Senator Lugar introduced S. 2980 , which sought to remove some restrictions associated with using CTR funds outside of theFSU. In brief, the bill would remove CTR program-wide restrictions on spending the money(including certifications), remove the $50-million cap, remove restrictions on spending money forchemical weapons destruction, and provide "notwithstanding" authority. Although the legislationremained in the Senate Foreign Relations Committee, it is likely to be introduced again in the 109thCongress. In the 109th Congress, Senator Biden introduced S. 12 , the Targeting Terrorists More Effectively Act of 2005, on January 24, 2005. The bill identifies proliferation of nuclearweapons and promotion of democracy as two of several issues that threaten the United States'relationship with Pakistan and would authorize $10M in the Nonproliferation, Anti-Terrorism,Demining and Related Programs account (State) to be spent in Pakistan. However, the bill wouldbar any military or economic assistance appropriated for the fiscal year unless the President certifiesthat such assistance is not going to individuals that oppose or undermine U.S. nonproliferationefforts. Cooperative Threat Reduction Congress enacted the Nunn-Lugar Cooperative Threat Reduction (CTR) program in 1991,addressing, in Senator Lugar's words, "the dominant international proliferation danger: the massivenuclear, chemical and biological weapons infrastructure of the former Soviet Union." (6) The CTRprogram had four key objectives: Destroy nuclear, chemical, and other weapons of mass destruction; Transport, store, disable, and safeguard these weapons in connection with theirdestruction; Establish verifiable safeguards against the proliferation of these weapons, theircomponents, and weapons-usable materials; and Prevent the diversion of scientific expertise that could contribute to weaponsprograms in other nations. According to Senator Lugar, the CTR program to date has separated 6,564 Russian nuclear warheads from their missiles and stored fissile material from those weapons. Over 30,000 tacticalnuclear weapons have been stored, and non-weapons employment provided for thousands of Russiannuclear scientists. (7) CTR programs have encompassed three areas of effort: destruction and dismantlement; chain of custody; and demilitarization. Destruction and dismantlement activities included removingwarheads, deactivating missiles and eliminating launch facilities for strategic weapons under theSTART I agreement. Efforts to improve the safety, security, and control over nuclear weapons andfissile materials have included providing storage containers, bullet-proof blankets, secure rail cars,and building a plutonium storage facility at Mayak. Demilitarization projects have included defenseconversion projects and International Science and Technology Center projects to help WMDscientists pursue work with peaceful objectives and military-to-military contacts. CTR programs have evolved and expanded over time, adjusting to Russian, NIS, and U.S. priorities, as well as to changing perceptions about which threats posed the greatest risk. Theprograms have also bowed to bureaucratic intransigence and practical considerations upon occasion. In one notable incident, the Department of Energy provided blankets to facility guards, because DoEofficials discovered that they were leaving their posts to collect wood to build fires. As the economyworsened in Russia in the mid-1990s, CTR projects were developed to provide alternativeemployment and sources of income for unpaid or out-of-work WMD scientists. At the same time,more frequent reports of theft of nuclear material highlighted the need to allocate CTR resources tomaterial protection, control and accounting (MPCA) measures for nuclear material, consolidationof nuclear weapons and material; and secure transportation. The United States developed a practicalapproach: "quick-fixes," like bars on windows, blast-proof doors, fences, followed by a second stagethat included more sophisticated security measures like sensors, cameras, and personnel accessmeasures. (8) CTR as Precedent The Cooperative Threat Reduction Program, at its inception, was a novel approach to a novel problem. The idea that two former adversaries could cooperate on such sensitive matters as nuclearweapons and material security was radical, but so too was the prospect of Russia's WMDinfrastructure unraveling. Although some of the kinds of assistance and measures undertaken in theCTR program are clearly applicable to India and Pakistan, the circumstances that have led to thedevelopment of a similar nuclear terrorist threat are quite different. Among the many factors thathave made CTR successful, one of the key factors was a basic level of agreement about the threatand a willingness to cooperate. Russia had already agreed to strategic nuclear reductions underSTART I -- the only question was how to implement those reductions quickly and who would payfor them. The fact that Soviet nuclear weapons had been targeted at the United States for so manyyears presented a compelling reason for the United States to help. Obviously, there is no similar agreement between India and Pakistan or with the United States. Moreover, India has long maintained that it will disarm when the other nuclear weapon states reducetheir stockpiles to a similar level. Thus, destruction and dismantlement activities are not nowapplicable. CTR chain of custody programs applied to the weapons and material that were takenout of service and thus did not raise questions about enhancing safety, security and control overRussia's active nuclear weapons stockpile. Doing similar things for India and Pakistan might bedesirable from a security standpoint, but questionable politically. Establishing verifiable safeguards against the proliferation of existing nuclear weapons,components, and materials is the most applicable of all the CTR objectives for India and Pakistan. However, the situation of Pakistan and India is different from that in Russia and offers one majorcomplication: threat reduction measures aimed at an outside/terrorist threat may conflict with nuclear deterrence. For example, making materials and weapons safe from theft or espionage maylogically lead to consolidating material and weapons at as few sites as possible. However, thatconsolidation could increase one's vulnerability to a preemptive strike by an adversary. In the caseof Russia and the NIS, the risk of a preemptive strike did not weigh into calculations of risk; anyobstacles to consolidation have been primarily those of cost and effort in constructing adequatefacilities (like the Mayak plutonium storage facility). For India and Pakistan, however, the fear ofa preemptive strike is prominent. Rumors of an Indian or even Israeli preemptive attack on Pakistaninuclear weapons capabilities have erupted in Pakistan predictably during crises. (9) The last objective -- that of preventing diversion of scientific expertise -- is also applicable to India and Pakistan. However, the underlying causes for concern are different, and therefore maycall for different solutions. In the Russian case, the lack of financial security has been a documentedincentive for scientists to offer their services abroad; (10) in Pakistan, the incentive is more likely to beassociated with sympathy for terrorist aims. "Brain drain" projects in the NIS have been predicatedon the assumption that there are more scientists than can be paid or are needed, but there are noindications that Pakistani and Indian scientists are superfluous to their nuclear weapons programs. Both India and Pakistan are probably interested in retaining their nuclear experts. Although it hasbeen politically acceptable to fund former WMD scientists in Russia and the NIS to do non-weapons-related work,it might be politically unacceptable to fund current WMD scientists in Indiaand Pakistan at higher levels simply to keep them "in the program." Brain-drain projects in Indiaand Pakistan, if such projects were implemented, would likely focus on personnel reliability testingand psychological profiling. CTR's Critics Some arguments against expanding CTR challenge its effectiveness. Opponents have suggested that assisting Russia has simply created opportunities for the Russians to spend their money in otherdefense-related areas. Some supporters, in contrast, argue that CTR has not done enough quicklyenough. Those that argue that CTR has not done enough have suggested that the programs havefocused misguidedly on nuclear weapons rather than nuclear material security, wherein the greatestthreat lies. (11) Some analysts believe that any assistance at all sends the wrong message to India and Pakistan (e.g., acceptance of their possession of nuclear weapons), that assistance could be misused ormisappropriated and that, in the end, U.S. assistance may wind up improving Indian and Pakistaninuclear capabilities in ways we had not foreseen. Proponents of the CTR program in the NIS haveargued that the program was implemented with a key principle -- that cooperation would serve theobjective of enhancing physical security and protection of nuclear assets and not enhance anyoperational capabilities. (12) Some argue that thisprinciple, particularly since India and Pakistan havenot joined the NPT and are de jure non-nuclear-weapons states (NNWS), must also be adhered toin the case of any assistance to those states. South Asia Context Simply put, there are two basic nuclear risks in South Asia: first, that terrorists will acquirenuclear material or nuclear weapons, and second, that nuclear war will erupt through miscalculation,through preemption, or through sudden escalation. The threat of terrorism calls primarily for greaterphysical security at weapons sites and sites where nuclear material is produced or stored, particularlyweapons-grade material (highly enriched uranium or separated plutonium). The threat of accidentalnuclear war calls for safer nuclear weapons, whereas reducing the risk of preemptive or sudden warwould require enhancing command and control and possibly transparency between the two states. Some observers have suggested that making nuclear weapons safer (through insensitive highexplosives or shaping the cores so that they will not give a nuclear yield if improperly detonated)also makes them more deployable and thus increases the risk of their use. Given the questionabledesirability of measures to enhance Indian and Pakistani nuclear weapons capabilities, this paperwill assume that any nuclear threat reduction measures will focus on physical security measures,rather than safety measures. Nuclear Material Security Nuclear material security is a concern for all states in the context of a terrorist threat. Physical security has long been considered a subset of international safeguards, but it has never been aprerequisite for placing nuclear material under international safeguards. It can be a requirement ofbilateral nuclear trade, however, and the United States requires physical security measures on someof the nuclear material it exports, mostly in conjunction with military programs. Often, physicalsecurity measures are implemented as a matter of course in implementing safeguards, since stateshave to account for missing material in their physical inventories. India and Pakistan may provide particularly attractive targets because they have weapons-grade material on their soil, but terrorists' interest in a radiological dispersal device may make any or allradioactive sources potentially attractive to steal. India and Pakistan became parties to theConvention on the Physical Protection of Nuclear Material in 2002 and 2000, respectively. ThisConvention, which entered into force in 1987, was designed to protect nuclear material in transitbetween countries. The CPPNM defines a range of nuclear terrorist activities and requires partiesto criminalize those activities. It does not cover physical protection of domestic nuclear materialin storage or use, nor does it cover byproduct material. (13) The United States and other members ofthe Convention have been working for several years to expand the scope of the agreement, andagreed in September 2002 to extend physical protection to domestic use and storage. The IAEA hascirculated proposed amendments to the convention, which may be considered in 2005. Both Indiaand Pakistan have been active in discussions on expanding the Convention. Since 1995, the International Atomic Energy Agency has conducted (although mostly outsideof the regular budget) physical protection assessment programs, called International PhysicalProtection Advisory Service missions. States must request assistance, and then an international teamconducts a confidential vulnerability assessment and recommends measures to address physicalprotection shortfalls. Neither India nor Pakistan has requested such a mission, and in the opinionof some observers, they are unlikely to do so because of the sensitivity of their facilities. However,in May 2002, the IAEA conducted a joint safety and security workshop in Islamabad. WhilePakistan has participated in IAEA technical cooperation programs, India has not participated sincethe 1980s. In 2002, India requested a regional workshop on physical protection focused on securityawareness and culture. India was among several states in which the IAEA conducted physicalprotection-related seminars in 2003. Nuclear Material Safeguards: IAEA Safeguards Most of the material and facilities in India and Pakistan is not subject to international safeguards. In India, there are safeguards on 6 reactors (Tarapur 1 & 2, LEU-fueled power reactors;Rajasthan RAPS-1 and -2, which use natural uranium; and Koodankulam-1 and -2, LEU-fueledpower reactors). In addition, the Tarapur plutonium reprocessing facility (Prefre) is safeguardedwhen safeguarded fuel is used in the facility and the Tarapur MOX fuel fabrication plant hassafeguards when it runs safeguarded material through it. The Hyderabad fuel fabrication plant haspartial safeguards. Key nuclear weapons-related facilities in India that are not subject to IAEA inspections include the Bhabha Atomic Research Center (BARC) in Trombay, which houses the Cirus and Dhruvaresearch reactors for plutonium production, plutonium reprocessing plants and a pilot-scale uraniumenrichment plant. (14) These sites, as well as storagesites for weapons-grade material or for weaponsthemselves could be highly attractive to terrorists because they may contain weapons-usable nuclearmaterial. Pakistan has IAEA safeguards on a few facilities. The KANUPP power reactor, which uses natural uranium, Chasma-1, LEU-fueled power reactor, and two research reactors at Rawalpindi thathave used HEU in the past are under international safeguards. The following facilities are not undersafeguards: the Khan Research Laboratories at Kahuta, which include a uranium enrichment plantand facilities for fabricating HEU into weapons; centrifuge enrichment plants at Sihala, Golra andWah/Gadwal, the Chasma reprocessing plant, and PINSTECH and SPINSTECH facilities relatedto reprocessing at Rawalpindi. (15) These nuclearmaterial production sites, as well as weaponization,storage and assembly sites (if separate facilities exist), could be high-value targets for terrorists. Nuclear Weapons Security Since the 1998 nuclear tests, India and Pakistan appear to have accelerated nuclear weapons development and, possibly, deployments. Most observers still believe that neither Pakistan nor Indiahas deployed warheads mated with delivery systems. Fissile material components (pits) are thoughtto be kept separately from the rest of the warhead. Such a physical separation helps deterunauthorized use and complicates theft. In the early years of the U.S. nuclear weapons program,fissile material components of warheads were physically separated; in the earliest bombs, the twowere mated in the bomb-bay of the aircraft. When nuclear missiles entered the U.S. inventory, thewarheads were physically separated from the missiles. In addition to physical separation, however,there need to be rules and procedures for authorized use; it is not clear what those are for India orPakistan. India and Pakistan have been moving towards more structured nuclear command andcontrol authority, organization, and strategic planning. However, there is no information on whetherthey have implemented two-man rules (a requirement for the concurrent involvement of at least twopeople to be able to fire a weapon) or other procedures for ensuring no unauthorized use. There is no reliable information on where fissile material is shaped or machined into components for weapons, or where fissile cores are kept if they are separated from other weaponcomponents and delivery systems for India and Pakistan. Some observers believe that nuclearweapons parts are "probably distributed in a number of tightly secured facilities at different locationsthroughout Pakistan." (16) Physical security in thecase of Pakistan is provided by the military. Indiahas kept strong civilian oversight of the weapons program, with the military kept predominantly atarm's length. However, the details of security in both cases are unknown. In April 2000, the Indiangovernment ended independent safety oversight at BARC, the "nerve center" of the Indian nuclearweapons program. Some analysts have interpreted this change as an indication of acceleratednuclear weapons work at BARC. (17) On October 2, 2001, Pakistan's Foreign Ministry issued a statement that "Our nuclear assets are 100% secure, under multiple custody." Media reported that Pakistan had moved nuclearweapons components to several undisclosed locations. Subsequently, President Musharrafreorganized elements of the Pakistan Atomic Energy Commission (PAEC) and investigated severalnuclear weapons scientists who reportedly had ties to Islamic extremists. Personnel Security In terms of personnel security, concerns have focused mostly on Pakistan, and most recently, on the activities of Pakistani nuclear freelancer Dr. A.Q. Khan. (18) At the end of 2003, evidence fromLibya revealed that Khan had sold a variety of nuclear materials, technology, equipment, and evena bomb design, to Libya, Iran, and North Korea over two decades. Although there were reports thatPresident Musharraf knew of improprieties regarding Khan in 1999, Musharraf took no steps to reinin Khan until 2001. At that time, Khan was "forced" to retire as director of Khan ResearchLaboratories and given a job as special advisor to President Musharraf. (19) Before that, however, hehad amassed millions of dollars in selling nuclear technology to rogue states. Pakistani officialsclaimed that they tightened controls on their nuclear weapons program with the creation of theNational Command Authority (NCA) in February 2000. One of the features of those controls is thescreening of key people in the Pakistani nuclear weapons program every two years by the InterServices Intelligence Agency, Military Intelligence, the Intelligence Bureau, and the Strategic PlanDivision of the NCA. However, "top-level people (including scientists) are controlled by theirorganizations and not psychologically screened." (20) Much less is known about Indian personnelsecurity. Although India set up a Nuclear Command Authority similar to Pakistan's in January 2003,there is little information on whether associated personnel screening measures have beenimplemented. Nonproliferation Context Until North Korea's February 2005 declaration of a nuclear weapons capability, India andPakistan were the only states outside the Treaty on the Nonproliferation of Nuclear Weapons (NPT)to declare, openly, their nuclear weapons status. (21) When India and Pakistan tested nuclear weaponsin 1998, a curious dilemma emerged for the international community -- was it possible toacknowledge a nuclear weapons capability without conferring nuclear weapons status? Severalmonths after the test, then Deputy Secretary of State Strobe Talbott stated in Foreign Affairs that theUnited States "cannot concede, even by implication, that India and Pakistan have by their testsestablished themselves as nuclear-weapons states... To relent would break faith with those states thathave forsworn a capability they could have acquired. Moreover, it might inadvertently provide anincentive for other countries to blast their way into the ranks of the nuclear-weapons states." (22) Theinternational community so far has sidestepped questions of nuclear weapons status, but some havesuggested that India and Pakistan have become a model for new nuclear weapon states. (23) On the question of nuclear assistance to non-nuclear weapon states, however, consensus in the international community is strong, well-established, and embodied in the NPT. Before the NuclearNonproliferation Treaty entered into force in 1970, views on sharing nuclear technology and evennuclear weapons swung wildly between sharing everything and sharing nothing. According to onesource, the United States contemplated giving India some nuclear weapons to counter the Chinesenuclear arsenal, shortly after China's first nuclear test in 1964. (24) Nuclear weapon states havevoluntarily shared technology among themselves and some have spied on each other. China initiallyadvocated nuclear proliferation as an inevitable and possibly stabilizing factor in world relations(although it joined the NPT in 1992). Nuclear weapon states have also shared technology with thosestates outside the NPT, the most notable example being China's reported sharing of nuclear weaponsblueprints with Pakistan. And, reportedly, Pakistan shared that design with Libya. (25) Negotiators of the Nuclear Nonproliferation Treaty (NPT) in the mid-1960s realized that almost any kind of international nuclear assistance is potentially useful to a nuclear weapons program. (26) Nuclear weapons -- more than biological or chemical weapons, or missiles -- require such precisionin design and construction that any assistance, from technical information, to hints about solvingtechnical problems (for example, how to shape the fissile core), to equipment or components --can be valuable to an aspiring nuclear weapons state. Therefore, nuclear weapon states, underArticle I of the NPT, commit "not to transfer to any recipient whatsoever nuclear weapons or nuclearexplosive devices or control over such weapons or devices, directly or indirectly; and not in any wayto assist, encourage or induce any non-nuclear weapon state to manufacture or otherwise acquirenuclear weapons or nuclear explosive devices." (27) In contrast to the obligation of the non-nuclear-weapon states under Article II not to receive nuclear weapons orrelated assistance, this commitmentincurred no verification measures. In part, this omission may have rested on the assumption thatholders of nuclear weapons technology would not impart the most sophisticated and directlyweapons-relevant information to non-nuclear weapons states. Clearly, however, negotiators feltcomfortable with focusing verification on the recipient states. All states are obliged under ArticleIII, paragraph 2 of the treaty not to provide source or special fissionable material or equipment to anynon-nuclear-weapon state unless the material is subject to IAEA safeguards. Nuclear safeguards are the primary means "to establish and clarify the peaceful purpose of most international nuclear assistance." (28) Not simplyan invention of the NPT, safeguards existed inbilateral arrangements since the earliest nuclear trade as a way of preventing the misuse of materialwith obvious military applications. Beyond their technical importance in ensuring that states cannotdevelop nuclear weapons "the quick way," safeguards have become the acid test for a state'snonproliferation-worthiness. U.S. export control laws, arms export control laws and nonproliferationpolicies have incorporated the distinction between those states with full-scope safeguards (on allmaterial in their state) and those without. Moreover, the international nuclear nonproliferationregime has taken its cues from laws and policies developed by the United States. When, forexample, the Nuclear Suppliers' Group adopted full-scope safeguards as a prerequisite for nuclearsupply, it was adopting a policy that the United States had implemented a decade earlier. Since thediscovery of the Khan network, efforts have accelerated to make the new nonproliferation acid testthe adoption of the Additional Protocol. At the same time, efforts to prevent proliferation have not blinded states to concerns about the safety and security of proliferant states' nuclear weapons. To some observers, however, proposalsto provide security and safety measures seem to be tainted by a certain hubris -- that is, nuclearweapon states have considered themselves to be responsible with their nuclear weapons, whereaslesser industrialized states could not be as responsible. (29) Until China's nuclear test, the only nuclearweapon states were those with large, industrial economies. To some extent, global concern aboutterrorism might lessen sensitivities about whether or not India or Pakistan "need" help. Nonetheless,repeated Pakistani officials' statements to the press about the security of their arsenal appear toreflect a"hands-off" attitude, implying that Pakistan is quite able to protect and secure its ownweapons. (30) India, for its part, has remained silenton the subject. More importantly, however, thesensitivity surrounding nuclear weapons is such that even between the closest of allies -- forexample, the United States and the United Kingdom -- proposals to share permissive action links(PALs, which only allow authorized parties to arm the warhead) reportedly have been met withdisinterest. (31) U.S. Nonproliferation Laws In the years following the first Indian nuclear test in 1974, it became clear that Pakistan was seeking to attain a nuclear weapons capability to counter what it perceived as the Indian threat. A1976 cooperation agreement with China and nuclear shopping expeditions in Western Europe in the1980s helped Pakistan's program to forge ahead. Congress enacted the Glenn-Symingtonamendments in 1977 (amendments to the Foreign Assistance Act of 1961, Sec 669 and 670), whichcut off aid to countries that imported enrichment or reprocessing capabilities. The Carter, Reaganand Bush (George Herbert Walker) administrations waived sanctions required by sections 669 and670 because of Pakistan's support to Afghan refugees and guerillas. In 1985, Congress passed thePressler amendment (Section 620(e)), which conditioned aid to Pakistan on a Presidentialdetermination that Pakistan did not "possess a nuclear explosive device and that the proposed U.S.assistance program will reduce significantly the risk that Pakistan will possess a nuclear explosivedevice." In 1990, shortly after the Soviets pulled out of Afghanistan, President Bush did not makethat certification and aid to Pakistan was terminated. Between 1990 and 1995, Pakistan and India were subject to the following restrictions: no U.S. assistance other than humanitarian or food aid, no military sales or financing, no US-government-backed credit orfinancial assistance, no U.S. support for international financial institutions' loans,no U.S.-backed loans, no licenses for exports, and no assistance from the Export-Import Bank. In1995, the Pressler amendment was modified to apply just to military assistance. In 1998, with the nuclear tests, however, sanctions were tightened. President Clinton was required by law (Section 102b of Arms Export Control Act, or Glenn-Symington and Pressleramendments) to place sanctions on India and Pakistan as a direct result of their 1998 nuclear tests. Other countries also responded to the tests by imposing economic sanctions. Many of those states,including the United States, lifted sanctions quickly thereafter. Nonetheless, prohibitions regardingnuclear trade with countries are still in place. (32) These prohibitions can be grouped into threecategories: those related to cooperation on nuclear weapons themselves; those related to nucleartrade cooperation (for peaceful uses); and, those related to dual-use trade. These are discussed indetail in the section below on Constraints on U.S. Assistance. Current U.S. Nonproliferation Policy U.S. policy on South Asian nuclear proliferation presently is in limbo. The five nonproliferation benchmarks of behavior that were promulgated after the 1998 tests have not beenarticulated publicly since the end of 2000. These benchmarks, briefly, included 1. halting further nuclear testing and signing and ratifying the Comprehensive Test Ban; 2. halting fissile material production and engaging in negotiations in Geneva on a multilateral treatyto stop fissile material production for use in nuclear weapons; 3. refraining from deploying or testing missiles or nuclear weapons; 4. maintaining and formalizing export controls; 5. reducing bilateral tensions, including Kashmir. (33) Although India and Pakistan have not tested nuclear weapons since 1998, they are unlikely to sign and ratify the CTBT, particularly in the absence of U.S. ratification of the treaty. The BushAdministration will not pursue a Comprehensive Test Ban Treaty and although it has stated that itsupports a fissile material production cutoff treaty, which has been on and off the Conference onDisarmament's agenda since 1993, statements in the summer of 2004 that such a treaty is inherentlyunverifiable are unlikely to move the process forward in Geneva. According to Assistant Secretaryof State Christine Rocca, the administration is "working to prevent an open ended nuclear andmissile arms race in the region, discourage nuclear testing, and prevent onward proliferation to othercountries." (34) Currently, there may be more opportunities for the United States to exert leverage than in the past. New military cooperation and sharing of information on terrorism and in other areas may buildtrust between the United States and Pakistan and between the United States and India. However, itis not clear that that trust will extend to issues related to nuclear weapons, given the long U.S. historyof trying to keep India and Pakistan from acquiring such weapons. On the other hand, Bushadministration statements have tended toward a certain fatalism in the case of India's and Pakistan'snuclear weapons. For example, Assistant Secretary of State for Nonproliferation John Wolfremarked in 2002: South Asia is a special case. They have weapons. We won't be successful in pressing them to beat them into plowshares, but we need to be more inventivein getting them to understand much better how to manage the dangers that the weapons pose. Thereare a variety of confidence building measures they could take bilaterally andunilaterally. (35) Constraints on U.S. Assistance Constraints on U.S. assistance can be grouped into three categories. The first categoryencompasses legal prohibitions, embodied in international treaties and U.S. domestic law. Whiledomestic laws can be changed, or provisions can be waived, international treaties are more difficultto amend. The second category includes technical limitations, given what little we know aboutIndian and Pakistani nuclear weapons and their secret nuclear facilities. In addition, assistanceshould be guided by the impact it would have on the technical capabilities of the Indian and Pakistaninuclear arsenals -- that is, assistance should not advance the nuclear weapon programs of India andPakistan, nor should it encourage testing, deployment or increased operational readiness. The thirdcategory covers political limitations, including Indian and Pakistani willingness to engage incooperation and the impact of assistance on the nonproliferation regimes. International Legal Constraints The primary treaty constraint on the United States is found in Article I of the NPT. Article I requires nuclear weapon states to commit: not to transfer to any recipient whatsoever nuclear weapons or nuclear explosive devices or control over such weapons or devices, directly or indirectly;and not in any way to assist, encourage or induce any non-nuclear weapon state to manufacture orotherwise acquire nuclear weapons or other nuclear explosive devices, or control over such weaponsor explosive devices. Under Article I, the United States is prohibited from transferring to any state (nuclear weapon state, non-nuclear weapon state, party or non-party to the Treaty) nuclear weapons, nuclear explosivedevices or control over such weapons or devices, directly or indirectly. It is not readily apparentwhat is meant by "control" over such weapons; a narrow interpretation would focus on the abilityof another state to use such a weapon. The history of NPT negotiations reveals that concerns overtransferring "control" over such weapons focused primarily on allies (e.g. NATO) being able to makecommand and control decisions for U.S. nuclear weapons deployed in Europe. (36) The second part of the obligation lies in not assisting, encouraging or inducing non-nuclear weapon states to manufacture or otherwise acquire nuclear weapons or other nuclear explosivedevices or control over such weapons or explosive devices. The negotiating history reveals thatnegotiators intended to interpret "manufacture" broadly, from the beginning of the acquisition cycleto the end. (37) Non-nuclear-weapon states partyto the NPT are obligated not to seek or receive anyassistance in the manufacture of such weapons under Article II. (38) Presumably, this would coverassistance that enhanced command and control of weapons, including permissive action link (PAL)technology. However, India and Pakistan, while they are legally non-nuclear weapon states, are notparty to the NPT, and so are not bound by such an obligation. As defined by paragraph 3, Article IX of the NPT, India and Pakistan are considered to be non-nuclear weapon states because they did not explode a nuclear device before 1967. (39) In the case ofproviding assistance to Russia, there was no parallel concern because Russia is a nuclear weaponstate under the NPT. It is difficult to interpret what might constitute a violation of Article I under the NPT. In the ratification hearings before Congress in 1968, U.S. administration officials noted that the treaty doesnot specify what can be done, but rather what cannot be done. There is no currently publiclyavailable legal view from the State Department on what might constitute a violation of Article I, butlegal advisors have considered this question by examining precedents in the application of U.S.domestic law. In general, the closer assistance is attached to the nuclear weapons programs, themore likely that it could run afoul of U.S. legal obligations, both under international treatyobligations and domestic law. Thus, some kinds of aid (e.g., food or humanitarian aid) could beconsidered, in the extreme, to be assisting or encouraging a nuclear weapons program because theyfree up resources that the target government can put towards a nuclear weapons program but arepermitted in practice because they do not have a close association with a nuclear weapons program. If assistance took the form of transferrable funds, however, the possibility of linkage to a nuclearweapons program might be considered to be greater. Domestic Legal Constraints As noted earlier, U.S. domestic law covers restrictions in the following areas: nuclear weapons cooperation, nuclear material trade, and dual-use exports. U.S. domestic laws have incorporatedsignificant nonproliferation requirements over the years, which complicate cooperation with Indiaand Pakistan. The Atomic Energy Act. (as amended; 42 U.S.C. 2011 and following) governs the military and civil uses of nuclear energy, including those relatedto international cooperation. Prior to the development of international safeguards, U.S. law requiredthat states receiving U.S.-origin nuclear material or equipment not retransfer it and place it underadequate physical security. The 1978 Nuclear Nonproliferation Act amended the AEA to requirethat significant cooperation, regardless of the purpose, requires an Agreement for Cooperation. TheUnited States does not currently have an Agreement for Cooperation with India or with Pakistan. Releasing Sensitive Information. Section 144 of the AEA covers the release of sensitive nuclear information. The Secretary of Energy may releaseRestricted Data on various aspects of the nuclear fuel cycle except those related to the design orfabrication of atomic weapons. The Secretary of Defense may exchange Restricted Data if it isnecessary to a) develop defense plans; b) train personnel in employing and defending against nuclearweapons; c) evaluate the capabilities of potential enemies in employing nuclear weapons; d) developcompatible delivery systems for nuclear weapons. It is unlikely that any of these circumstanceswould develop in the case of cooperation with India or Pakistan. The President can authorize the Secretary of Energy, with the assistance of the Department of Defense, to exchange Restricted Data on atomic weapons with another country provided that a)communication of Restricted Data is necessary to improve that nation's nuclear weapon design,development, or fabrication capability; AND b) that nation has made "substantial progress in thedevelopment of atomic weapons." When the language on "substantial progress" was added in 1954,the only nation that met the qualification was the United Kingdom. In general, most weapons-relateddata, including some on safety, security, fuze and firing, are classified as restricted data or formerlyrestricted data. Since it is not in the U.S. interest to improve India or Pakistan's nuclear weaponscapability, and neither could be considered to have made "substantial progress in the developmentof atomic weapons" according to the intent of the Atomic Energy Act, it is unlikely that the Presidentwould authorize such an exchange of Restricted Data under this provision of the Atomic Energy Act. Agreements for Cooperation. The Atomic Energy Act was amended in 1978 by the Nuclear Nonproliferation Act (NNPA). Section 123 of the NNPArequires states with which the United States conducts significant nuclear trade to sign an Agreementfor Cooperation. Examples of significant nuclear trade include provision of nuclear reactors, nuclearmaterial or major reactor components. (40) TheNuclear Regulatory Commission regulates significantnuclear trade; the Department of Energy regulates the transfer of know-how, technology andtechnical services. Section 123 of the NNPA requires recipient states that are "non-nuclear-weapon states" to maintain IAEA safeguards on "all nuclear materials in all peaceful nuclear activities on theirterritory." Unless cooperation falls under the category of sale, lease or loan of non-nuclear parts ofatomic weapons (which would require that the recipient nation has made "substantial progress in thedevelopment of atomic weapons" and that the transfer would not contribute significantly to thatnation's atomic weapon design, development, or fabrication capability), the recipient state mustguarantee that "no nuclear materials and equipment or sensitive nuclear technology transferred underthe agreement will be used for any nuclear explosive device, or for research on or development ofany nuclear explosive device or for any other military purpose. In addition, the Secretary of State,who negotiates the Agreements for Cooperation, must provide a nuclear proliferation assessmentstatement (NPAS) to the President. The NPAS must analyze whether the proposed agreement isconsistent with each of the criteria contained in Section 123 of the AEA and whether safeguards andother control mechanisms and the peaceful use assurances in the agreement for cooperation areadequate to ensure that any assistance furnished will not be used to further any military or nuclearexplosive purpose. The President may exempt a proposed agreement for cooperation from any of the specified requirements if he determines that including such requirements would be seriously prejudicial toachieving U.S. nonproliferation objectives or otherwise "jeopardize the common defense andsecurity." There is no precedent for exempting an agreement from the full-scope safeguardsrequirement. Section 128 of the NNPA describes the conditions for terminating U.S. cooperation. It states that No nuclear material and equipment or sensitive nuclear technology shall be exported to: (1) any non-nuclear-weapon state that is found by the President tohave, at any time after March 10, 1978 a) detonated a nuclear explosive device; or b) terminated orabrogated IAEA safeguards; or c) materially violated an IAEA safeguards agreement; or d) engagedin activities involving source or special nuclear material and having direct significance for themanufacture or acquisition of nuclear explosive devices, and has failed to take steps which, in thePresident's judgment, represent sufficient progress toward terminating suchactivities... Export Regulations. Transfers of nuclear-related equipment or nuclear material that do not meet the requirement for an agreement of cooperationcould possibly still require full-scope safeguards as a condition of supply under the NuclearSuppliers' Group (NSG) guidelines. Since 1992, NSG member states have required full-scopesafeguards as a condition for supplying items on the NSG "trigger list." (41) In addition, theDepartment of Commerce requires a license for exporting items on the NSG's dual-use list (thosewith nuclear and other applications) to states outside the NSG. Neither India nor Pakistan is amember of the NSG. U.S. export regulations function in several tiers. The Commerce Control List specifies what items are regulated and why, but an equally important consideration is the question of the end-user. One technique for streamlining the export control system and making it more understandable forexporters was the development of the entities lists. The Department of Commerce maintains a listof entities subject to license requirements (see Supplement 4 to Part 744 of the ExportAdministration Regulations). At present, the entities of proliferation concern are located in China,India, Israel, Pakistan, and Russia. In response to the sanctions imposed on India and Pakistan after the 1998 nuclear tests, the number of Indian and Pakistani organizations listed on the entities list grew dramatically. At thetime, the Department of Commerce policy was to deny licenses for exports to India and Pakistan ofitems controlled for nuclear nonproliferation or missile technology reasons, and presume to denyitems on the Commodity Control List to Indian and Pakistani military entities. In 2001, theserestrictions were lifted when the President determined that sanctions were not in the national securityinterest of the United States. (42) Exports of itemscontrolled for nuclear proliferation and missiletechnology reasons are reviewed on a case-by-case basis. Currently, Indian nuclear-related facilities on the entities list include: Bhabha Atomic Research Center (BARC) Indira Gandhi Atomic Research Center Indian Rare Earths Nuclear reactors, fuel reprocessing and enrichment plants, heavy waterproduction facilities and their co-located ammonia plants The Pakistani nuclear-related facilities that currently appear on the entities list include: AQ Khan Research Laboratories Pakistan Atomic Energy Commission (PAEC) and subordinate entities,including National Development Complex, nuclear reactors, fuel reprocessing and enrichmentfacilities, all uranium processing, conversion and enrichment facilities, heavy water productionfacilities and any co-located ammonia plants, Pakistan Institute for Nuclear Science and Technology(PINSTECH) It appears that equipment, material or information exported for the purposes of cooperative nuclear threat reduction would need to be licensed if it was destined for the facilities listed above. All of the facilities are unsafeguarded and all are sensitive sites. On the other hand, such sites mayhave good security already, since they are associated with the nuclear weapons programs. A potentially greater concern is how the United States' unwritten policy of not supplying any items to unsafeguarded nuclear facilities would fit with exports to India and Pakistan under a CTR-like program. Under the 1990 Enhanced Proliferation Control Initiative (EPCI), the Department ofCommerce can impose licensing requirements on exports and reexports of goods and technology thatwould normally be uncontrolled where there is an unacceptable risk of diversion to activities relatedto nuclear, chemical or biological weapons or missile proliferation. U.S. exporters are required toapply for a license if they have knowledge of or have reason to know that such exports will be useddirectly or indirectly in any one of the following activities: nuclear explosive activities,unsafeguarded nuclear activities, or safeguarded and unsafeguarded activities to produce specialnuclear material (through reprocessing or enrichment), produce heavy water or fabricate nuclear fuelthat uses plutonium. Section 744.2 of the Export Administration Regulations provides eight criteriafor assessing license applications. Potentially, the most significant of these criteria is thenonproliferation credentials of the importing country, which include whether the state adheres to theNPT, has full-scope safeguards, and has an agreement for cooperation with the United States andwhether the actions, statements, and policies of the state support nuclear nonproliferation. (43) Technical Constraints Descriptions of the Indian and Pakistani nuclear weapons programs are incomplete and their accuracy is not reliable. Although the two states have exchanged lists of nuclear facilities since 1991as part of a confidence-building effort, critics charged that the lists initially were incomplete. Moreis known about fissile material production sites than weapons machining or assembly sites, butoverall there is a high level of secrecy attached to both nuclear weapons programs. Withoutknowledge of where vulnerabilities lie, it will be difficult to target even the most rudimentaryassistance. In the case of Russia and the NIS, U.S. government officials have complained for yearsthat Russia has not provided the kinds of access necessary for the United States to ensure that itsgoals are being met. With respect to the material protection, control and accounting programs, mostof the material, according to one report, remains outside of the program because the United Statescannot gain access to sensitive facilities. (44) A significant concern is whether U.S. assistance, if it is targeted at making nuclear weapons more secure from unauthorized use, would improve Indian or Pakistani nuclear weapon capabilities. Permissive action links, which were developed by the United States in the 1960s, were designed sothat unauthorized users would not be able to produce a nuclear yield from the weapon. As oneobserver has remarked, however, another intended consequence is that weapons with PALs on themare more deployable. One of the goals of U.S. nonproliferation policy presently is to keep India andPakistan from deploying their weapons. Political Constraints U.S. assistance is likely to be a sensitive issue for the Indian and Pakistani governments. Neither state will want to be seen as needing assistance. India has refused to participate in technicalcooperation programs with the IAEA except on a regional basis precisely for this reason. On theother hand, India has welcomed talks with the United States on reactor safety and a U.S. delegationtraveled to India in 2003 for meetings on that topic. It may be possible to make such assistance lesssensitive if it is focused on physical security of the nuclear fuel cycle and not linked to nuclearweapon capabilities. Pakistani officials have been quite vocal in insisting that their nuclear assetsare safe and secure and that U.S. assistance is not required. However, one Indian report noted thatthe Pakistani Foreign Office spokesperson Aziz Ahmed Khan admitted that the U.S. had offered totrain Pakistani personnel on safety and security of nuclear assets. (45) A Pakistani report in earlyFebruary 2003 stated that"General Musharraf's decision to assume control of the Nuclear CommandAuthority has prompted the Bush Administration to ask Islamabad for installation of U.S. nuclearweapon command and control." (46) According tosome government officials, U.S. assistance needsto have a low profile in order to succeed. Another constraint is the current level of cooperation between the United States and India and Pakistan. Although Pakistan has been cooperating closely with the United States in the war onterrorism, the United States has been pushing for both nations to give up their nuclear programs foralmost thirty years. Perceptions of mistrust may be difficult to overcome, impeding the level ofcooperation that may be needed. Following Operation Enduring Freedom in Iraq, some in Pakistanapparently are wondering whether Pakistan could be the next target of U.S. counterproliferationefforts. Qazi Hussain Ahmed, leader of Pakistan's largest Islamist party, told Reuters in April 2003that "Thinking that our turn will not come is like closing your eyes to the truth." (47) On the other hand,the Bush Administration did not impose sanctions on Pakistan for aiding North Korea's clandestineuranium enrichment program, and has not pressed the Pakistani government for direct access to A.Q.Khan, both of which could be interpreted by Pakistan as reluctance by the Bush Administration toupset relations. (48) In addition, the designation ofPakistan in 2004 as a major non-NATO ally hasprobably also bolstered Pakistan's confidence in the United States. On the whole, despite some progress in Kashmir, there are still few indications that India or Pakistan would want to enhance transparency to build confidence, either with each other or with theUnited States. Between the two states, there appears to be more interest in threat enhancement thanthreat reduction. In addition, Pakistan's reliance on foreign procurement sources could also maketransparency measures difficult. A culture of secrecy for India and Pakistan, not easily overcomein the case of Russia, may be difficult to transcend. On the other hand, professional pride in theiraccomplishments may provide some leverage for scientists' or military officials' cooperation. Policy Options The legal, technical, and political constraints described above appear to foreclose assistance thatwould directly involve a) access to nuclear weapons; b) measures that would enhance operationalcapabilities of nuclear weapons; c) direct access to sensitive nuclear facilities. Senator Lugarsuggested in November 2004 that "We can promote exchanges between Pakistani and Indian securityexperts, and offer assistance on export controls, border security, and the protection, control andaccounting of nuclear arsenals. This will require some diplomatic and administrative skill to staywithin our NPT obligations." (49) The measuresoutlined below are limited but feasible and could helpmitigate some aspects of the nuclear threat in India and Pakistan. Site Security Improving site security would help guard against the threat of weapons or materials or components leaving a sensitive site either through theft by someone within the facility (a worker)or from outside theft. Perimeter security measures, such as gates and other barriers like barbed wireand personnel identification systems, can help minimize the threat of unauthorized entry. Sensorsto detect unauthorized actions (movement, tampering) can help against both insider and outsiderthreats. Measures to protect against inside theft include checks on personnel leaving facilities(typically onerous without technical detection measures for material or components), cameras insensitive areas and accounting and access procedures. Armed guards could help, as wouldoperational and administrative controls. In the Russian case, U.S. officials toured sites and conducted vulnerability assessments. Even perimeter visits would likely be viewed as too sensitive by India and Pakistan. However, the UnitedStates could offer information or briefings on how security is conducted at sensitive (not necessarilynuclear) facilities in the United States. Ideally, assistance could cover types of requirements forpersonnel vetting and training and development of a security culture. As noted above, assistance ofthis kind has been provided under IAEA auspices. If materials, such as cameras or sensors, wereintended to be installed at unsafeguarded facilities, they would likely require licenses. It is likely,however, that commercial versions of security systems would be cheaper and more palatable forIndia and Pakistan to install themselves if they are not already present. Material Security Measures to enhance material security generally fall into the category of material protection, control and accounting (MPC&A). In some cases, securing material in a storage site with tamper-proof seals,cameras, and other monitoring techniques is adequate, but most often the material isintended to be used in processes (like enrichment or reprocessing, or fuel fabrication). This requiresa system of accounting and control that can follow material flows. International safeguards relyheavily on state systems of accounting and control (SSACs) in measuring physical inventories ofmaterials. Some technical exchanges in these areas may be possible. Some new techniques forsecuring material in place could be shared (one innovative approach used in Russia was placingheavy cement blocks over plutonium containers). Pakistan's and India's participation in multilateralprograms on physical protection of material could be encouraged as well as their participation inexperts' training sessions conducted by Sandia National Laboratory on physical protection (Indianexperts attended one in May 2002). It is also possible to provide equipment for physical protection(cameras, seals, locks, or barriers) under license. Nuclear Weapons Security Assistance on nuclear weapons security would be extremely limited if it were considered desirable. The objective of such measures would be to ensure that weapons could not be stolen ordetonated by an unauthorized person. Again, the simplest measures are armed guards; undoubtedlyboth India and Pakistan are aware of the advantages of protecting their nuclear weapons. Advice orequipment to ensure no unauthorized use of nuclear weapons, such as PALs, would require accessto nuclear weapons. General information on permissive action links, such as concepts or approaches,is publicly available and would not require access to weapons. In all likelihood, however, both Indiaand Pakistan have probably exhausted public sources of information on that topic. Beyond thewarheads themselves, measures to ensure that command and control systems work would also helpensure no unauthorized use, but could possibly enhance operational capabilities. Personnel Security The types of measures for personnel security that could be implemented absent Pakistani and Indian disarmament are limited. Obviously, if there are ongoing nuclear weapons programs, the twogovernments are unlikely to welcome proposals to divert their scientific expertise into civilianenterprises. However, there are clearly training programs in physical security and personnel vettingthat could provide more security to those nuclear programs without enhancing their nucleardeterrents in a way that would contravene the NPT. Strictly civilian cooperation could have apositive spillover effect. On January 12, 2004, President Bush announced a new strategicpartnership with India, to cooperate in three areas: civilian nuclear technology, space technology andhigh-technology trade. (50) U.S. officials reportedlystated that any civilian nuclear technology mustnot be used in India's nuclear weapons program, although it is unclear how that would be achieved. (51) Reportedly, cooperation has allowed for exports to safeguarded nuclear facilities. (52) This programmight have the potential to develop relationships with Indian scientists that would benefit any future,more intrusive cooperative threat reduction program. With respect to Pakistan, assistance may be more difficult. Pakistan has denied U.S. officials direct access to AQ Khan, and although this might be an exception because of Khan's unique status,it could also become the rule. Pakistani officials, both with respect to the nuclear arsenal and nuclearscientists, appear to have taken a "hands-off" attitude. (53) Issues for Congress Costs India's and Pakistan's nuclear programs are far smaller than Russia's and unlikely to incur the kinds of costs that the CTR program has thus far incurred. On the other hand, data are scarce on thestate of nuclear materials in India and Pakistan, so it is difficult to determine the scope and timeframe of any such program. At a minimum, however, such a program is likely to be incrementallyimplemented. Costs could be minimal if a quick-fix, low-technology, information-oriented approachis taken or they could be more substantial if a sophisticated, high-technology approach is taken thatwould incorporate cameras, encryption, remote monitoring, and other means. Certifications In 1991, the legislation that created the Nunn-Lugar program stipulated that U.S. assistance in destroying nuclear and other weapons may not be provided to the Soviet Union, any of its republicsor successor entities unless the President certifies to the Congress that the proposed recipient iscommitted to: making a substantial investment of its resources for dismantling or destroying such weapons; forgo any military modernization that exceeds legitimate defense requirementsor is designed to replace destroyed WMD; forgo the use of fissile materials and other components from destroyed nuclearweapons in new nuclear weapons; facilitate U.S. verification of weapons destruction that uses U.S.money; comply with all relevant arms control agreements; and observe internationally recognized human rights, including the protection ofminorities. Initially, Presidents George H. W. Bush and Clinton certified that the recipient nations --Russia, Ukraine, Belarus, and Kazakhstan -- met those conditions. The Clinton Administrationwithdrew its certification of Belarus for human rights abuses in FY1998 and the George W. Bushadministration withdrew its certification of Russia in 2002 for its failure to comply with armscontrol agreements, namely, the Chemical Weapons Convention and the Biological WeaponsConvention. The Bush Administration subsequently requested a waiver from Congress for thecertification. It is not clear whether Congress would opt to apply the same certification requirements to recipient states outside the former Soviet Union. However, S. 2980 , which wasintroduced by Senator Lugar in the 108th Congress, sought to remove the need for certifications, aswell as other restrictions. The 109th Congress may consider this issue more fully if legislation is oncemore introduced. Other Considerations U.S. nonproliferation laws have been strengthened over the years, first to account for states that were not parties to the NPT, then to target critical capabilities like enrichment and reprocessing, andfinally, to target the transfer of nuclear weapons or actual detonation of a nuclear explosive device. Once a state has exceeded the maximum prohibition (i.e., possession or detonation of a nucleardevice), a logical question to ask is whether lesser restraints (for example, in providing nucleartechnology not directly related to nuclear weapons) are necessary or useful. Applied more broadlyto overall nonproliferation policy, some observers have argued that the nuclear weapons "cat" is outof the bag and U.S. policy should reorient itself to "manage" the nuclear situation in South Asia. Atits extreme, this approach would include accepting the nuclear weapons status of India and Pakistanand relaxing all restrictions. Other observers have argued that the purpose of restraints was to inhibitproliferation and that relaxing the rules for "successful" states would set a bad precedent and resultin the collapse of the nonproliferation regime. A broader issue is whether the United States should strive for consistency in the treatment of states' WMD programs. Although India, Pakistan, and Israel are not parties to the NPT and thereforehave not violated any treaties, their nuclear weapons programs conflict with U.S. nonproliferationobjectives and policies. Assistance to countries outside the NPT may be viewed as a "wink and anod" to nuclear weapons development. At the same time, the use of military force to disarm Iraq ofits weapons of mass destruction provides a strong counterpoint to such assistance. As such, thiscould threaten international consensus to combat nuclear proliferation. Should the United Statesmove in the direction of accepting Indian and Pakistani nuclear weapons status, say some observers,would there be pressure to do the same for Israel? If so, such action could have a significant impacton security and stability in the Middle East. Other considerations include tradeoffs between nonproliferation policy and counterterrorism cooperation, as well as the promotion of democracy. On January 24, 2005, Senator Biden introduced S. 12 , the Targeting Terrorists More Effectively Act of 2005. The bill identifiesproliferation of nuclear weapons and promotion of democracy as two of several issues that threatenthe United States' relationship with Pakistan. The bill would authorize $10M in theNonproliferation, Anti-Terrorism, Demining and Related Programs account (State) to be spent inPakistan, but would bar any military or economic assistance appropriated for the fiscal year "unlessthe President submits to Congress for such fiscal year a certification that no military or economicassistance provided by the United States to the Government of Pakistan will be provided, eitherdirectly or indirectly, to a person that is opposing or undermining the efforts of the United StatesGovernment to halt the proliferation of nuclear weapons." S. 12 does not contain similar prohibitions for the lack of progress in thepromotion of democracy. Although the National Intelligence Reform Act of 2004 (PL 108-458),signed on December 17, 2004, extended the President's authority to waive coup-related sanctionsfor Pakistan through FY2006, it may be necessary for the 109th Congress to revisit this issue forFY2007. On the same day PL 108-458 was signed, President Musharraf announced he would remainchief of the army beyond the end of 2004. Although the 9/11 Commission Report specifically notedthat keeping nuclear capabilities out of the hands of terrorists depends critically on supportingMusharraf's vision of a moderate, modernizing Islamic state, President Musharraf has done verylittle to move his country toward more democratic rule.

Since India and Pakistan tested nuclear weapons in 1998, there has been a debate on whether the United States should provide assistance in making those weapons safer and more secure. In thewake of September 11, 2001, interest in this kind of assistance has grown for several reasons: thepossibility of terrorists gaining access to Pakistan's nuclear weapons seems higher, the U.S. militaryis forging new relationships with both Pakistan and India in the war on terrorism, and heightenedtension in Kashmir in 2002 threatened to push both states closer to the brink of nuclear war. InOctober 2001, media reported that the United States was providing assistance to Pakistan to keepits weapons safe, although those reports have not been confirmed. Revelations in 2004 that Pakistaniscientist A.Q. Khan was selling nuclear technology (and reportedly a nuclear bomb design) to Iran,Libya, and North Korea also helped to renew interest in making, in particular, Pakistan's nuclearweapons program more secure from exploitation. The report of the 9/11 Commission also called forcontinued support for threat reduction assistance to keep weapons of mass destruction (WMD) awayfrom terrorist groups. In the 108th Congress, the Nunn-Lugar Expansion Act (Section 1308 of FY2004 Defense Authorization Act, PL 108-136) allowed the Department of Defense to spend up to $50 million inunobligated funds on cooperative threat reduction (CTR) measures outside the former Soviet Union. In the 109th Congress, it is likely that similar legislation will be introduced again. The Bushadministration used $20 million of CTR funds to dismantle chemical weapons-related items inAlbania, but proponents of expanding CTR have mentioned many other countries as possiblerecipients: India, Pakistan, China, North Korea, Iraq, and Libya, to name a few. This paper describes why Cooperative Threat Reduction (CTR) programs developed for the former Soviet Union are considered models for assistance elsewhere and their potential applicationin India and Pakistan. The paper considers the types of assistance provided under CTR and potentialconstraints on U.S. assistance in this area, including domestic and international legal and politicalrestrictions on cooperation with states outside the Nuclear Nonproliferation Treaty (NPT); the lowlevel of cooperation and transparency exhibited by India and Pakistan; lack of incentives for Indiaand Pakistan to pursue threat reduction measures; and potentially competing objectives of threatreduction and nuclear deterrence. This report, which will be updated as events warrant, complements CRS Report RL32359 , Globalizing Cooperative Threat Reduction: A Survey of Options , and CRS Report RS21840(pdf) , Expanding Threat Reduction and Nonproliferation Programs: Concepts and Definitions .

Background Social Security's financing problems ... are very large and serious. People are living longer, the first baby-boomers are nearing retirement, and the birth rate is low. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled benefits at current tax rates. As highlighted by the Social Security Administration (SSA), the aging of the (United States) population, hastened by the impending retirement of the huge baby-boom generation, has caused policy-makers to question whether the U.S. Social Security system can meet the demands for retirement benefits in the future. Because the current system largely pays benefits through taxes paid by current workers, the financial health of the system is sensitive to the ratio of dependents to workers—sometimes called the age dependency ratio or support ratio. Trends and projections of dependency ratios, including the relationship between both older (years 65 and older) and younger (under age 20) dependents to the working-age population in the United States are considered in the first section of this demographic report. Next, the United States is compared to nine other nations, including the seven other members of the G8. In the final section, policy implications of the changing dependent-to-worker ratios are considered in the context of pay-as-you-go (paygo) social security systems. Age Dependency Ratios This section summarizes information on trends and projections over time in the ratio of working-age persons to persons in the dependent ages in the United States for the period 1950-2080. Definitions The age-dependency ratio relates the number of persons in "dependent" ages (defined here as persons under the age of 20 and over age 64) to those in "economically productive" ages (20-64 years) in the population. It addresses the question of how many dependents are being supported per 100 persons of working age. The age-dependency ratio is divided into old-age dependency (the ratio of persons 65 years and older to those in the working ages 20-64) and child dependency (the ratio of people under age 20 to those ages 20-64). Trends Based on data contained in the Annual Report (2006) of the Federal Old-Age and Survivors Insurance and Disability Insurance ("Social Security") Trust Funds, Figure 1 shows the estimated and projected trends in age-dependency ratios for the period 1950-2080 in the United States. Ratios for years 1950-2005 are historical estimates based on actual data ; years 2006-2080 are model-based projections that rely upon assumptions about future trends in mortality, fertility, and immigration. A detailed table with the underlying population data and age dependency ratios for years 1950-2080 is provided in Table A-1 . Data in this section and in Table A-1 reflect the Social Security actuaries' intermediate assumptions (i.e., their best guess) of future trends in the underlying assumptions. The impact of variability in the assumptions used for the projections is considered later in this report ( Figure 2 ). As seen in Figure 1 , there were 72.5 dependents per 100 persons of working age in 1950; of these, 58.7 dependents were children while 13.8 were older persons. The total dependency ratio reached its height in 1965, just after the last of the Baby Boom generation was born. In 1965, there were 94.7 (of which 76.5 were children and 18.2 were older persons) dependents per 100 persons of working age. There have been divergent trends for the child and old-age dependency ratios in recent decades with the child ratio generally falling and that of older persons increasing. Children continue to out-number older persons in their contribution to the total dependency ratio in 2006 by a sizable margin: there are 45.9 child and 20.3 older dependents per 100 persons of working age. Older Dependents The old-age dependency ratio has generally been increasing since 1950. The baby-boom generation (persons born between 1946 and 1964) will accelerate the rate at which the old-age dependency ratio changes. Baby boomers will begin to attain age 65 beginning in 2011 (for those born in 1946) and continuing through 2029 (for those born in 1964). As highlighted in Figure 1 , the older age dependency ratio will quickly increase as a result of the aging of the baby-boom generation, from about 21.2 to 34.3 older dependents per 100 persons of working age between 2011 and 2029. Population aging, however, will continue to be one of the most important defining demographic characteristics of the U.S. population, even after the youngest of the baby-boom generation passes away. The number of older dependents per 100 persons of working age will continue to increase, albeit at a slower pace than will be experienced during the years in which the baby boomers retire. Based on the SSA Trustees' current assumptions, there will, for instance, be 42.1 older dependents per 100 workers in 2080. These trends reflect forecasts of continuing improved survival at the older ages and continuing low fertility rates. Increasing rates of survival mean a greater number of older dependents (the numerator of the ratio), which in turn increases the old-age dependency ratio. Fewer (than current) births will mean fewer young dependents in the short-run, but will translate into fewer future workers in about two decades. At that time, the net effect will be that the old-age dependency ratio will be increasing (as the number of dependents will be increasing in the numerator) while the number of working age persons to support them will be falling (in the denominator). From the perspective of the Social Security program, the old-age dependency ratio is the most critical of the dependency measures as it relates the number of potential Social Security beneficiaries ($ outlays) to the number of projected payroll tax payers ($ income). Thus, the lower the old-age dependency ratio, the lower the dollars paid out versus received, and the better the finances of the Social Security program outlook. Child Dependents Referring again to Figure 1 and Table A-1 , the child dependency ratio increased from 58.7 to 76.5 child dependents per 100 working age adults between 1950 and 1965, largely reflecting the birth of the baby-boom generation. Since 1965, the child dependency ratio has experienced a mostly steady decline due to falling fertility rates in the United States. Nonetheless, in 2006, the number of child dependents is more than double the number of older dependents—45.9 and 20.3 per 100 working age adults, respectively. The SSA Trustees' current projections assume that child dependency ratios will slowly decline through year 2080 but that the rate of decline will be very slow. Child dependency ratios will stay in the narrow range of 43.9 to 45.9 child dependents per 100 working age adults throughout this 75-year time span. Note that, even with the pending retirement of the baby-boom generation, the number of child dependents has and will continue to be greater than the number of older dependents in each of the years of the time frame considered here. Some Take-Away Messages If the Social Security population estimates and projections for the 130-year period of 1950-2080 are correct, then the greatest demographic "burden"—when the number of dependents (children plus the elderly) relative to the working-age population—is already in the past, having reached its height in 1965 when there were 94.7 dependents per 100 persons of working age. The total number of dependents per 100 persons of working age has generally been decreasing since 1965 but is expected to reverse course beginning around year 2013. The change coincides with the retirement of some early cohorts of the baby-boom generation. The composition of the dependency ratio is changing. The number of children per worker has been falling since 1965; most of the anticipated increase in the dependency ratio in the coming decades reflects a growing proportion of older persons (ages 65 and older). These age-specific trends in the age dependency ratios are not, however, off-setting in terms of their federal budget implications. Programs carried out by the federal government focus much more heavily on assisting the elderly population. Based on estimates from the Congressional Budget Office (CBO), the federal government spent a little over one-third of its budget—about $615 billion—on transfer payments and services (with the Social Security and Medicare entitlement programs being the biggest expenditures) for people age 65 and older in FY2000. Federal spending on children was about $148 billion, or $175 billion if payments to the children's parents were included. State and local governments have historically provided substantial support for families with children through spending on elementary and secondary education and other programs. Nevertheless, because federal spending dwarfs state and local figures, total government spending for the average person 65 years or older is still much greater than for the average child. Age dependency ratios, while providing a glimpse at how the age structure of the population is changing, are nonetheless crude measures that do not take into consideration whether persons of working age are actually working and supporting the economy, nor whether dependents are truly economically dependent and receiving transfers from working-age persons. Furthermore, as noted by Friedland and Summer, "society's future is not determined solely by demographic changes. Focusing on the anticipated growth in population by age group is just too simplistic an approach. Rather, the future is shaped by the choices made—or not made—individually and collectively, bounded by the limits in resources and, in particular, knowledge. Knowledge is at the heart of gains in productivity, economic growth, and the advances in medical care, agriculture, communication, transportation, and the environment." Variability of Future Projections The ratios reported here are CRS compilations based on estimates and projections from the SSA. The information for years 1950 (the earliest available year) to 2005 are estimates that are based on actual data ; the information for years 2004-2080 are projections, which rely upon assumptions about future mortality, fertility, and immigration patterns. To address the uncertainty that is inherent in all population projections, SSA constructs several sets of projections which are based on different combinations of assumptions. The data represented here uses the intermediate set of projections in the Trustees Report, which represents the Board's best estimate of the future course of the population. The Trustees produce two additional sets of projections, the "high-cost" and "low-cost" scenarios, which use differing assumptions about the future courses of fertility, mortality, and immigration. Figure 2 highlights the possible variation in the total dependency ratio through 2080 under these three different scenarios. While SSA's best guess of the total dependency ratio in year 2080 is 86.1 dependents per 100 persons of working age, the range of possible values varies from 83.1 to 94.5. An International Comparison: Is the American Situation Unique? Figure 3 presents statistics on the number of older persons supported per 100 persons of working age in 2002 in 10 countries. Eight of the countries are members of the G8, a consultative grouping of leading industrial democracies: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States. In addition, China and India, the two most populous countries globally, are included to highlight that population aging is occurring even in nations that are less industrialized and have "younger" current age structures. Of the 10 countries included in the comparison, Italy ranked first, with Japan close behind, in terms of the number of older persons being supported per 100 workers in 2002—29.6 and 29.5, respectively. Among the G8 countries, Canada and the United States were tied for last place at 20.8 older persons per 100 persons of working age—indicating that the Canadian and American "burdens" are less than those of the other G8 countries. Not coincidentally, the proportions of their population aged 65 and older—13% and 12% respectively in 2000—are also the lowest of the G8 nations. In India, with its young age structure, there were only 9.0 older persons per 100 persons of working age. The total age dependency ratio (not shown in graph) is, however, greatest for India among the 10 countries—there are 90.5 dependents (mostly children) per 100 persons of working age. Figure 3 also highlights that population aging is a global phenomena—the number of older dependents per 100 persons of working age is projected to increase through 2025 in all 10 of the countries considered here. The projected increase in Japan, where the ratio will reach 51.1, is especially notable. Italy and Germany will each have over 40 older dependents per 100 persons of working age. Increases are also expected in both China and India. In fact, the old-age dependency ratio in 2025 in China will exceed the level observed in the United States, Canada, and Russia today. Figure 4 shows the number of child dependents per 100 persons of working ages. India had the highest child dependency ratio in 2002 at 81.5. Of the G8 countries considered, the United States was the leader, largely reflecting the fact that the American fertility rate, while currently hovering around the replacement level, has not fallen as far as in the other G8 nations. For instance, the total fertility rate in Italy was 1.2 in 2002 compared to 2.1 in the United States in the same year. The estimates for India and China, and to a lesser extent the Russian Federation, are also affected by differential (higher) rates of infant and childhood mortality. Unlike the increasing old-age dependency ratios highlighted in Figure 3 , the child dependency ratios are projected to fall through 2025 in most of the countries considered. The notable exception is the United States where it is projected that there will be 47.4 child dependents in 2025, as there had been in 2002. In summary, population aging, which results primarily from declining fertility rates and increasing survival, is a global phenomenon. Today, the United States is the "youngest" of the industrialized G8 nations. While the proportion of the U.S. population that is aged 65 and older will continue to increase, aging in the United States is still projected to be considerably slower than in any of the other industrialized countries. In addition to reflecting the fact that the American fertility rate, which is currently hovering around the replacement level, has not fallen (nor is it projected to) as far as the other G8 nations, the "U.S. is leading the way in adapting to the changing balance ... by encouraging immigration." The SSA estimates that net legal immigration and net other immigration were about 675,000 persons and 400,000 persons, respectively, in 2005. For its future projections, SSA assumes the total level of net immigration (legal and other, combined) under the intermediate projection to be 1 million persons annually in the 2010s, 950,000 annually in the 2020s, and 900,000 annually in 2030 and each year thereafter through 2080. While these comparatively high levels of immigration differentiate the United States from the other G8 nations, they have a small effect on the median age of U.S. residents and on the total dependency ratio as immigrants are mostly young people who have children (and also higher fertility rates than the U.S.-born population). Immigration nudges the worker-elderly ratio a little higher, meaning that there are more people of working age per person age 65 or older. The more dramatic effect, however, is at the younger ages. Immigration after 2000 is projected to add about 15 million more children under age 18 than there would be without any post-2000 immigration. Continued immigration will lower the worker-child ratio and increase the child component of the dependency ratio. Implications for a Paygo Social Insurance Program What is Paygo? Most Western industrialized nations, including the United States, have systems in place providing significant social security benefits, and virtually all of these plans originated with pay-as-you-go (paygo) or quasi-paygo funding schemes. In the United States, payroll or self-employment tax contributions by current workers (and their employers) are transferred to current beneficiaries. The majority of Social Security taxes paid by today's workers are not put into a special account to pay for their future benefits. Rather, they are used to pay benefits for persons receiving benefits today, just as the future benefits for today's workers will be paid by future generations of workers. In general, a low ratio of retirees to workers (the system's old age dependency ratio) and a high rate of productivity and real wages would permit a paygo social security system with high benefits or low contributions. What Made Paygo an Attractive Option for Financing Social Security Systems? Advantages of government-sponsored paygo schemes relative to fully funded systems include the following: The entire working population can be covered relatively easily. The benefits can serve as social insurance against the (income) risks associated with old-age and disability. Benefits can be immediately vested and are fully portable, an important feature for a mobile work force. Administrative costs are usually very low. Given these advantages, paygo systems looked very attractive in the immediate post-World War II years. Projections of labor force growth, coupled with forecasts of real wage growth, implied a potential total annual return near 5% for a fully mature paygo system. In contrast, the common view of a funded system involved investing contributions in government securities with a return of 1% or less. In the aftermath of the Great Depression, the market for equities seemed far too risky, and many countries lacked private bond markets. Furthermore, most countries instituting a new pension system were unwilling to delay initial benefit payments for several decades, as would have been required under a funded system. There was a desire to address the immediate problem of high poverty among the elderly, and most countries provided benefits to an older generation of workers which had not contributed fully to the system. Also, to many at that time, a high rate of population growth (and subsequent work force growth) seemed inevitable, in which case pay-as-you-go seemed a good way to finance an old age pension program. The Current Outlook for Paygo, Given Demographics and Other Factors The current outlook is much different. Birth rates have fallen considerably while the life expectancy at the older ages has increased significantly, resulting in less favorable old-age dependency ratios (as shown in Figures 1 and 2 ). While the old-age dependency ratio had already been increasing since 1950, the upcoming retirement of the baby-boom generation will accelerate the rate at which it grows. However, even after the youngest of the baby-boom generation has passed away, the number of older dependents per 100 persons of working age will still continue to increase, albeit at a slower pace than will be experienced during the years in which the baby boomers retire. Concurrent with these demographic trends, the Congressional Budget Office (CBO) projects that federal spending for Social Security, adjusted for inflation, will rise substantially—from $483 billion in 2003 to $2.5 trillion in 2075. The projected rise in Social Security spending is due, in part, to the demographics of an aging society; CBO estimates that approximately 55% of the higher spending is due to the expected increase in the number of beneficiaries, as the number of new claimants grows and as life expectancy rises. The remaining 45% of the rise is due to a projected increase in the real value of Social Security benefit checks. Specifically, they note that, under rules put into effect in 1979, benefits of newly eligible recipients are based on a formula and earnings records that are adjusted for wage growth. Those adjustments, referred to as wage indexing, are designed to keep the ratio of initial benefits to pre-retirement earnings—that is, replacement rates—approximately the same from one generation of new recipients to the next. Wages tend to rise along with productivity in the economy, at a faster pace than prices and, over the long run, a system pegged to wage growth will gradually afford greater purchasing power. As both CBO and the Government Accountability Office (GAO) are warning, current spending policies are likely to be unsustainable. The policy implication is that, unless there are large offsetting productivity gains in the U.S. economy, contribution rates by current workers (e.g., tax rates) must markedly rise or benefit levels must fall under Social Security's paygo system. Alternatively, the structure of the underlying paygo system could be modified such that part or all of the scheme is fully funded. This, however, raises the same issues that caused most countries to originally select paygo systems: reduction of (investment) risk and the need to pay benefits for the current generation of beneficiaries. Appendix.

The aging of the population of the United States, hastened by the impending retirement of the huge baby-boom generation, has caused some policy-makers to question whether the U.S. Social Security system can meet the demands for retirement benefits in the future. The financial health of the system, which is largely financed through payroll taxes paid by current workers in a pay-as-you-go manner, is sensitive to the ratio of dependents to workers—sometimes called the age dependency ratio or support ratio. Trends and projections of dependency ratios, including the relationship between both older (years 65 and older) and younger (under age 20) dependents to the working-age population in the United States are considered in the first section of this demographic report. If one considers the 130-year period from 1950-2080, the greatest demographic "burden"—when the number of dependents (children plus the elderly) most exceeds persons in the working-age population—is already in the past, having reached its height in 1965 when there were 94.7 dependents per 100 persons of working age. While the dependency ratio has generally been decreasing since that time, two trends are evident. First, the ratio of dependents to workers will again reverse course beginning around year 2013 with the retirement of a large number of baby boomers. Second, the composition of the dependency ratio is changing. The number of children per worker has been falling since 1965; most of the anticipated increase in the dependency ratio in the coming decades reflects a growing proportion of older persons (ages 65 and older). Age-specific trends in the age dependency ratios are not off-setting in terms of their federal budget implications. Programs administered by the federal government (especially Social Security and Medicare) focus much more heavily on assisting the elderly population whereas state and local governments have historically provided substantial support for families with children through spending on elementary and secondary education and other programs. Next, the United States is compared to nine other nations. Seven of the countries are members of the G8, a consultative grouping of leading industrial democracies: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom. (The United States is the 8th member). In addition, China and India, the two most populous countries globally, are included to highlight that population aging is occurring even in nations that are less industrialized and have "younger" current age structures. Population aging, which largely results from declining fertility rates and increasing survival, is a global phenomenon. Today, the United States is the "youngest" of the industrialized G8 nations. While the proportion of the U.S. population that is aged 65 and older will continue to increase, aging in the United States is still projected to be considerably slower than in any of the other industrialized countries. In the final section, policy implications of the changing dependent-to-worker ratios are considered in the context of pay-as-you-go (paygo) social security systems. This report will be updated every two years.

What Are Regional Trade Agreements? Regional trade agreements (RTAs) are trade arrangements under which member-countriesgrant each other preferential treatment in trade. RTAs may be categorized as bilateral, multilateral,or sub-regional. With no formal definitions, these terms are sometimes used loosely to describevarious groupings. A bilateral trade agreement is usually an agreement between two countries toreduce tariffs and quotas on items between themselves. While this definition seemingly indicatesan agreement between just two countries, it is sometimes used to describe trade agreementsinvolving more than two countries. There are a number of types of arrangements including free trade agreements, customsunions, common markets, and economic unions. (1) Free trade agreements (FTAs) are the most common form ofregional economic integration in which members of a group remove tariffs and some nontariffbarriers to trade among member countries. (2) At the same time, each member retains its independent trade policy,including its tariffs, towards nonmember countries. FTAs are those in which member countriesagree to eliminate tariffs and nontariff barriers on trade in goods within the free trade area, but eachcountry maintains its own trade policies, including tariffs on trade outside the region. FTAs accountfor 84% of all RTAs in force in the world, and 96% of those that are pending. The likely reasonthere are more FTAs than customs unions is that they can be concluded more quickly and require lesspolicy coordination among members. In an FTA, member countries maintain their own trade policyvis-a-vis non-member countries. (3) The U.S.-Chile free trade agreement is an example of a bilateralFTA. Customs unions are agreements in which members conduct free trade among themselves andmaintain a common trade policy towards non-members. These agreements require the establishmentof a common external tariff and harmonization of external trade policies. Such agreements implya greater loss of autonomy over the parties' commercial policies and require longer and morecomplex negotiations and implementation periods. Geographical considerations play an importantrole in defining the objective of economic, and sometimes political, integration among the membercountries. (4) The SouthernCommon Market (Mercosur) in South America is an example of a customs union. Common markets are those in which member countries go beyond a customs union byeliminating barriers to labor and capital flows across national borders within the market. TheEuropean Union is the most prominent example of a common market. In economic unions, member countries merge their economies even further than commonmarkets by establishing a common currency, and therefore a unified monetary policy, along withother common economic institutions. The 12 members of the European Union that have adoptedthe euro as a common currency is the most significant example of a group of countries that has gonefrom a customs union to an economic union. Growth of Regional Trade Agreements Between January 2004 and February 2005, the World Trade Organization (WTO) receivednotification of 43 new RTAs, "making this the most prolific RTA period in recorded history." (5) A WTO discussion paperreported in May 2005 that the number of world RTAs in force totaled 170, with 20 additional RTAsdue to enter force pending domestic ratification, and a further 70 under negotiation or consideration. RTA activities have intensified in all world regions "particularly in the Western Hemisphere andAsia-Pacific." (6) Motivations for Forming Regional Trade Agreements While economic motivations may be a major driving force, countries form RTAs for anumber of reasons. Political and security factors also play a role in forming RTAs. Countriesusually enter into trade agreements to improve their country's or region's bargaining position inglobal negotiations, attract foreign direct investment to increase economic growth, achieveeconomies of scale, and expand export markets. Countries also see RTAs as building blocks forfurther trade liberalization under the World Trade Organization (WTO) or for forming larger freetrade areas such as the FTAA. Expanding market access is probably the primary motivation for entering into tradeagreements. RTAs give the signatories trading preferences in each other's markets while excludingother nations from the same privileges. These preferential trade arrangements reduce tariffs and othertrade barriers among trading partners, providing partners with broader market access for their goodsand services. Trade liberalization allows countries to achieve economies of scale as they are ableto expand their export market. Smaller countries benefit from trade agreements because producersin these countries can lower their unit costs by producing larger volumes for regional markets inaddition to their own smaller domestic markets. (7) When more units of a good or a service can be produced on a largerscale, companies will have a better chance to decrease cost of production. Attracting foreign direct investment (FDI) is another reason for forming RTAs, especiallyfor developing countries. The lowering of foreign investment restrictions through trade agreementsimprove investor confidence in a country, which helps attract FDI. Multinational firms invest incountries to gain access to markets, but they also do it to lower production costs. One of themotivating factors in Mexico's interest in forming NAFTA was to attract FDI. It was also amotivating factor for Central American countries and the Dominican Republic in the CAFTA-DR. The slow progress in multilateral negotiations may also contribute to the increasing interestin regional trade blocs. Some countries may see smaller trade arrangements as "building blocks" formultilateral agreements. For example, the United States recently ratified CAFTA-DR and is movingforward on negotiations with Panama and the Andean countries as part of its overall trade strategyfor free trade in the Americas. Some countries form RTAs for political reasons. Governments may seek trade agreementsas a way to promote peace or increase regional security. Countries may want to demonstrate goodgovernance by locking in political and economic reforms through trading partnerships. Largercountries may use RTAs to forge new geopolitical alliances and strengthen diplomatic ties, whichcould ensure or reward political support. For example, the United States formed RTAs with Israeland Jordan as a way of reaffirming U.S. support of these countries and to strengthen relations withthem. Some analysts believe that the choice of RTA partners is increasingly based on political andsecurity concerns and not so much on economic rationale. (8) The Americas and Regional Trade Agreements The formation of RTAs throughout the world has intensified in the last few years withcountries in the Americas forming a notable share of the world's total. Thirty-nine of the 170agreements in force around the world involve countries in the Western Hemisphere. Europe has thegreatest concentration of RTAs in the world, with the European Union and the European Free TradeAssociation as the "main continental hubs." The WTO reports that in the Western Hemisphere, RTAdynamics are more diverse than they are in Europe with "several major players engaged inmultilayered RTA processes and not necessarily sharing similar objectives." (9) Table 1. Major Trade Arrangements in theAmericas Sources: Compiled by CRS using information from IDB Beyond Borders ; and WTO, DiscussionPaper No. 8, "The Changing Landscape of Regional Trade Agreements," 2005. Table 2. Economic Indicators for Selected Regional Trade Blocs(2003) Source: Compiled by CRS using data from International Financial Statistics, InternationalMonetary Fund (IMF), August 2005; the Economist Intelligence Unit, and the CIA World Factbook . * Less than 0.1%. ** Data for CARICOM region are estimates from 2003, 2004, and July 2005. Trade liberalization has been a central component of structural reform process in LatinAmerica and the Caribbean since the mid-1980s when countries were implementing unilateralmeasures to liberalize trade. After NAFTA, countries began taking a more regional approachthrough the formation of regional trade agreements. Some of the major trade arrangements in theAmericas are described in Table 1 below. By adopting a more regional approach, countries havebeen able to go beyond that which was attainable or desirable at the unilateral and multilateral levels. Most of the regional integration to date has involved trade in goods and has not advanced as far inother areas such as trade in services or intellectual property rights. In this regard, Mexico'sliberalization has been the most comprehensive through its implementation of NAFTA. (10) NAFTA has the largest market size of all regional trade blocs in the Americas, encompassinga market of 430 million people with a nominal GDP of $13.4 trillion (see Table 2). In South andCentral America, the largest markets are formed by Mercosur, with a population of 227 million anda nominal GDP of $778 billion; and the Andean Community, with a population of 121 million anda nominal GDP of $314 billion. World Trade Organization and RTAs A basic principle of the General Agreement on Tariffs and Trade (GATT) that isadministered by the WTO is the most-favored nation (MFN) principle. In general, the MFNprinciple requires that trade concessions granted to one WTO member are to be applied to the tradeof all other signatories. RTAs, by definition, run counter to the MFN principle because products ofRTA member countries are given preferential treatment over nonmember products. (11) However, the WTO allowsmember countries to form regional trade agreements under strict rules. The WTO position is thatregional trade agreements can often support the WTO's multilateral trading system by allowinggroups of countries to negotiate rules and commitments that go beyond what was possible at the timeunder the WTO. The WTO has a committee on regional trade agreements that examines regionalgroups and assesses whether they are consistent with WTO rules. (12) WTO members are permitted to enter into RTAs under specific conditions. (13) Paragraphs 4 to 10 ofGATT Article XXIV as clarified in the Understanding on the Interpretation of Article XXIV of theGATT 1994 , provide for the formation and operation of customs unions and free-trade areas coveringtrade in goods. Article V of the General Agreement on Trade in Services (GATS), governs theconclusion of RTAs in the area of trade in services, for both developed and developing countries.Three of the key elements in these rules state that countries participating in an RTA must providedetailed notification of the agreement to the WTO; that the agreement applies to "substantially all"trade between partner countries; and that the agreement does not raise barriers to third-countrytrade. (14) Another set of rules refers to the so-called "Enabling Clause", the 1979 Decision onDifferential and More Favorable Treatment, Reciprocity and Fuller Participation of DevelopingCountries. These rules apply to preferential trade arrangements in trade in goods betweendeveloping country members and allows developing countries to form preferential tradingarrangements without the conditions under Article XXIV. (15) For non-reciprocal preferential trade arrangements, such as the US-Caribbean BasinEconomic Recovery Act, members must seek a waiver from WTO rules. These waivers require theapproval of three-fourths of WTO members. Economic Effects of Trade Integration Supporters of trade integration in the Americas view hemispheric free trade as supportingU.S. economic and political interests in several ways. They argue that the movement towards tradeintegration is beneficial for U.S. economic prosperity and will serve to strengthen democraticregimes and support U.S. values and security interests. Forming closer economic relations withcountries in the region is seen by some as a means to improve cooperation on other issues such asthe environment and anti-drug efforts. U.S. opponents to regional integration in the Americas areconcerned that hemispheric free trade would lead to a loss of jobs in the United States. They arguethat trade agreements would result in U.S. companies shifting production to lower-wage countrieswith weak labor and environmental standards. Economists are in general agreement that RTAs can provide economic benefits, but not thatthere are also associated costs. In general, they see RTAs as beneficial for an economy to the extentthat they provide trade creation over trade diversion. When a trade agreement lowers trade barrierson a good, production may shift from domestic producers to lower cost foreign producers and resultin substituting an imported good for the domestic good. This process is called trade creation. Tradecreation provides economic benefits as consumers have a wider choice of goods and servicesavailable at lower costs. Trade creation also results in adjustment costs, however, usually in theform of domestic job losses as production shifts to another country. The drawback to RTAs is that they may result in trade diversion because they are not fullyinclusive of all regional trading partners. Trade diversion results when a country forms an RTA andthen shifts the purchase of goods or services (imports) from a country that is not an RTA partner toa country that is an RTA partner. For example, if the United States was purchasing an item fromAsia prior to NAFTA and then began to purchase this item from Mexico after NAFTA was enforced,solely as a result of the trade agreement, even though the Asian country was the lower-cost producer,then NAFTA would be associated with trade diversion. Mexico would now be the producer of thatitem, not because it produced the good more efficiently, but because it was receiving preferentialaccess to the U.S. market. The effects of trade creation versus trade diversion are complex and difficult to measure. Much depends on the market structure and costs in which an RTA intervenes and the long-termdynamic effects of the RTA. A report by the Inter-American Development Bank (IADB) states thatmost studies have found that "trade creation greatly dominates trade diversion" in most regionalintegration trade arrangements. The study indicates that in the case of NAFTA, all members standto gain, particularly Mexico. In the case of Mercosur, the study indicates that Argentina, Brazil, andUruguay have the potential of increasing their GDP. (16) While an increase in RTAs throughout the Western Hemisphere may have benefits, they canalso result in complex networks of preferential trade arrangements. There are an increasing numberof overlapping trade agreements, each with its own tariff schedule and rules of origin regime. Someeconomists believe that these arrangements may pose challenges for developing countries and putthem in a "weaker position than under the multilateral framework." (17) Developing countries mayhave difficulties in navigating the maze of rules that accompany RTAs, and they may not be able tofully benefit from the new trade rules. Another disadvantage for developing countries is that RTAsmay result in a decreasing reliance on nonreciprocal trade preferences such as the duty-free treatmentthat Andean countries receive from the U.S. ATPDEA. According to the WTO study on RTAs, thereplacement of preferential trade arrangements with RTAs could present developing countries withchallenges as they transition from non-reciprocal trade preferences to mutual tradeliberalization. (18) Thesedisadvantages have the possibility of perpetuating poverty in the region. U.S. Trade Policy in Latin America and the Caribbean Since the passage of NAFTA, the United States, Canada, and Mexico have pursued tradeliberalization through bilateral, regional, and multilateral negotiations. All have participated in themultilateral talks for an FTAA but have also formed other bilateral agreements to help achieve theiroverall trade integration objectives. Many of the negotiations that have produced trade agreementshave been completed relatively quickly and have achieved broader trade liberalization thanmultilateral trade negotiations. One of the advantages in forming agreements on a bilateral orregional basis is that these agreements can achieve more liberalization in tariff and non-tariff barriersas opposed to the multilateral approach that usually achieves partial reductions on a limited numberof goods. NAFTA has served as a precedent for other U.S. trade agreements. The United States hasadvanced its trade policy agenda in the Western Hemisphere through bilateral trade initiatives withChile, Central America and the Dominican Republic, Panama and selected Andean countries (seeTable 3). The U.S.-Chile FTA was signed in June 2003 and entered into force in January 2004. CAFTA-DR was signed into U.S. law on August 2, 2005 and is expected to enter into force inJanuary 2006. In May 2004, the United States began negotiations with Colombia, Peru, Ecuador,and Bolivia on the U.S.-Andean free trade agreement. Those negotiations continue and are expectedto be concluded by the end of 2005. In April 2004, the United States began negotiations withPanama on the U.S.-Panama free trade agreement and those negotiations have not been concluded. Role of Trade Promotion Authority Trade promotion authority (TPA) is an arrangement involving the executive and legislativebranches that recognizes the distinct constitutional responsibilities of those branches regarding tradenegotiations and trade policy. By virtue of the constitutional power to conduct foreign affairs, thePresident has authority to negotiate and enter into agreements with foreign countries, including thoseagreements dealing with trade and tariff policy. At the same time, the Constitution gives Congressthe primary power over trade policy under Article I, and the Congress decides whether or not toapprove statutory changes that are called for under trade agreements that the President hasnegotiated. (19) The basic provisions of TPA were established in the Trade Act of 1974 ( P.L. 93-618 ) for alimited period of time. Those provisions have been renewed periodically, most recently under theTrade Act of 2002. Under TPA, Congress provides that, if a trade agreement is reached by a givendeadline, it will consider legislation to implement the trade agreement under expedited proceduresthat prohibit amendments, limit debate, and set deadlines on congressional action. Under the 2002Act as amended, Congress approved TPA for trade agreements entered into before July 1, 2005, butalso approved an automatic two-year extension of TPA to cover trade agreements entered into beforeJuly 1, 2007. With TPA, the President is assured that agreements such as the U.S.-Andean theU.S.-Panama FTAs would receive a timely, up-or-down vote in Congress as long as certainrequirements, such as consultations with Congress, are met. Without TPA, bills would be consideredunder normal legislative procedures and would be amendable. TPA expires in June 2007 and renewal of the trade act is uncertain. All trade agreementscurrently under negotiation by the United States must be concluded before this deadline in order toreceive the expedited procedures under TPA. North American Free Trade Agreement (NAFTA) NAFTA, signed by President George H.W. Bush on December 17, 1992, has been in effectsince January 1994. It is the largest preferential trade agreement in the world. The agreementeliminated tariffs and other trade and investment barriers among Canada, Mexico, and the UnitedStates with a phase-in period of 15 years. The phase-in period will end in 2008. The three countriesform the largest market in the Western Hemisphere, encompassing 430 million people and with agross domestic product (GDP) of $13.4 trillion. Total exports from the three countries total over onetrillion dollars, or 15.4% of the world total. Imports totaled $1.7 trillion in 2003, or 23% of theworld total. The goals of the NAFTA are to eliminate trade barriers, facilitate cross-border movement ofgoods and services among the countries, promote fair competition in the free trade area, increaseinvestment opportunities, and provide effective protection and enforcement of intellectual propertyrights. NAFTA is supplemented by two additional side agreements on environmental and laborstandards. The trade liberalization program has been implemented according to schedule, or earlier. Over 90 percent of goods are currently duty-free. (20) Total U.S. trade with NAFTA partners increased significantly over the past 11 years. Tradevolume with NAFTA partners increased from $293 billion in 1993 to $710 billion in 2004. Canadaand Mexico accounted for 31% of total U.S. trade of $2.29 trillion in 2004, up from $292.7 billionor 28% of U.S. total trade in 1993. The U.S. trade deficit with NAFTA partners has also grown,rising from $12 billion (9% of the total) in 1993 to $113 billion in 2004 (17% of the total). Over thepast three years, the share of U.S. trade with NAFTA partners, with respect to the rest of the world,has fallen. In 2001, Canada and Mexico accounted for 33% of total U.S. trade. In 2004, thispercentage fell to 31%. Canada and Mexico also account for a smaller share of the U.S. trade deficitsince 2001, down from 27% of the total in 2001 to 17% of the total in 2004. (21) Mexico and Canada have increased as a site for U.S. direct investment abroad (USDIA),though their share of total USDIA has fallen slightly since the 1990s. (22) Between 1993 and 2003,USDIA in Canada and Mexico increased from $84 billion (15% of total USDIA) to $254 billion(14% of total). In Canada, USDIA went from $70.4 billion (12.8% of total) to $192 billion (10.8%of total), while in Mexico it went from $15.4 billion (1.8% of total) to $62 billion (2.8% of total)during the same time period. Canada was the second largest recipient of USDIA in 2003 (behind theUnited Kingdom, which ranked first), while Mexico was the ninth largest recipient. (23) Table 3. United States' Trade Agreements Sources: Organization of American States (OAS), Foreign Trade Information System (SICE);Inter-American Development Bank, Beyond Borders, p. 26. * CAFTA-DR has been ratified by Dominican Republic, El Salvador, Honduras, Guatemala, andUnited States. Costa Rica has not yet ratified the agreement. U.S.-Chile FTA On June 6, 2003, the United States and Chile signed the U.S.-Chile FTA in Miami, Florida. On September 3, 2003, President George W. Bush signed the bill into law ( P.L. 108-77 ) and theagreement entered into force on January 1, 2004. The FTA with Chile is the first U.S. agreementwith a South American country and, at the time it was passed, there were expectations that it wouldprove to be a step forward in completing the FTAA. (24) The United States is Chile's largest single-country trading partner, accounting for 20% ofChilean exports and 15% of imports. In contrast, Chile ranks 29th among U.S. trading partners intotal trade. When the agreement entered into force in January 2004, 87% of bilateral trade inconsumer and industrial products became duty-free immediately, with the remaining tariffs to bereduced over time. Within four years of the agreement, about 75% of U.S. farm exports were toenter Chile duty-free. The agreement also increased market access for the United States in a broadrange of services. For Chile, 95% of its export products gained immediate duty-free status and only1.2% of its products fell into the longest 12-year phase-out period. In addition to the market accessprovisions, the agreement includes environment and labor provisions, more open governmentprocurement rules, increased access for services trade, greater protection of U.S. investment andintellectual property, and creation of a new e-commerce chapter. Central America-Dominican Republic Free Trade Agreement On August 5, 2004, the United States, Costa Rica, El Salvador, Guatemala, Honduras,Nicaragua, and the Dominican Republic signed the CAFTA-DR. The agreement has been ratifiedby six countries and had a target implementation date of January 1, 2006, which was not met. TheDominican Republic, El Salvador, Nicaragua, Honduras, and Guatemala have experienced delaysin writing the agreement's commitments into their national laws, but are expected to do so in early2006. Costa Rica has not ratified the agreement and may delay ratification until after its presidentialelections on February 5, 2006. (25) CAFTA-DR is a regional agreement with all parties subject to "the same set of obligationsand commitments," but with each country defining its own market access schedule. The agreementreplaces U.S. preferential trade treatment extended to these countries under the Caribbean BasinEconomic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and theGeneralized System of Preferences (GSP). It liberalizes trade in goods, services, governmentprocurement, intellectual property, and investment, and addresses labor and environment issues.Most commercial and farm goods attain duty-free status immediately. Remaining trade will havetariffs phased out incrementally over five to twenty years. Duty-free treatment will be delayedlongest for the most sensitive agricultural products. The CAFTA-DR specifies rules for transitionalsafeguards, tariff rate quotas, and trade capacity building. (26) The Dominican Republic and Central America partners are smaller countries with acombined population of 44 million and a total GDP of $86 billion. Exports from and imports to theregion account for less than one percent of the world total. All of the countries have haddemocratically elected presidents for some time, and several of the countries have experienced recentelectoral transitions. For each of the countries the United States is the dominant market as well asthe major source of investment and foreign assistance, including trade preferences under theCaribbean Basin Initiative (CBI) and assistance following devastating hurricanes. (27) CAFTA-DR is not expected to have a large effect on the U.S. economy as a whole, but itcould impose adjustment costs on some sectors. As with other trade agreements, supporters see itas part of a policy to support improved intra-regional trade, as well as political, and economicdevelopment in an area of strategic importance to the United States. Opponents to the agreementwere seeking improved trade adjustment and capacity building policies for Central Americancountries and the Dominican Republic. They also argued that these countries had inadequate laborlaws and that the labor provisions in the CAFTA-DR needed strengthening. U.S.-Andean FTA On May 18-19, 2004, the United States began free-trade negotiations with Colombia, Peru,and Ecuador. The first round of negotiations was held with Colombia, Peru, and Ecuador (withBolivia participating as an observer) in Cartagena, Colombia, in May 2004. The last round ofnegotiations (thirteenth round) in which all countries participated was held in Washington, D.C., inNovember 2005. This round was expected to be the last, but the talks ended without an agreement. Prior to the November talks, Presidents Alejandro Toledo of Peru, Alvaro Uribe of Colombia, andAlfredo Palacio of Ecuador had sent President Bush a letter in October 2005, urging the UnitedStates "to be more flexible in negotiations." (28) Colombia and Ecuador stepped out of the negotiations becausethey said they couldn't accept the U.S. position on patent protections and agriculture, while Perudecided to move forward alone in negotiations with the United States. (29) On December 7, 2005, the United States and Peru announced that they had successfullycompleted a bilateral free trade agreement. On January 6, 2006, President Bush notified theCongress of the United States' intention to sign a free trade agreement with Peru. Colombia andEcuador are continuing trade negotiations with the United States this year. Talks with Colombia arescheduled to take place January 25-31, 2006, while talks with Ecuador are expected to resumesometime in February 2006. Negotiators from Colombia and Ecuador have expressed hope toconclude the talks in their next set of meetings. If the two countries reach an agreement with theUnited States, it is unclear whether they would join with Peru to form a U.S.-Andean FTA orwhether the U.S.-Peru FTA would be considered as a separate agreement. A U.S.-Andean free trade agreement would eliminate tariff and non-tariff barriers to tradeamong the countries, but there have been some difficult issues in the negotiations. In general, theAndean countries want a long-term commitment that they will be able to export duty-free to the U.S.market, since their current trade preferences expire at the end of 2006. Intellectual property rights(IPR) protection and agriculture have been the most sensitive issues in the negotiations, thoughnegotiators have stated that progress in the IPR issue has been made. The Andean governments want to ensure access to the U.S. market, especially since theircurrent trade preferences will terminate at the end of 2006. The Andean governments also want toattract investment and see an FTA with the United States as a way to establish a more secureeconomic environment and increase foreign investment. (30) However, there is broad grass-roots opposition to an FTA withinthe Andean countries. The talks have drawn thousands of protestors in Colombia, Ecuador, andPeru. Opponents argue that any economic benefits from increased trade under an FTA will berealized by only a small segment of the economy, worsening the separation of the classes. They alsoargue that a large part of the Andean population is poor farmers, who are especially vulnerable andcannot compete against increased agricultural imports from the United States, which some Andeanofficials assert are heavily subsidized. Presently, Andean countries have preferential trade access under unilateral U.S. programs,but that access is scheduled to expire at the end of December 2006. The program began under theAndean Trade Preference Act (ATPA; title II of P.L. 102-182 ), enacted on December 4, 1991. ATPA authorized the President to grant duty-free treatment to certain products from the four Andeancountries that met domestic content and other requirements. It was intended to promote economicgrowth in the Andean region and to encourage a shift away from dependence on illegal drugs bysupporting legitimate economic activities. ATPA was originally authorized for 10 years and lapsedon December 4, 2001. After ATPA had lapsed for months, the ATPDEA (Title XXXI of P.L. 107-210 ), was enactedon August 6, 2002. ATPDEA reauthorized the ATPA preference program and expanded tradepreferences to include additional products that were excluded under ATPA. ATPDEA alsoauthorized the President to grant duty-free treatment to U.S. imports of certain apparel articles, if thearticles met domestic content rules. The ATPDEA accounted for about half of all U.S. imports fromthe four countries in 2003. Duty-free benefits under ATPDEA end on December 31, 2006. It ispossible that the trade preferences with Andean countries will not be renewed. An FTA with theUnited States would lock-in those preferences and additional duty-free treatment. U.S.-Panama FTA On November 16, 2003, President George W. Bush formally notified Congress of hisintention to negotiate an FTA with Panama. Negotiations began in April 2004, with eight rounds ofnegotiations held thus far. The last round was held in February 2005. Panama approached theUnited States for a stand-alone FTA, avoiding a link to CAFTA-DR because of the historical andstrategic nature of the U.S.-Panamanian relationship. Panama's limited integration with the CentralAmerican economies also bolstered the case for separate negotiations. (31) The United States is Panama's most important trading partner, accounting for approximately50% of Panama's exports and 34% of its imports. U.S.-Panama merchandise trade is small. In 2004,U.S. exports to Panama totaled $1.8 billion and U.S. imports totaled $316 million, producing a U.S.trade surplus of $1.5 billion. Panama ranked 48th as an export market for U.S. goods and 99th forU.S. imports. Supporters of the U.S.-Panama FTA believe that it would support foreign policy andeconomic interests of the United States and that is expected to lend stability to Panama's increasinglyopen economy. Those in the United States who oppose the FTA have raised concerns about laborand environmental standards in Panama. In Panama, protesters have held demonstrations againstthe agreement over various policy issues. (32) U.S. and Panamanian negotiators have used the CAFTA-DR framework to advance anagreement. The negotiation process moved fairly fast in the early stages, but no significant progresshas been made since February 2005. There is a possibility that talks will resume in the fall of 2005. President Bush visited Panama on November 7, 2005 and met with Panamanian President MartinTorrijos. The two leaders held a joint news conference in which they cited progress in reaching afree trade agreement but acknowledge the political challenges related to the trade talks. (33) Free Trade Area of the Americas (FTAA) The 1994 vision of hemispheric free trade has been embraced by President George W. Bushand promoted by the formal negotiations in the FTAA process but also by the expansion of bilateralfree trade agreements. An FTAA could have 34 members and nearly 800 million people. Thispopulation would be nearly twice the population of the European Union. The FTAA trade talks werelaunched in April 1998 and, after seven years, the original deadline for concluding the agreement haspassed and negotiators have failed to conclude an agreement, mostly over differences due toagriculture. Under the Declaration of Miami from the first Summit of the Americas, the 34 countriescommitted to make concrete progress toward an FTAA before 2000 and complete negotiations nolater than 2005. The Declaration called for building on existing subregional and bilateral agreementsto broaden and deepen integration. The Ministers elected to establish nine initial negotiating groups,which covered all the tariff and non-tariff barrier issue areas identified by the leaders at the MiamiSummit. The overall process is directed by the Trade Negotiation Committee (TNC), co-chaired bythe United States and Brazil for the remainder of the negotiations. (34) Under the General Principles and Objectives for the negotiations, trade ministers agreed toprovide transparency during the negotiations and also agreed that the FTAA should improve uponWTO rules and disciplines wherever possible and appropriate. The ministers agreed that thenegotiations would be a single undertaking in that the signatories to the final FTAA Agreementwould have to accept all parts of it (i.e. cannot pick and choose among the obligations.) (35) They also agreed that onlydemocracies would be able to participate in an FTAA and to make public the preliminary negotiatedtexts. At the November 2003 FTAA ministerial meeting in Miami, participating countries madea compromise on the scope and ambition of an FTAA. As worked out by the United States andBrazil, the compromise would create a two-tier FTAA structure by January 1, 2005. The first tierwould be comprised of a common set of rights and obligations on the nine negotiating groups for all34 FTAA countries. The second tier would consist of a series of plurilateral agreements in whichcountries would voluntarily undertake to achieve deeper disciplines and further liberalization in thenine groups. Although no negotiating area would be left out of the agreement, because countriescould take on varying obligations within the FTAA structure, it was a very different notion from thebroad "single undertaking" principle that had initially been envisioned. The 2003 Miami declaration also instructed the deputy trade ministers to define the commonset of obligations. However, the United States and Brazil were unable to agree on what areas wouldbe obligatory for all participants and the FTAA negotiations were suspended. Brazil's position calledfor all industrial and agricultural goods to be in the market access provisions and pressed forelimination of export subsidies and action on domestic price supports for agricultural goods. TheUnited States agreed to the elimination of export subsidies, but not domestic support for agriculture. The United States wants these provisions to be discussed in the WTO negotiations. According to a recent report analyzing the possible future of the FTAA talks, the negotiationshave produced a "heavily bracketed draft text and little else." (36) One positive developmentcited by the report is the trade capacity building initiatives advanced by the Inter-AmericanDevelopment Bank and national development agencies that have addressed critical infrastructure andadministrative problems in smaller economies. (37) The most recent Summit of the Americas, held in November 2005 in Mar del Plata,Argentina, failed to reach a consensus on the FTAA. One group, comprising the majority of the 34participating countries, were in support of reviving the FTAA talks, while the other group, comprisedof five countries including Brazil, Argentina, and Venezuela, refused to sign up for the talks. Thedisagreements mostly concern agriculture and intellectual property standards. The President ofBrazil's top foreign policy aide, Marco Aurelio Garcia, commented after the meeting that it isnecessary for "rich countries to reduce agricultural subsidies and barriers to trade" before talkingabout any launch dates for the talks. (38) There is also disagreement on the U.S. commitment toimplementing continent-wide intellectual property standards, which would reduce the prevalence ofunauthorized medicines. Brazil's government believes that this provision would reduce theavailability of lower-priced medicines for low-income populations in Brazil. (39) Regional Integration Initiatives in the Americas Countries in the Western Hemisphere have been forming regional trade agreements since1961 when the Central American Common Market was formed. Latin American countries viewregional trade agreements as a tool to help promote economic and social development but also as away of gaining leverage in the negotiations of larger scale agreements such as the FTAA. In general,Latin American countries have economic interests, but also recognize that trade agreements aloneare not sufficient to combat poverty and the larger social problems caused by poverty. Mexico Since the early 1990s, Mexico has had a growing commitment to trade liberalization and itstrade policy is among the most open in the world. Mexico has been actively pursing free tradeagreements with other countries as a way to bring benefits to the economy, but mostly to reduce itseconomic dependence on the United States. The United States is, by far, Mexico's most significanttrading partner. Approximately 90% of Mexico's exports go to the United States and about 60% ofMexico's imports come from the United States. Mexico's second largest trading partner is Canada,which accounts for approximately 2% of Mexico's exports and imports. (40) In an effort to increasetrade with other countries, Mexico has negotiated a total of 12 trade agreements involving over 40countries (see Table 4). These include bilateral or multilateral trade agreements with most countriesin the Western Hemisphere including the United States and Canada, Chile, Bolivia, Costa Rica,Nicaragua, Uruguay, Colombia, Venezuela, Guatemala, El Salvador, and Honduras. Mexico has alsobeen an active participant in the FTAA negotiations. Mexico has also negotiated free trade agreements outside of the Western Hemisphere and,in July 2000, entered into agreements with Israel and the European Union. Mexico became the firstLatin American country to have preferred access to these two markets. Mexico has completed atrade agreement with the European Free Trade Association (EFTA) of Iceland, Liechtenstein,Norway, and Switzerland. The Mexican government expanded its outreach to Asia in 2000 byentering into negotiations with Singapore, Korea, and Japan. In 2004, Japan and Mexico signed anEconomic Partnership Agreement. It was the first comprehensive trade agreement that Japan signedwith any country. (41) The large number of trade agreements has not yet been successful in decreasing Mexico'sdependence on trade with the United States. Canada Canada has been active in the FTAA negotiating process, but has not pursued bilateral tradeagreements to the degree of Mexico or the United States. Canada's dominating trading partner is theUnited States and most of its trade policy focus is centered on its trade relationship with the UnitedStates. Canada has achieved considerable economic integration with the United States in a numberof sectors and considered options to further its relationship. However, after the terrorist attack ofSeptember 11, there has been a wide-ranging debate in Canada over its relationship with the UnitedStates and the question of whether deeper North American integration would be beneficial to theCanadian economy. (42) Canada has entered into three bilateral trade agreements since NAFTA. These include agreementswith Israel (1997), Chile (1997), and Costa Rica (2001). It is also considering trade agreements withSingapore and the EFTA. Table 4. Mexico's Trade IntegrationAgreements Sources: Organization of American States (OAS), Foreign Trade Information System (SICE);Inter-American Development Bank, Beyond Borders, p. 26. Southern Common Market (Mercosur) Mercosur was created in March 1991 by Argentina, Brazil, Paraguay, and Uruguay throughthe signing of the Treaty of Asunción. The goals of the treaty included the formation of a commonmarket with free movement of goods, services, and factors of production; the adoption of a commonexternal tariff and a common trade policy; the coordination of macroeconomic and sectoral policies;and legislative harmonization in areas conducive to stronger integration. Mercosur is the largest preferential trade group in South America, with a combined grossdomestic product of $778 billion (representing 40% of Latin America's GDP) and a population of227 million in 2004. (43) U.S. exports to Mercosur totaled $18.2 billion in 2004, while U.S. imports totaled $25.5 billion. TheUnited States had a trade deficit of $7.3 billion with Mercosur in 2004, an increase of $2.7 billionover the $4.6 billion deficit in 2002. Prior to 2002, the United States had a trade surplus with thesecountries. The surplus went from a high of $11.1 billion in 1997 to $2.9 billion in 2001. The U.S.direct investment position in Mercosur totaled approximately $45 billion in 2004, down from $55.4billion in 2000. Brazil accounts for over 70% of USDIA in Mercosur countries. Mercosur countries have progressively lifted trade barriers and established a free trade areasince 1991, but continue to have barriers in some sectors. In 1994, the Treaty of Asuncion wasamended and updated by the Treaty of Ouro Preto. The 1994 treaty helped improve the institutionalstructure of Mercosur and initiated a new phase in the trade relationship of member countries as theyfurthered their goal of realizing a common market. Bolivia, Chile, Colombia, Ecuador, Peru, andVenezuela have associate member status in Mercosur. Associate members do not take part inMercosur's major trade negotiations and may choose not to abide by its trade rules. Mercosur countries began the transition to a common market in 1994 with the goal ofcompleting internal free trade by 2000 and a common market by 2006. The free trade goal wasdelayed due to economic difficulties in the member countries. The 2002 crisis in which Argentinafaced its most serious economic downturn in its independent history has been one of the moreserious setbacks. Mercosur has a common external tariff (CET) organized in 11 tiers with tariff ratesranging from 0 to 20 percent with an average level of 13.5 percent that entered into force in 1995. The CET has some exceptions with special customs regimes applying to the sugar and automotivesectors. Member countries have approved common regional provisions covering trade in services,safeguards, anti-dumping and dispute settlement, but these have been only partially implemented. The executive body of Mercosur, the Common Market Council (CM), has agreed on a workingprogram focused on the lifting of the remaining market access barriers. (44) Throughout much of the 1990s, Mercosur was the most dynamic economic subgroup in theWestern Hemisphere in terms of trade growth among its members. Things changed at the end of thedecade when Brazil was faced with a financial crisis and the devaluation of the Brazilian real in1999. The economic situation affected Argentina as well, causing a severe and political financialcrisis that ended the presidency of Fernando de la Rua. The downturn in the economies of bothcountries caused the momentum towards deeper integration to decrease. Some have questionedwhether trade liberalization was partly at fault for the economic crises and whether furtherliberalization is feasible or beneficial for the economy. (45) In recent years, Mercosur countries have been working on several trade initiatives. Mercosurand the Andean Community of Nations (CAN) signed a statement of intent in December 2004 toform an economic union similar to the European Union by 2019 (see section on South AmericanCommunity of Nations of this report). Mercosur has also pursued trade liberalization with the EU. The 1995 EU-Mercosur Interregional Framework Cooperation Agreement began the preparation ofnegotiations for an interregional agreement which would a include a liberalization of trade in goodsand services, in conformity with WTO rules, as well as enhanced cooperation and a strengtheningof political dialogue. In June 1999, negotiations on the agreement formally began. The latest roundof negotiations to strengthen political, economic, and trade ties between Mercosur and the EU tookplace in October 2004 and the next round is scheduled to take place before the end of 2005. (46) Mercosur countries held preliminary talks with Mexico on May 20, 2005 toward makingMexico an associate member of the trade bloc. Associate members receive preferential dutytreatment for their products but are not required to adopt Mercosur's common external tariffs. (47) Andean Community of Nations (CAN) The CAN is one of the oldest sub-regional groupings in the hemisphere. It was originallyformed in 1969 as the Andean Pact (later called the Andean Group and later the Andean Communityof Nations). The Andean Community presently consists of Bolivia, Colombia, Ecuador, Peru, andVenezuela. The Cartagena Agreement creating the Andean Pact was signed by Bolivia, Chile,Colombia, Ecuador, and Peru in May 1969. Venezuela acceded in February 1973 and Chilewithdrew in October 1976. In 2004, Andean Community countries had a combined GDP of $314 billion and a populationof 121 million. Exports from these countries totaled $76 billion or 0.8% of the world total, whileimports totaled $52 billion or 0.6% of the world total. The country with the highest amount ofexports is Venezuela, with $36 billion in exports, and the country with the highest amount of importsis Colombia with $17 billion in imports. About ten percent of Andean Community trade is intra-bloctrade. The United States is the principal trading partner, accounting for approximately 50 percentof CAN exports, while the EU is second. U.S. imports from the region totaled $40 billion, whileU.S. exports totaled $13 billion. The United States had a trade deficit of $27 billion with the AndeanCommunity in 2004. (48) The Cartagena Agreement was the initial step toward economic integration among the partieswith a broader vision towards forming a common market over time. The process lost momentumin the 1970s but then revived in the 1990s. The group established a four-country free trade area in1993 (Bolivia, Colombia, Ecuador, and Venezuela) and agreed on the implementation of a commonexternal tariff. In 1996, the presidents of the Andean countries pledged to transform the group intoa common market and created the Andean Community (it had been called the Andean Group priorto that) based on a new institutional structure. The parties agreed on a timetable to reincorporatePeru into the free trade area (Peru had been suspended since 1992), committed to creating a commonmarket by the end of 2005 in which goods, services, capital, and labor would move freely. Theleaders also started the negotiation of a four-tier common external tariff expected to be in place bythe end of 2003. (49) Political and economic setbacks have prevented the formation of a more integrated Andean union. The trade in goods between Bolivia, Colombia, Ecuador, and Venezuela is fully deregulated,which means that goods originating in any one of those countries can enter the territory of the othersduty-free. As a result, these four countries have a free trade area that Peru is becoming a part ofthrough a liberalization program. The efforts of the Andean countries continue to focus onintegration and implementing measures for preventing and correcting practices that distort freecompetition (50) The Andean Community is considered one of the most institutionalized regional agreementsamong developing countries. Its institutional structure is patterned along the lines of the EuropeanCommunity. The institutions include a formal Andean Presidential Council that meets regularly, aCourt of Justice with supranational powers, and an Andean Integration System that incorporates allthe Andean integration agencies. (51) The Andean Community is pursuing trade integration agreements with Mercosur, aspreviously mentioned, and also with the EU. Free trade talks between the CAN and the EU werescheduled to start in 2006, but that is no longer a certainty. During a meeting in Peru in June 2005,members of the European Parliament said a lack of agreement on trade issues among CAN membersmay derail the start of talks. One of the major problems they mentioned has to do with the lack ofagreement on how to implement a common tariff structure. The CAN's target date for implementinga common external tariff has not been met. (52) Central American Common Market (CACM) The Central American Common Market (CACM) was established in December 1960 byCosta Rica, El Salvador, Guatemala, Honduras, and Nicaragua upon the signing of the GeneralTreaty on Central American Economic Integration. Costa Rica acceded to the integration agreementin July 1962. The 1960 treaty envisioned the creation of a common market which would come intoeffect after the treaty came into force. Although integration looked very promising in the firstdecade, political and economic challenges in the region prevented the region from establishing thecommon market that was earlier envisioned. The process was renewed in 1993 with the GuatemalaProtocol which provided a new foundation for Central America's economic integration. Membercountries hoped to implement a customs union by the end of 2003 but that process has been delayedas well. With the signing of CAFTA-DR, it is uncertain whether or when the Central Americanregion will establish a customs union. Currently, most intra-regional trade is tariff-free, but someexceptions remain including coffee and sugar. Member countries have agreed to a four-tier commonexternal tariff schedule. About 80% of the common external tariff schedule has beenimplemented. (53) Caribbean Community (CARICOM) Members of the Caribbean Community include Antigua and Barbuda, the Bahamas,Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St.Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago. The DominicanRepublic has observer status. In 1989, CARICOM members agreed to create a CARICOM Single Market and Economy(CSME) that would entail removing obstacles to trade in goods and services; allowing the freemovement of skilled persons; ending the restrictions on capital movements; adopting a commonexternal tariff (CET) and common trade policy; and having greater coordination in other areas ofeconomic policy. The founding treaty has nine modifying protocols to facilitate completion of thesingle market. These include the Institutional Framework (Protocol I); Establishment, Provision ofServices and Movement of Capital (Protocol II); Industrial Policy (Protocol III), Trade Policy(Protocol IV), Agricultural Policy (Protocol V), Transport Policy (Protocol VI), DisadvantagedCountries, Regions and Sectors (Protocol VII), Competition Policy (Protocol VIII), and DisputeSettlement (Protocol IX). Some of the protocols have entered into force while others are beingapplied provisionally by some member countries. Protocols that have entered into force include I,II, IV, and VII. (54) CARICOM has moved ahead with its regional integration since the founding treaty. Intra-regional trade is virtually free. All tariffs and most trade restrictions have been removed,although some exceptions do remain. Efforts have been made to harmonize national customs laws,but corresponding legislation has not been fully implemented. The trade group has instituted aregime governing common standards for trade in goods, and is establishing a Caribbean RegionalOrganization for Standards and Quality (CROSQ). The CET is fully implemented in most countriesalthough member states have the right to negotiate bilateral trade agreements with third countries.Progress has been made in the free movement of capital, but some restrictions remain. In regard tothe free movement of people, this is limited to certain professional categories. Member countriesare also making progress in harmonizing regulatory frameworks, but much depends on their abilityto devote the necessary technical and financial resources. The countries indicate that they needfinancing to establish a fund to assist the less developed countries and to establish the envisagedlegal bodies. (55) In 2004, CARICOM made advancements in its integration process, including implementationof the CSME, foreign policy coordination, and functional cooperation. CARICOM made progresson removing restrictions on services provisions and the movement of capital and skilled labor. Inthe area of functional cooperation, member countries have cooperated in the fight against HIV/AIDSand natural disaster management plans. (56) In mid-April 2005, CARICOM members established theCaribbean Court of Justice, headquartered in Port-of-Spain in Trinidad and Tobago, that will serveas region's final court of appeal and replace the Privy Council based in London. The Court will playan important role in the region's economic integration by ruling on trade disputes in the forthcomingCARICOM CSME. Barbados, Jamaica, and Trinidad are leading the way in moving ahead with theimplementation of the CSME, and other Caribbean states are expected to become compliant by theend of 2005. (57) CARICOM countries have been taking steps to form trade agreements with other countriesand regional trade blocs. In March 2004, CARICOM (with the exception of the Bahamas and Haiti)signed a free trade agreement with Costa Rica. It is also in the process of negotiating an agreementto improve trade with Canada by focusing on four areas: market access, investment, services, andinstitutional arrangements and dispute settlement. (58) CARICOM countries are also negotiating agreements with theEU and Mercosur. CARICOM countries and the Dominican Republic are in the third stage ofnegotiations toward an economic partnership agreement that will contain a reciprocal free tradeagreement with the EU. Officials from the Caribbean and Mercosur countries held talks in February2005 about establishing a free trade agreement between the two regions. South American Community of Nations (CSN) After the Third South America Summit on December 8, 2004, the two major trade blocs inSouth America, Mercosur and the CAN, signed the Cuzco Declaration, a statement of intent to formthe South American Community of Nations (CSN). The CSN is planned as a continent-wide freetrade zone uniting the two trade blocs and has a plan to eliminate tariffs for non-sensitive productsby 2014 and sensitive products by 2019. The declaration was signed by representatives from twelveSouth American nations. Panama attended the signing ceremony as an observer. One of the goalswas to have a constitution drafted in 2005, but it is uncertain if that goal will be met because the firstmeeting of heads of state held in September 30, 2005 in Brasilia ended without a plan of action. The group of twelve South American nations would eventually become the world's fifthlargest trade block according to Didier Opertti, the Secretary-General of the Latin AmericanIntegration Association (ALADI). Tariffs are to be phased out in stages and through bilateralmeetings between countries, without the need for parliamentary ratification in most cases. (59) Political leaders in SouthAmerica view this agreement as a significant step towards economic integration in South Americaand the possible creation of a South American union. The accord includes all the countries in SouthAmerica with the exception of the smaller economies of Suriname, Guyana and French Guiana. Thetwo trade blocs have a combined GDP of $800 billion. Total trade among the countries totals around$30 billion a year. Some South American leaders have mentioned the possibility of political union as well,saying that it would be "the most important political development of the decade." Brazilian ForeignMinister Celso Amorim underlined the importance of creating institutions that are needed to bringabout South American economic integration and of doing the same in the future for social andpolitical integration of the "South American Community". (60) Leaders expect that theintegration of South America would put South American countries in a stronger position innegotiations with the rest of the world, including a possible free trade agreement with the EU andthe Free Trade Area of the Americas (FTAA). Interest in strengthening integration with LatinAmerica has been supported by foreign ministers of the 12 ALADI countries (Argentina, Bolivia,Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.) The first summit of the South American Community of Nations was held in Brasilia onSeptember 30, 2005. The summit was attended by the majority of heads of state of South Americancountries. Despite efforts by Venezuelan President Hugo Chavez to replace the proposed structureof the CSN by his own proposal, the representatives at the summit decided to press ahead with whatalready been developed by their foreign ministers in preparatory meetings. They endorsed the ideaof a merger of Mercosur and CAN to make the whole of South America a free-trade area. One ofthe results of the summit was a request to the secretariats of all existing mechanisms of integrationto prepare studies on the convergence of trade agreements between South American countries bymid-2006 at the latest. (61) Policy Issues and Implications Continuation of Bilaterals and Regional Trade Agreements In the absence of an FTAA, it is highly possible that the number of bilateral RTAs in theWestern Hemisphere may continue to increase. Some analysts note that as the number of RTAsincrease, there is a possibility of consolidating existing agreements into larger trading arrangementsin regions of the world, as in the case of the EU which went through five consecutive enlargements,bringing the membership of the Union from six to 25 members. (62) Another example ofconsolidation or expansion is the bilateral agreement between the United States and Canada in the1980s, which helped to bring focus on the Uruguay Round of multilateral negotiations and theformation of NAFTA. However, some believe that this strategy is not the best course of action forthe United States. One of the reasons given is that the focus on bilaterals is distracting the UnitedStates from its leadership role in energizing the FTAA negotiations. Another reason given is thatthe bilateral agreements are doing little to resolve problems such as the trade issues related toagriculture, or strengthening the trade relationship between the United States and Brazil. (63) Completion of an FTAA All the countries of the Western Hemisphere, with the exception of Cuba, have been activeparticipants in the establishment of an FTAA. In August 2005, senior representatives from all FTAAcountries met in Mexico. Caribbean trade officials urged countries to hold an administrative meetingprior to the November 2005 Summit of the Americas to restart the stalled FTAA negotiations. Theysuggested that negotiators look at the technical and political obstacles that are holding back the talksand restart the negotiations with a new "road map" that would guide negotiators toward a conclusionof the negotiations. (64) However, the recent Summit of the Americas, held in Mar del Plata, Argentina, was not successfulin reactivating the trade talks. The majority of the 34 participating countries were in support of thetalks, while five countries, including Brazil, Argentina, and Venezuela, were opposed to signing upfor the talks, mostly due to disagreements over agriculture and intellectual property rights. Some observers are pessimistic about the near-term possibility of restarting the talks, butthere are many analysts who believe that pursuing multilateral talks would be advantageous for theregion. Some have expressed hope that progress on agriculture at the WTO and that the November2005 Summit of the Americas could help move the negotiations forward. According to a study bythe Government Accountability Office (GAO), there are three factors that have been impedingprogress in the FTAA negotiations: 1) The United States and Brazil have made little progress inresolving basic differences on key negotiation issues; (2) member governments have shifted energyand engagement from the FTAA to bilateral and other multilateral trade agreements; and 3) twomechanisms intended to facilitate progress, a new negotiating structure and the co-chairmanship bythe U.S. and Brazil, have failed to do so. (65) The GAO study found that officials from many nations andregional groups in the Western Hemisphere have indicated a continued commitment to establishinga mutually beneficial FTAA. (66) If the FTAA talks move forward and an agreement is signed, it would provide considerablenew trade and investment opportunities for the 34 participating countries. For the United States, anFTAA would support the U.S. interest in gaining deeper access to markets in South America. TheUnited States might also benefit in that an FTAA could reinforce economic and political reforms thathave occurred in Latin America and could help build support for other important U.S. goals such asdrug interdiction, improving environmental and labor conditions, supporting educational reforms,and reinforcing democracy. (67) In terms of trade, the U.S. position has been that the FTAAwould be significant if it achieves trade liberalization beyond that which has been accomplishedunder the WTO, especially in the areas of liberalization of trade in services and investment;liberalization in government procurement; enforcement of intellectual property rights; and theinclusion of labor and environmental issues. (68) For countries in Latin America and the Caribbean, the FTAA may help national incomelevels in the region, but not all economic sectors would benefit. Some economists believe that tradeliberalization is needed to improve economic development in the region. An International MonetaryFund (IMF) report found that trade openness in Latin America remained low and cited "abundantempirical evidence" that the more open a country is to trade, the higher its growth performance. Among the report's recommendations is that countries in Latin America need "to liberalize trade andstrengthen their financial systems" to help sustain economic growth. (69) However, Latin Americancountries would have to take additional measures to benefit from trade liberalization and improveeconomic conditions. One study on the effects of an FTAA on Latin America reports that anysignificant effect on incomes and inequality would take a very long time to show up. It states thatthe long-term economic health of Latin America would require much improvement ineducation. (70) Trade Integration and U.S. Interests Trade integration in the Americas has gained momentum since the 1990s. The possibilityof forming an FTAA or trade agreements with Andean countries and Panama is of interest topolicymakers because of the economic and political implications for the United States. As theeffects of NAFTA on the U.S., Mexican, and Canadian economies become clearer, policymakers arefaced with the issue of whether trade agreements are beneficial to the United States and how theUnited States should proceed in its trade policy in the Western Hemisphere. An underlying question is whether the United States should continue to deepen tradeintegration in the Americas and, if so, whether negotiating bilateral trade agreements is the mostappropriate trade policy. As pointed out earlier, some analysts do not believe that bilateral tradeagreements are the best course of action because they take away the focus from energizing the FTAAnegotiations and are slowing down the process. Others believe that RTAs have led to theconsolidation of trade agreements into larger free trade areas in other parts of the world and that thesame thing could occur in the Western Hemisphere over time. Another issue is whether the United States should deepen integration with its NAFTA tradingpartners. A recent study by senior fellows at the Institute for International Economics on theachievements and challenges of NAFTA finds that, while NAFTA has been successful in promotingregional trade and investment, it also has limitations. The authors propose that NAFTA be"upgraded" and that the United States, Canada, and Mexico should convert their free trade agreementinto a customs union and adopt a common external tariff. They believe that this would promotecommerce among the three trading partners; reduce distortions generated by NAFTA rules of origin;and help resolve some of the trade disputes that are affecting trade relationships in NorthAmerica. (71) Regional integration also has political implications for the United States. Some observerssee the impetus for trade liberalization as political as well as economic. There are several questionsthat policymakers could consider. To what extent do trade integration agreements foster politicalstability in a country? Are they a useful tool for building a more democratic, secure, and prosperousregion?

Since the 1990s, the countries of Latin America and the Caribbean have been a focus ofUnited States trade policy, as demonstrated by the passage of the North American Free TradeAgreement (NAFTA), the U.S.-Chile Free Trade Agreement, and, more recently, the CentralAmerica-Dominican Republic Free Trade Agreement (CAFTA-DR). The Bush Administration hasmade trade agreements important elements of U.S. trade policy. The United States currently is inthe process of completing trade negotiations with Andean countries for a free trade agreement (FTA)and on reactivating talks for a U.S.-Panama FTA and a Free Trade Area of the Americas (FTAA). The FTAA is an on-going regional trade initiative that was first discussed in 1994 and formallystarted in 1998. The last FTAA trade ministerial meeting was held in Miami in November 2003, butthe talks are currently stalled. The efforts of the United States in regional trade integration in the Americas are significantfor Congress because U.S. entry into any free trade agreement may only be done with the legislativeapproval of the Congress. U.S. supporters of trade integration in the Americas believe it helps U.S.economic and political interests in several ways. Proponents believe that the movement towardstrade integration of the Americas is beneficial for U.S. prosperity, and also serves to strengthendemocratic regimes and support U.S. values and security. Forming closer economic relations withcountries in the region is seen by some as a means to improve cooperation on other issues such asthe environment and anti-drug efforts. U.S. opponents of trade integration proposals are mainlyconcerned that hemispheric free trade would lead to a loss of jobs in the United States throughincreased import competition or as a result of U.S. companies shifting production to lower-wagecountries with weak labor standards. The number of regional trade agreements in the Americas has been increasing since the1990s. Major trade arrangements include NAFTA, CAFTA-DR, the Southern Common Market(Mercosur) in South America , the Andean Community (CAN), the Caribbean Community andCommon Market (CARICOM), the Central American Common Market (CACM), and the LatinAmerican Integration Association (ALADI). With a total of 12 trade agreements involving over 40countries, Mexico is one of the countries with the highest number of agreements. Supporters notethat if countries in the Western Hemisphere ultimately establish an FTAA, it could have as many as34 members and nearly 800 million people, nearly twice the population of the European Union. Trade integration in the Americas is of interest to policymakers because of the implicationsfor the United States. Issues under debate include the pros and cons of deepened trade relations withLatin America and the Caribbean, and whether the current focus on bilateral and regional FTAs isthe most appropriate trade policy. Some analysts do not believe that such a policy is a good ideabecause it is creating a complicated network of trade agreements throughout the region could slowdown the FTAA process. Others believe that regional trade agreements lead to the consolidation ofregional trade areas into larger free trade areas, and although a slow process, may eventually lead toa hemispheric free trade area.

I. Introduction Congress enacted the federal Racketeer Influenced and Corrupt Organization (RICO) provisions as part of the Organized Crime Control Act of 1970. In spite of its name and origin, RICO is not limited to "mobsters" or members of "organized crime," as those terms are popularly understood. Rather, it covers those activities which Congress felt characterized the conduct of organized crime, no matter who actually engages in them. RICO proscribes no conduct that is not otherwise prohibited. Instead it enlarges the civil and criminal consequences, under some circumstances, of a list of state and federal crimes. In simple terms, RICO condemns (1) any person (2) who (a) invests in, or (b) acquires or maintains an interest in, or (c) conducts or participates in the affairs of, or (d) conspires to invest in, acquire, or conduct the affairs of (3) an enterprise (4) which (a) engages in, or (b) whose activities affect, interstate or foreign commerce (5) through (a) the collection of an unlawful debt, or (b) the patterned commission of various state and federal crimes. Violations are punishable by (a) forfeiture of any property acquired through a RICO violation and of any property interest in the enterprise involved in the violation, and (b) imprisonment for not more than 20 years, or life if one of the predicate offenses carries such a penalty, and/or a fine of not more than the greater of twice of amount of gain or loss associated with the offense or $250,000 for individuals and $500,000 for organizations. RICO violations also subject the offender to civil liability. The courts may award anyone injured by a RICO violation treble damages, costs and attorneys' fees, and may enjoin RICO violations, order divestiture, dissolution or reorganization, or restrict an offender's future professional or investment activities. RICO also makes provision (1) for venue and service of process in RICO criminal and civil cases; (2) for expedited judicial action in certain RICO civil cases brought by the United States; (3) for in camera proceedings in RICO civil cases initiated by the United States; and (4) for the Department of Justice's use of RICO civil investigative demands. RICO cases have been attacked on a host constitutional grounds and generally survived. II. A Closer Look at the Elements A. Any person Any person may violate RICO. The "person" need not be a mobster or even a human being; "any individual or entity capable of holding a legal or beneficial interest in property" will do. Although the "person" and the "enterprise" must be distinct in the case of a subsection 1962(c) violation (conducting an enterprise's activities through racketeering activity), a corporate entity and its sole shareholder are sufficiently distinct to satisfy the enterprise and person elements of a subsection (c) violation. The "person" and "enterprise" need not be distinct for purposes of subsection 1962(a) (investing the racketeering activity proceeds in an enterprise) or subsection 1962(b) (acquiring or maintaining an enterprise through racketeering activity) violations. Even though governmental entities may constitute a corrupted RICO enterprise or in some instances the victims of a RICO offense, they are not considered "persons" capable of a RICO violation. B. Conduct 1. Invest RICO addresses four forms of illicit activity reflected in the four subsections of section 1962: (a) acquiring or operating an enterprise using racketeering proceeds; (b) controlling an enterprise using racketeering activities; (c) conducting the affairs of an enterprise using racketeering activities; and (d) conspiring to so acquire, control, or conduct. The first, 18 U.S.C. 1962(a), was designed as something of a money laundering provision. "The essence of a violation of §1962(a) is not commission of predicate acts but investment of racketeering income." It introduces several features of its own and has been described as the most difficult to prove. Under its provisions, it is unlawful for (1) any person (2) who is liable as a principal (a) in the collection of an unlawful debt or (b) in a pattern of predicate offenses (3) to use or invest (4) the income from such misconduct (5) to acquire, establish or operate (6) an enterprise in or affecting commerce. The "person," the pattern of predicate offenses, and the enterprise elements are common to all of the subsections. For purposes of 1962(a), however, a legal entity that benefits from the offense may be both the "person" and the "enterprise." The person must have committed usury or a pattern of predicate offenses or aided and abetted in their commission, have received income that would not otherwise have been received as a result, and used those proceeds to acquire or operate an enterprise in or whose activities have an impact on interstate or foreign commerce. 2. Acquire or Maintain The second proscription, 18 U.S.C. 1962(b), is much the same, except that it forbids acquisition or control of an enterprise through the predicates themselves rather than through the income derived from the predicates. It makes it unlawful for (1) any person (2) to acquire or maintain an interest in or control of (3) a commercial enterprise (4) through (a) the collection of an unlawful debt or (b) a pattern of predicate offenses. As in the case of subsection 1962(a), the "person" and the "enterprise" may be one and the same. There must be a nexus between the predicate offenses and the acquisition of control. Exactly what constitutes "interest" or "control" is a case-by-case determination. The defendant must be shown to have played some significant role in the management of the enterprise, but a showing of complete control is unnecessary. 3. Conduct of Affairs Subsection 1962(c) makes it unlawful for (1) any person, (2) employed by or associated with, (3) a commercial enterprise (4) to conduct or participate in the conduct of the enterprise's affairs (5) through (a) the collection of an unlawful debt or (b) a pattern of predicate offenses. Subsection 1962(c) is the most common substantive basis for RICO prosecution or civil action. Although on its face subsection 1962(c) might appear to be less demanding than subsections 1962(a) and (b), the courts have not always read it broadly. Thus, in any charge of a breach of its provisions, the "person" and the "enterprise" must ordinarily be distinct. The requirement cannot be avoided by charging a corporate entity as the "person" and the officers and employees through whom it must act as an "association in fact" enterprise. A corporate entity and its sole shareholder, however, are sufficiently distinct for purposes of subsection 1962(c). The Supreme Court has identified an entrepreneurial stripe in the "conduct or participate in the conduct" element of subsection 1962(c) under which only those who direct the operation or management of the enterprise itself satisfy the "conduct" element. Liability, however, is not limited to the "upper management" of an enterprise, but extends as well to those within the enterprise who exercise broad discretion in carrying out the instructions of upper management. Moreover, conviction requires neither an economic predicate offense nor a predicate offense committed with an economic motive. C. Pattern of Racketeering Activity 1. Predicate Offenses The heart of most RICO violations is a pattern of racketeering activities, that is, the patterned commission of two or more designated state or federal crimes. The list of state and federal crimes upon which a RICO violation may be predicated includes the following: (A) any act or threat involving— dealing in obscene material, or dealing in controlled substances or listed chemicals chargeable under state law and punishable by imprisonment for more than one year; (B) violation of— 18 U.S.C. 201 (bribery of federal officials) 18 U.S.C. 224 (bribery in sporting contests) 18 U.S.C. 471, 472, 473 (counterfeiting) 18 U.S.C. 659 (theft from interstate shipments)(if felonious) 18 U.S.C. 664 (theft from employee benefit plan) 18 U.S.C. 891-894 (loansharking) 18 U.S.C. 1028 (fraudulent identification documents)(if for profit) 18 U.S.C. 1029 (computer fraud) 18 U.S.C. 1084 (transmission of gambling information) 18 U.S.C. 1341 (mail fraud) 18 U.S.C. 1343 (wire fraud) 18 U.S.C. 1344 (bank fraud) 18 U.S.C. 1351 (fraud in foreign labor contracting), 18 U.S.C. 1425 (procuring nationalization unlawfully) 18 U.S.C. 1426 (reproduction of naturalization papers) 18 U.S.C. 1427 (sale of naturalization papers) 18 U.S.C. 1461-1465 (obscene matter) 18 U.S.C. 1503 (obstruction of justice) 18 U.S.C. 1510 (obstruction of criminal investigation) 18 U.S.C. 1511 (obstruction of state law enforcement) 18 U.S.C. 1512 (witness tampering) 18 U.S.C. 1513 (witness retaliation) 18 U.S.C. 1542, 1543, 1544, 1546 (passport or similar document fraud) 18 U.S.C. 1581-1592 (peonage & slavery) 18 U.S.C. 1951 (Hobbs Act (interference with commerce by threat or violence) 18 U.S.C. 1952 (Travel Act (interstate travel in aid of racketeering) 18 U.S.C. 1953 (transportation of gambling paraphernalia) 18 U.S.C. 1954 (bribery to influence employee benefit plan) 18 U.S.C. 1955 (illegal gambling business) 18 U.S.C. 1956, 1957 (money laundering) 18 U.S.C. 1958 (murder for hire) 18 U.S.C. 1960 (illegal money transmitters) 18 U.S.C. 2251, 2251A, 2252, 2260 (sexual exploitation of children) 18 U.S.C. 2312, 2313 (interstate transportation of stolen cars) 18 U.S.C. 2314, 2315 (interstate transportation of stolen property) 18 U.S.C. 2318-2320 (copyright infringement) 18 U.S.C. 2321 (trafficking in certain motor vehicles or motor vehicle parts) 18 U.S.C. 2341-2346 (contraband cigarettes) 18 U.S.C. 2421-2424 (Mann Act) (C) indictable violations of— 29 U.S.C. 186 (payments and loans to labor organizations) 29 U.S.C. 501(c) (embezzlement of union funds) (D) any offense involving— fraud connected with a case under title 11 (bankruptcy) fraud in the sale of securities felonious violations of federal drug law (E) violation of the Currency and Foreign Transactions Reporting Act [31 U.S.C. 5311-5332] (F) violation (for profit) of the Immigration and Nationality Act, section 274 (bringing in and harboring aliens), section 277 (helping aliens enter the U.S. unlawfully), or section 278 (importing aliens for immoral purposes), and (G) violation of [a statute identified as a federal crime of terrorism in 18 U.S.C. 2332b(g)(5)(B)]— 18 U.S.C. 32 (destruction of aircraft or aircraft facilities) 18 U.S.C. 37 (violence at international airports) 18 U.S.C. 81 (arson within special maritime and territorial jurisdiction) 18 U.S.C. 175 or 175b (biological weapons) 18 U.S.C. 175c (variola virus) 18 U.S.C. 229 (chemical weapons) 18 U.S.C. 351(a), (b), (c), or (d) (congressional, cabinet, and Supreme Court assassination and kidnaping) 18 U.S.C. 831 (nuclear materials) 18 U.S.C. 832 (participating in foreign nuclear program) 18 U.S.C. 842(m) or (n) (plastic explosives) 18 U.S.C. 844(f)(2) or (3) (arson and bombing of Government property risking or causing death) 18 U.S.C. 844(i) (arson and bombing of property used in interstate commerce) 18 U.S.C. 930(c) (killing or attempted killing during an attack on a Federal facility with a dangerous weapon) 18 U.S.C. 956(a)(1) (conspiracy to murder, kidnap, or maim persons abroad) 18 U.S.C. 1030(a)(1) (protection of computers) 18 U.S.C. 1030(a)(5)(A)(damage to protected computers under 1030(a)(4)(A)(i)(II) through (VI)) 18 U.S.C. 1114 (killing or attempted killing of officers and employees of the United States) 18 U.S.C. 1116 (murder or manslaughter of foreign officials, official guests, or internationally protected persons) 18 U.S.C. 1203 (hostage taking) 18 U.S.C. 1361 (destruction of government property) 18 U.S.C. 1362 (destruction of communication lines, stations, or systems) 18 U.S.C. 1363 (injury to buildings or property within special maritime and territorial jurisdiction of the United States) 18 U.S.C. 1366(a) (destruction of an energy facility) 18 U.S.C. 1751(a), (b), (c), or (d) (presidential and presidential staff assassination and kidnaping) 18 U.S.C. 1831 (economic espionage) 18 U.S.C. 1832 (theft of trade secrets) 18 U.S.C. 1992 (attacks on trains or mass transit) 18 U.S.C. 2155-2156 (destruction of national defense materials, premises, or utilities) 18 U.S.C. 2280 (violence against maritime navigation) 18 U.S.C. 2281 (violence against maritime fixed platforms) 18 U.S.C. 2332 (homicide and other violence against United States nationals occurring outside of the United States) 18 U.S.C. 2332a (use of weapons of mass destruction) 18 U.S.C. 2332b (acts of terrorism transcending national boundaries) 18 U.S.C. 2332f (bombing public places and facilities) 18 U.S.C. 2332g (anti-aircraft missiles) 18 U.S.C. 2332h (radiological dispersal devices) 18 U.S.C. 2339 (harboring terrorists) 18 U.S.C. 2339A (providing material support to terrorists) 18 U.S.C. 2339B (providing material support to terrorist organizations) 18 U.S.C. 2339C (financing terrorism) 18 U.S.C. 2339D (receipt of training from foreign terrorist organization) 18 U.S.C. 2340A (torture) 21 U.S.C. 960A (narco-terrorism) 42 U.S.C. 2122 (atomic weapons) 42 U.S.C. 2284 (sabotage of nuclear facilities or fuel) 49 U.S.C. 46502 (aircraft piracy) 49 U.S.C. 46504 (2d sentence) (assault on a flight crew with a dangerous weapon) 49 U.S.C. 46505(b)(3) or (c) (explosive or incendiary devices, or endangerment of human life by means of weapons, on aircraft) 49 U.S.C. 46506 (if homicide or attempted homicide is involved, application of certain criminal laws to acts on aircraft) 49 U.S.C. 60123( b) (destruction of interstate gas or hazardous liquid pipeline facility). To constitute "racketeering activity," the predicate offense need only be committed ; there is no requirement that the defendant or anyone else have been convicted of a predicate offense before a RICO prosecution or action may be brought. Conviction of a predicate offense, on the other hand, does not preclude a subsequent RICO prosecution, nor is either conviction or acquittal a bar to a subsequent RICO civil action. 2. Pattern The pattern of racketeering activities element of RICO requires (1) the commission of two or more predicate offenses, (2) that the predicate offenses be related and not simply isolated events, and (3) that they are committed under circumstances that suggest either a continuity of criminal activity or the threat of such continuity. i. Predicates : The first element is explicit in section 1961(5): "'Pattern of racketeering activity' requires at least two acts of racketeering activity." The two remaining elements, relationship and continuity, flow from the legislative history of RICO. That history "shows that Congress indeed had a fairly flexible concept of a pattern in mind. A pattern is not formed by sporadic activity.... [A] person cannot be subjected to the sanctions [of RICO] simply for committing two widely separate and isolated criminal offenses. Instead, the term 'pattern' itself requires the showing of a relationship between the predicates and of the threat of continuing activity. It is this factor of continuity plus relationship which combines to produce a pattern." ii. Related predicates : The commission of predicate offenses forms the requisite related pattern if the "criminal acts ... have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." iii. Continuity : The law recognizes continuity in two forms, pre-existing ("closed-ended") and anticipated ("open-ended"). The first is characterized by "a series of related predicates, extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement." The second exists when a series of related predicates has begun and, but for intervention, would be a threat to continue in the future. The Supreme Court has characterized a pattern extending over a period of time but which posed no threat of reoccurrence as a pattern with "closed-ended" continuity; and a pattern marked by a threat of reoccurrence as a pattern with "open-ended continuity." In the case of a "closed-ended" pattern, the lower courts have been reluctant to find predicate activity extending over less than a year sufficient for the "substantial period[s] of time" required to demonstrate continuity. Whether the threat of future predicate activity is sufficient to recognize an "open-ended" pattern of continuity depends upon the nature of the predicate offenses and the nature of the enterprise. "Though the number of related predicates involved may be small and they may occur close together in time, the racketeering acts themselves include a specific threat of repetition extending indefinitely into the future, and thus supply the requisite continuity. In other cases, the threat of continuity may be established by showing that the predicate acts or offenses are part of an ongoing entity's regular way of doing business." Moreover, the threat "is generally presumed when the enterprise's business is primarily or inherently unlawful." D. Collection of an Unlawful Debt Collection of an unlawful debt appears to be the only instance in which the commission of a single predicate offense will support a RICO prosecution or cause of action. No proof of pattern seems to be necessary. The predicate covers only the collection of usurious debts or unlawful gambling debts: "[U]nlawful debt" means a debt (A) incurred or contracted in gambling activity which was in violation of the law of the United States, a State or political subdivision thereof, or which is unenforceable under State or Federal law in whole or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in connection with the business of gambling in violation of the law of the United States, a State or political subdivision thereof, or the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate. Although there may be some disagreement among the lower federal courts, the prohibition seems to apply to both lawful and unlawful means of collection as long as the underlying debt is unlawful. E. Enterprise in or Affecting Interstate or Foreign Commerce 1. Enterprise The statute defines "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." The enterprise may be devoted to entirely legitimate ends or to totally corrupt objectives. It may be governmental as well as nongovernmental. As noted earlier, an entity may not serve as both the "person" and the "enterprise" whose activities are conducted through a pattern of racketeering activity for a prosecution under subsection 1962(c). No such distinction is required, however, for a prosecution under either subsection 1962(a)(investing the racketeering activity proceeds in an enterprise) or subsection 1962(b) (acquiring or maintaining an enterprise through racketeering activity) violations. Even under subsection 1962(c), a corporate entity and its sole shareholder are sufficiently distinct to satisfy the "enterprise" and "person" elements of a subsection (c) violation. As for "associated in fact" enterprises, the Supreme Court in Boyle rejected the suggestion that such enterprises must be "business-like" creatures, having discernible hierarchical structures, unique modus operandi, chains of command, internal rules and regulations, regular meetings regarding enterprise activities, or even a separate enterprise name or title. The statute demands only "that an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." 2. In or Affecting Interstate or Foreign Commerce To satisfy RICO's jurisdictional element, the corrupt or corrupted enterprise must either engage in interstate or foreign commerce or engage in activities that affect interstate or foreign commerce. An enterprise that orders supplies and transports its employees and products in interstate commerce is "engaged in interstate commerce" for purposes of RICO. As a general rule, the impact of the enterprise on interstate or foreign commerce need only be minimal to satisfy RICO requirements. Where the predicate offenses associated with an enterprise have an effect on interstate commerce, the enterprise is likely to have an effect on interstate commerce. However, "where the enterprise itself [does] not engage in economic activity, a minimal effect on commerce" may not be enough. III. Conspiracy Conspiracy under subsection 1962(d) is (1) the agreement of (2) two or more (3) to invest in, acquire, or conduct the affairs of (4) a commercial enterprise (5) in a manner which violates 18 U.S.C. 1962(a), (b), or (c). The heart of the crime lies in the agreement rather than any completed, concerted violation of the other three RICO subsections. In fact, unlike the general conspiracy statute, RICO conspiracy is complete upon the agreement, even if none of the conspirators ever commit an overt act toward the accomplishment of its criminal purpose. Moreover, contrary to the view once held by some of the lower courts, there is no requirement that a defendant commit or agree to commit two or more predicate offenses himself. Nor is it necessary that the government prove the existence of RICO qualified enterprise in some circuits. It is enough that the defendant, in agreement with another, intended to further an endeavor which, if completed, would satisfy all of the elements of a RICO violation. A conspirator is liable not only for the conspiracy but for any foreseeable substantive offenses committed by any of the conspirators in furtherance of the common scheme, until the objectives of the plot are achieved, abandoned, or the conspirator withdraws. "To withdraw from a conspiracy, an individual must take some affirmative action either by reporting to authorities or communicating his intentions to his coconspirators." The individual bears the burden of showing he has done so. IV. Consequences The commission of a RICO violation exposes offenders to a wide range of criminal and civil consequences: imprisonment, fines, restitution, forfeiture, treble damages, attorneys' fees, and a wide range of equitable restrictions. A. Criminal Liability RICO violations are punishable by fine or by imprisonment for life in cases where the predicate offense carries a life sentence, or by imprisonment for not more than 20 years in all other cases. Although an offender may be sentenced to either a fine or a term of imprisonment under the strict terms of the statute, the operation of the applicable sentencing guidelines makes it highly likely that offenders will face both fine and imprisonment. The maximum amount of the fine for a RICO violation is the greater of twice the amount of the gain or loss associated with the crime, or $250,000 for an individual, $500,000 for an organization. Offenders sentenced to prison are also sentenced to a term of supervised release of not more than three years to be served following their release from incarceration. Most RICO violations also trigger mandatory federal restitution provisions, that is, one of the RICO predicate offenses will be a crime of violence, drug trafficking, or a crime with respect to which a victim suffers physical injury or pecuniary loss. Finally, property related to a RICO violation is subject to confiscation. Even without a completed RICO violation, committing any crime designated a RICO predicate offense opens the door to additional criminal liability. It is a 20-year felony to launder the proceeds from any predicate offense (including any RICO predicate offense) or to use them to finance further criminal activity. Moreover, the proceeds of any RICO predicate offense are subject to civil forfeiture (confiscation without the necessity of a criminal conviction) by virtue of the RICO predicate's status as a money laundering predicate. B. Civil Liability RICO violations may result in civil as well as criminal liability. "Any person injured in his business or property by reason" of a RICO violation has a cause of action for treble damages and attorneys' fees. No prior criminal conviction is required, except in the case of certain security fraud based causes of action. Liability begins with a RICO violation under subsections 1962(a), (b), (c), or (d). If the underlying violation involves subsection 1962(a)(use of predicate offense tainted proceeds to acquire an interest in an enterprise), it is the use or investment of the income rather than the predicate offenses that must have caused the injury. If the underlying violation involves subsection 1962(b)(use of predicate offenses to acquire an enterprise), it is the access or control of the RICO enterprise rather than the predicate offenses that must have caused the injury. If the underlying violation involves subsection 1962(c) (use of predicate offenses to conduct the activities of an enterprise), it is the predicate offenses which must have caused the injury. If the underlying violation involves subsection 1962(d) (conspiracy to violate subsections 1962(a), (b), or (c)), the injury must follow from the conspiracy. Moreover, while a criminal conspiracy prosecution under subsection 1962(d) requires no overt act, RICO plaintiffs whose claim is based on a conspiracy under subsection 1962(d) must prove an overt act that is a predicate offense or one of the substantive RICO offenses, since a mere agreement cannot be the direct or proximate cause of an injury. In order to recover, the plaintiff must establish an injury to his or her business or property directly or proximately caused by the defendant's RICO violation. Downstream victims have no RICO cause of action. The presence of an intervening victim or cause of the harm is fatal. The RICO-caused injury must involve a "concrete financial loss," a "mere injury to a valuable intangible property interest" such as a right to pursue employment will not do. The courts agree generally that personal injuries may not form the basis for recovery, since they are not injuries to "business or property," but the courts sometimes disagree on what does constitute a qualified injury. "Fraud in the sale of securities" is a RICO predicate offense. However, the Private Securities Litigation Reform Act amended the civil RICO cause of action to bar suits based on allegations of fraud in the purchase or sale of securities. Although the United States is apparently not a "person" that may sue for treble damages under RICO, the term does include state and local governmental entities. On the other hand, private parties have enjoyed scant success when they have sought to bring a RICO suit for damages against the United States or other governmental entities. Nor in most instances have the courts been receptive to RICO claims based solely on allegations that the defendant aided and abetted commission of the underlying RICO violation. Notwithstanding the inability of the United States to sue for treble damages under RICO, the Attorney General may seek to prevent and restrain RICO violations under the broad equitable powers vested in the courts to order disgorgement, divestiture, restitution, or the creation of receiverships or trusteeships. This authority has been invoked relatively infrequently, primarily to rid various unions of organized crime and other forms of corruption. There is some question whether private plaintiffs, in addition to the Attorney General, may seek injunctive and other forms of equitable relief. On the procedural side, RICO's long-arm jurisdictional provisions authorize nationwide service of process. In addition, the Supreme Court has held that (1) state trial courts of general jurisdiction have concurrent jurisdiction over federal civil RICO claims; (2) under the appropriate circumstances parties may agree to make potential civil RICO claims subject to arbitration; (3) the Clayton Act's four-year period of limitation applies to civil RICO claims as well, and that the period begins when the victim discovers or should have discovered the injury; and (4) in the absence of an impediment to state regulation, the McCarran-Ferguson Act does not bar civil RICO claims based on insurance fraud allegations. V. Constitutional Questions Over the years, various aspects of RICO have been challenged on a number of constitutional grounds. Most either attack the RICO scheme generally or its forfeiture component. The general challenges have been based on vagueness, ex post facto, and double jeopardy. Attacks on the constitutionality of RICO forfeiture have been grounded in the right to counsel, excessive fines, cruel and unusual punishment, and forfeiture of estate. While the challenges have been unsuccessful by and large, some have helped to define RICO's outer reaches. A. General 1. Legislative Authority Under the Commerce Clause The Constitution authorizes Congress to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes," and "to make all Laws which shall be necessary and proper for carrying to Execution" that authority. The powers which the Constitution does not confer upon the federal government, it reserves to the states and the people, U.S. Const. Amend. X. Although RICO deals only with enterprises "engaged in, or the activities of which affect, interstate or foreign commerce," some have suggested that RICO has been applied beyond the scope of Congress's constitutional authority to legislate under the commerce clause. The courts have yet to agree. 2. Double Jeopardy Even a general description of RICO evokes double jeopardy and ex post facto questions. RICO rests on a foundation of other crimes. At a glance, double jeopardy might appear to block any effort to base a RICO charge on a crime for which the accused had already been tried. By the same token, ex post facto might appear to bar a RICO charge built upon a predicate offense committed before RICO was enacted or before the crime was added to the list of RICO predicates. On closer examination, neither presents insurmountable obstacles in most instances. The Constitution's double jeopardy clause commands that no person "be subject for the same offense to be twice put in jeopardy of life or limb." In general terms, it condemns multiple prosecutions or multiple punishments for the same offense. The bar on multiple punishments is a precautionary presumption. Unless a contrary intent appears, it presumes that Congress does not intend to inflict multiple punishments for the same misconduct. Nevertheless, the courts have concluded that Congress did intend to authorize "consecutive sentences for both predicate acts and the RICO offense," as well as for both the substantive RICO offense and the RICO conspiracy to commit the substantive RICO offense. The bar on multiple prosecutions is more formidable. For it, the Supreme Court has long adhered to the so-called " Blockburger " test under which offenses are considered the same when they have the same elements, that is, unless each requires proof of an element not required of the other. In the RICO context, the courts have held that the Double Jeopardy Clause does not bar successive RICO prosecutions of the same defendants on charges of involving different predicate offenses, enterprises, or patterns. They have been more receptive to double jeopardy concerns in the case of successive prosecutions of the same enterprise. There, they have invoked a totality of the circumstances test which asks: "(1) the time of the various activities charged as parts of [the] separate patterns; (2) the identity of the persons involved in the activities under each charge; (3) the statutory offenses charged as racketeering activities in each charge; (4) the nature and scope of the activity the government seeks to punish under each charge; and (5) the places where the activities took place under each charge." 3. Ex post facto The ex post facto clauses preclude (1) punishment of past conduct which was not a crime when it was committed, (2) increased punishment over that which attended a crime when it was committed, and (3) punishment made possible by elimination of a defense which was available when a crime was committed. Yet because RICO offenses are thought to continue from the beginning of the first predicate offense to the commission of the last, a RICO prosecution survives ex post facto challenge even if grounded on pre-enactment predicate offenses as long as the pattern of predicate offenses straddles the date of legislative action. 4. Vagueness "[T]he void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement." Vagueness became a more common constitutional object to RICO, after Justice Scalia and three other Justices implied its vulnerability to such an attack. Subsequent lower courts appear to have uniformly rejected the suggestion that RICO is unconstitutionally vague either generally or as applied to the facts before them. B. Forfeiture 1. Eighth Amendment RICO forfeitures can be severe. The Eighth Amendment supplies the constitutional bounds within which criminal sentences must be drawn. Under its directives, fines may not be excessive nor punishments cruel and unusual. Any more precise definition becomes somewhat uncertain. When presented with the issue in Harmelin , a majority of the Supreme Court appeared to believe that the Eighth Amendment's cruel and unusual punishment clause forbids sentences which are "grossly disproportionate" to the seriousness of the crimes for which they are imposed. Prior to Harmelin , the lower courts felt that at some point RICO forfeitures might be so disproportionate as to constitute cruel and unusual punishment. Perhaps understandably, especially in light of developments under the excessive fines clause, the argument seems to have been rarely pressed since Harmelin . The Eighth Amendment's excessive fines clause is slightly more instructive. Historically, the clause was only infrequently invoked. The Supreme Court changed that when it identified the clause as one of the frontiers of permissible criminal forfeiture. Forfeiture offends the excessive fines clause when it is "grossly disproportionate to the gravity of the offense." Although the gravity of most RICO violations would seem to weigh heavily against most excessive fines clause challenges, at least one circuit holds that the appropriate excessive fines analysis must include consideration of confiscation upon the property owner's livelihood. 2. First Amendment Forfeiture may raise First Amendment issues. The First Amendment guarantees the right of free speech and freedom of the press. It generally precludes government prior restraint of expression. In contrast to prior restraint, however, it generally permits punishment of the unlawful distribution of obscene material. In the view of a majority of the Justices in Alexander , the application of RICO's provisions to confiscate the inventory of an adult entertainment business as punishment for a RICO conviction based upon obscenity predicates does not offend the First Amendment. 3. Right to the Assistance of Counsel In two cases decided under the criminal forfeiture provisions of the federal drug law, the Supreme Court held that a criminally accused's Sixth Amendment right to the assistance of counsel does not invalidate statutory provisions which call for the confiscation of forfeitable property paid as attorneys' fees or which permit the court, upon a probable cause showing of forfeitability, to freeze assets which the accused had intended to use to pay attorneys' fees. The same can be said of the RICO forfeiture provisions. Moreover, neither the Sixth Amendment nor the Fifth Amendment due process clause demands appointment of counsel to assist against government efforts to confiscate substitute assets. 4. Right to Jury Trial The Supreme Court concluded in Libretti that a property owner had no right to have a jury decide factual disputes in a forfeiture case, because forfeiture was a sentencing matter and the Sixth Amendment right to jury trial did not apply to sentencing questions. After Libretti had been decided, the Court's announced view of the role of the jury as a fact finder changed somewhat, first in Apprendi , then in Blakely , and finally in Booker . There the Court redefined the line between sentencing factors that the Constitution allows to be assigned to the court and factors that it insists be found by the jury as a matter of right. Henceforth, "any fact (other than a prior conviction) which is necessary to support a sentence exceeding the maximum authorized by the facts established by a plea of guilty or a jury verdict must be admitted by the defendant or proved to a jury beyond a reasonable doubt." Dicta in Booker might be construed as an indication that property owners are still bound by the holding in Libretti — there is no constitutional right to have a jury decide factual questions in criminal forfeiture. The lower courts appear to agree. 5. Forfeiture of Estate The "forfeiture of estate" argument was among the first constitutional challenges raised and dispatched. Article III, in its effort to protect against misuse of the law of treason, empowers Congress to set the punishment for treason but only with the understanding that "no attainder of treason shall work corruption of blood, or forfeiture." Article III speaks only of treason, but due process would likely preclude this type of forfeiture of estate as a penalty for lesser crimes as well. RICO forfeiture, however, is not properly classified as a forfeiture of estate. Forfeiture of estate occurs, when as a consequence of an offense, all of an offender's property is subject to confiscation, regardless of the absence of any nexus between the property and the crime which triggered the forfeiture. RICO forfeiture is, by contrast, a "statutory" forfeiture which turns on the relationship of the property to the crime and consequently is not forbidden by the due process corollary of Article III. Appendix A. Text of RICO Statutory Provisions 18 U.S.C. 1961 Definitions As used in this chapter – (1) "racketeering activity" means (A) any act or threat involving murder, kidnaping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891-894 (relating to extortionate credit transactions), section 1028 (relating to fraud and related activity in connection with identification documents), section 1029 (relating to fraud and related activity in connection with access devices), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1344 (relating to financial institution fraud), section 1351 (relating to fraud in foreign labor contracting), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), sections 1461-1465 (relating to obscene matter), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1512 (relating to tampering with a witness, victim, or an informant), section 1513 (relating to retaliating against a witness, victim, or an informant), section 1542 (relating to false statement in application and use of passport), section 1543 (relating to forgery or false use of passport), section 1544 (relating to misuse of passport), section 1546 (relating to fraud and misuse of visas, permits, and other documents), sections 1581-1592 (relating to peonage, slavery, and trafficking in persons), sections 1831 and 1832 (relating to economic espionage and theft of trade secrets), section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire), section 1960 (relating to illegal money transmitters), sections 2251, 2251A, 2252, and 2260 (relating to sexual exploitation of children), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works), section 2319 (relating to criminal infringement of a copyright), section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances), section 2320 (relating to trafficking in goods or services bearing counterfeit marks), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341-2346 (relating to trafficking in contraband cigarettes), sections 2421-24 (relating to white slave traffic), sections 175-178 (relating to biological weapons) , sections 229-229F (relating to chemical weapons), section 831 (relating to nuclear materials), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501(c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States, (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act, (F) any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens), section 277 (relating to aiding or assisting certain aliens to enter the United States), or section 278 (relating to importation of alien for immoral purpose) if the act indictable under such section of such Act was committed for the purpose of financial gain, or (G) any act that is indictable under any provision listed in section 2332b(g)(5)(B); (2) "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, any political subdivision, or any department, agency, or instrumentality thereof; (3) "person" includes any individual or entity capable of holding a legal or beneficial interest in property; (4) "enterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity; (5) "pattern of racketeering activity" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity; (6) "unlawful debt" means a debt (A) incurred or contracted in gambling activity which was in violation of the law of the United States, a State or political subdivision thereof, or which is unenforceable under State or Federal law in whole or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in connection with the business of gambling in violation of the law of the United States, a State or political subdivision thereof, or the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate; (7) "racketeering investigator" means any attorney or investigator so designated by the Attorney General and charged with the duty of enforcing or carrying into effect this chapter; (8) "racketeering investigation" means any inquiry conducted by any racketeering investigator for the purpose of ascertaining whether any person has been involved in any violation of this chapter or of any final order, judgment, or decree of any court of the United States, duly entered in any case or proceeding arising under this chapter; (9) "documentary material" includes any book, paper, document, record, recording, or other material; and (10) "Attorney General" includes the Attorney General of the United States, the Deputy Attorney General of the United States, the Associate Attorney General of the United States, any Assistant Attorney General of the United States, or any employee of the Department of Justice or any employee of any department or agency of the United States so designated by the Attorney General to carry out the powers conferred on the Attorney General by this chapter. Any department or agency so designated may use in investigations authorized by this chapter either the investigative provisions of this chapter or the investigative power of such department or agency otherwise conferred by law. 18 U.S.C. 1962 Prohibited activities (a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer. (b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. (c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. (d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section. 18 U.S.C. 1963 Criminal penalties (a) Whoever violates any provision of section 1962 of this chapter shall be fined under this title or imprisoned not more than 20 years (or for life if the violation is based on a racketeering activity for which the maximum penalty includes life imprisonment), or both, and shall forfeit to the United States, irrespective of any provision of State law – (1) any interest the person has acquired or maintained in violation of section 1962; (2) any – (A) interest in; (B) security of; (C) claim against; or (D) property or contractual right of any kind affording a source of influence over; any enterprise which the person has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962; and (3) any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity or unlawful debt collection in violation of section 1962. The court, in imposing sentence on such person shall order, in addition to any other sentence imposed pursuant to this section, that the person forfeit to the United States all property described in this subsection. In lieu of a fine otherwise authorized by this section, a defendant who derives profits or other proceeds from an offense may be fined not more than twice the gross profits or other proceeds. (b) Property subject to criminal forfeiture under this section includes – (1) real property, including things growing on, affixed to, and found in land; and (2) tangible and intangible personal property, including rights, privileges, interests, claims, and securities. (c) All right, title, and interest in property described in subsection (a) vests in the United States upon the commission of the act giving rise to forfeiture under this section. Any such property that is subsequently transferred to a person other than the defendant may be the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the United States, unless the transferee establishes in a hearing pursuant to subsection (l) that he is a bona fide purchaser for value of such property who at the time of purchase was reasonably without cause to believe that the property was subject to forfeiture under this section. (d) (1) Upon application of the United States, the court may enter a restraining order or injunction, require the execution of a satisfactory performance bond, or take any other action to preserve the availability of property described in subsection (a) for forfeiture under this section – (A) upon the filing of an indictment or information charging a violation of section 1962 of this chapter and alleging that the property with respect to which the order is sought would, in the event of conviction, be subject to forfeiture under this section; or (B) prior to the filing of such an indictment or information, if, after notice to persons appearing to have an interest in the property and opportunity for a hearing, the court determines that – (i) there is a substantial probability that the United States will prevail on the issue of forfeiture and that failure to enter the order will result in the property being destroyed, removed from the jurisdiction of the court, or otherwise made unavailable for forfeiture; and (ii) the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order is to be entered: Provided, however, That an order entered pursuant to subparagraph (B) shall be effective for not more than ninety days, unless extended by the court for good cause shown or unless an indictment or information described in subparagraph (A) has been filed. (2) A temporary restraining order under this subsection may be entered upon application of the United States without notice or opportunity for a hearing when an information or indictment has not yet been filed with respect to the property, if the United States demonstrates that there is probable cause to believe that the property with respect to which the order is sought would, in the event of conviction, be subject to forfeiture under this section and that provision of notice will jeopardize the availability of the property for forfeiture. Such a temporary order shall expire not more than ten days after the date on which it is entered, unless extended for good cause shown or unless the party against whom it is entered consents to an extension for a longer period. A hearing requested concerning an order entered under this paragraph shall be held at the earliest possible time, and prior to the expiration of the temporary order. (3) The court may receive and consider, at a hearing held pursuant to this subsection, evidence and information that would be inadmissible under the Federal Rules of Evidence. (e) Upon conviction of a person under this section, the court shall enter a judgment of forfeiture of the property to the United States and shall also authorize the Attorney General to seize all property ordered forfeited upon such terms and conditions as the court shall deem proper. Following the entry of an order declaring the property forfeited, the court may, upon application of the United States, enter such appropriate restraining orders or injunctions, require the execution of satisfactory performance bonds, appoint receivers, conservators, appraisers, accountants, or trustees, or take any other action to protect the interest of the United States in the property ordered forfeited. Any income accruing to, or derived from, an enterprise or an interest in an enterprise which has been ordered forfeited under this section may be used to offset ordinary and necessary expenses to the enterprise which are required by law, or which are necessary to protect the interests of the United States or third parties. (f) Following the seizure of property ordered forfeited under this section, the Attorney General shall direct the disposition of the property by sale or any other commercially feasible means, making due provision for the rights of any innocent persons. Any property right or interest not exercisable by, or transferable for value to, the United States shall expire and shall not revert to the defendant, nor shall the defendant or any person acting in concert with or on behalf of the defendant be eligible to purchase forfeited property at any sale held by the United States. Upon application of a person, other than the defendant or a person acting in concert with or on behalf of the defendant, the court may restrain or stay the sale or disposition of the property pending the conclusion of any appeal of the criminal case giving rise to the forfeiture, if the applicant demonstrates that proceeding with the sale or disposition of the property will result in irreparable injury, harm or loss to him. Notwithstanding 31 U.S.C. 3302(b), the proceeds of any sale or other disposition of property forfeited under this section and any moneys forfeited shall be used to pay all proper expenses for the forfeiture and the sale, including expenses of seizure, maintenance and custody of the property pending its disposition, advertising and court costs. The Attorney General shall deposit in the Treasury any amounts of such proceeds or moneys remaining after the payment of such expenses. (g) With respect to property ordered forfeited under this section, the Attorney General is authorized to – (1) grant petitions for mitigation or remission of forfeiture, restore forfeited property to victims of a violation of this chapter, or take any other action to protect the rights of innocent persons which is in the interest of justice and which is not inconsistent with the provisions of this chapter; (2) compromise claims arising under this section; (3) award compensation to persons providing information resulting in a forfeiture under this section; (4) direct the disposition by the United States of all property ordered forfeited under this section by public sale or any other commercially feasible means, making due provision for the rights of innocent persons; and (5) take appropriate measures necessary to safeguard and maintain property ordered forfeited under this section pending its disposition. (h) The Attorney General may promulgate regulations with respect to – (1) making reasonable efforts to provide notice to persons who may have an interest in property ordered forfeited under this section; (2) granting petitions for remission or mitigation of forfeiture; (3) the restitution of property to victims of an offense petitioning for remission or mitigation of forfeiture under this chapter; (4) the disposition by the United States of forfeited property by public sale or other commercially feasible means; (5) the maintenance and safekeeping of any property forfeited under this section pending its disposition; and (6) the compromise of claims arising under this chapter. Pending the promulgation of such regulations, all provisions of law relating to the disposition of property, or the proceeds from the sale thereof, or the remission or mitigation of forfeitures for violation of the customs laws, and the compromise of claims and the award of compensation to informers in respect of such forfeitures shall apply to forfeitures incurred, or alleged to have been incurred, under the provisions of this section, insofar as applicable and not inconsistent with the provisions hereof. Such duties as are imposed upon the Customs Service or any person with respect to the disposition of property under the customs law shall be performed under this chapter by the Attorney General. (i) Except as provided in subsection (l), no party claiming an interest in property subject to forfeiture under this section may – (1) intervene in a trial or appeal of a criminal case involving the forfeiture of such property under this section; or (2) commence an action at law or equity against the United States concerning the validity of his alleged interest in the property subsequent to the filing of an indictment or information alleging that the property is subject to forfeiture under this section. (j) The district courts of the United States shall have jurisdiction to enter orders as provided in this section without regard to the location of any property which may be subject to forfeiture under this section or which has been ordered forfeited under this section. (k) In order to facilitate the identification or location of property declared forfeited and to facilitate the disposition of petitions for remission or mitigation of forfeiture, after the entry of an order declaring property forfeited to the United States the court may, upon application of the United States, order that the testimony of any witness relating to the property forfeited be taken by deposition and that any designated book, paper, document, record, recording, or other material not privileged be produced at the same time and place, in the same manner as provided for the taking of depositions under Rule 15 of the Federal Rules of Criminal Procedure. (l) (1) Following the entry of an order of forfeiture under this section, the United States shall publish notice of the order and of its intent to dispose of the property in such manner as the Attorney General may direct. The Government may also, to the extent practicable, provide direct written notice to any person known to have alleged an interest in the property that is the subject of the order of forfeiture as a substitute for published notice as to those persons so notified. (2) Any person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States pursuant to this section may, within thirty days of the final publication of notice or his receipt of notice under paragraph (1), whichever is earlier, petition the court for a hearing to adjudicate the validity of his alleged interest in the property. The hearing shall be held before the court alone, without a jury. (3) The petition shall be signed by the petitioner under penalty of perjury and shall set forth the nature and extent of the petitioner's right, title, or interest in the property, the time and circumstances of the petitioner's acquisition of the right, title, or interest in the property, any additional facts supporting the petitioner's claim, and the relief sought. (4) The hearing on the petition shall, to the extent practicable and consistent with the interests of justice, be held within thirty days of the filing of the petition. The court may consolidate the hearing on the petition with a hearing on any other petition filed by a person other than the defendant under this subsection. (5) At the hearing, the petitioner may testify and present evidence and witnesses on his own behalf, and cross-examine witnesses who appear at the hearing. The United States may present evidence and witnesses in rebuttal and in defense of its claim to the property and cross-examine witnesses who appear at the hearing. In addition to testimony and evidence presented at the hearing, the court shall consider the relevant portions of the record of the criminal case which resulted in the order of forfeiture. (6) If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that – (A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or (B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section; the court shall amend the order of forfeiture in accordance with its determination. (7) Following the court's disposition of all petitions filed under this subsection, or if no such petitions are filed following the expiration of the period provided in paragraph (2) for the filing of such petitions, the United States shall have clear title to property that is the subject of the order of forfeiture and may warrant good title to any subsequent purchaser or transferee. (m) If any of the property described in subsection (a), as a result of any act or omission of the defendant – (1) cannot be located upon the exercise of due diligence; (2) has been transferred or sold to, or deposited with, a third party; (3) has been placed beyond the jurisdiction of the court; (4) has been substantially diminished in value; or (5) has been commingled with other property which cannot be divided without difficulty; the court shall order the forfeiture of any other property of the defendant up to the value of any property described in paragraphs (1) through (5). 18 U.S.C. 1964 Civil remedies (a) The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons. (b) The Attorney General may institute proceedings under this section. Pending final determination thereof, the court may at any time enter such restraining orders or prohibitions, or take such other actions, including the acceptance of satisfactory performance bonds, as it shall deem proper. (c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962. The exception contained in the preceding sentence does not apply to an action against any person that is criminally convicted in connection with the fraud, in which case the statute of limitations shall start to run on the date on which the conviction becomes final. (d) A final judgment or decree rendered in favor of the United States in any criminal proceeding brought by the United States under this chapter shall estop the defendant from denying the essential allegations of the criminal offense in any subsequent civil proceeding brought by the United States. 18 U.S.C. 1965 Venue and process (a) Any civil action or proceeding under this chapter against any person may be instituted in the district court of the United States for any district in which such person resides, is found, has an agent, or transacts his affairs. (b) In any action under section 1964 of this chapter in any district court of the United States in which it is shown that the ends of justice require that other parties residing in any other district be brought before the court, the court may cause such parties to be summoned, and process for that purpose may be served in any judicial district of the United States by the marshal thereof. (c) In any civil or criminal action or proceeding instituted by the United States under this chapter in the district court of the United States for any judicial district, subpenas issued by such court to compel the attendance of witnesses may be served in any other judicial district, except that in any civil action or proceeding no such subpena shall be issued for service upon any individual who resides in another district at a place more than one hundred miles from the place at which such court is held without approval given by a judge of such court upon a showing of good cause. (d) All other process in any action or proceeding under this chapter may be served on any person in any judicial district in which such person resides, is found, has an agent, or transacts his affairs. 18 U.S.C. 1966 Expedition of actions In any civil action instituted under this chapter by the United States in any district court of the United States, the Attorney General may file with the clerk of such court a certificate stating that in his opinion the case is of general public importance. A copy of that certificate shall be furnished immediately by such clerk to the chief judge or in his absence to the presiding district judge of the district in which such action is pending. Upon receipt of such copy, such judge shall designate immediately a judge of that district to hear and determine action. 18 U.S.C. 1967 Evidence In any proceeding ancillary to or in any civil action instituted by the United States under this chapter the proceedings may be open or closed to the public at the discretion of the court after consideration of the rights of affected persons. 18 U.S.C. 1968 Civil investigative demand (a) Whenever the Attorney General has reason to believe that any person or enterprise may be in possession, custody, or control of any documentary materials relevant to a racketeering investigation, he may, prior to the institution of a civil or criminal proceeding thereon, issue in writing, and cause to be served upon such person, a civil investigative demand requiring such person to produce such material for examination. (b) Each such demand shall— (1) state the nature of the conduct constituting the alleged racketeering violation which is under investigation and the provision of law applicable thereto; (2) describe the class or classes of documentary material produced thereunder with such definiteness and certainty as to permit such material to be fairly identified; (3) state that the demand is returnable forthwith or prescribe a return date which will provide a reasonable period of time within which the material so demanded may be assembled and made available for inspection and copying or reproduction; and (4) identify the custodian to whom such material shall be made available. (c) No such demand shall— (1) contain any requirement which would be held to be unreasonable if contained in a subpena duces tecum issued by a court of the United States in aid of a grand jury investigation of such alleged racketeering violation; or (2) require the production of any documentary evidence which would be privileged from disclosure if demanded by a subpena duces tecum issued by a court of the United States in aid of a grand jury investigation of such alleged racketeering violation. (d) Service of any such demand or any petition filed under this section may be made upon a person by— (1) delivering a duly executed copy thereof to any partner, executive officer, managing agent, or general agent thereof, or to any agent thereof authorized by appointment or by law to receive service of process on behalf of such person, or upon any individual person; (2) delivering a duly executed copy thereof to the principal office or place of business of the person to be served; or (3) depositing such copy in the United States mail, by registered or certified mail duly addressed to such person at its principal office or place of business. (e) A verified return by the individual serving any such demand or petition setting forth the manner of such service shall be prima facie proof of such service. In the case of service by registered or certified mail, such return shall be accompanied by the return post office receipt of delivery of such demand. (f) (1) The Attorney General shall designate a racketeering investigator to serve as racketeer document custodian, and such additional racketeering investigators as he shall determine from time to time to be necessary to serve as deputies to such officer. (2) Any person upon whom any demand issued under this section has been duly served shall make such material available for inspection and copying or reproduction to the custodian designated therein at the principal place of business of such person, or at such other place as such custodian and such person thereafter may agree and prescribe in writing or as the court may direct, pursuant to this section on the return date specified in such demand, or on such later date as such custodian may prescribe in writing. Such person may upon written agreement between such person and the custodian substitute for copies of all or any part of such material originals thereof. (3) The custodian to whom any documentary material is so delivered shall take physical possession thereof, and shall be responsible for the use made thereof and for the return thereof pursuant to this chapter. The custodian may cause the preparation of such copies of such documentary material as may be required for official use under regulations which shall be promulgated by the Attorney General. While in the possession of the custodian, no material so produced shall be available for examination, without the consent of the person who produced such material, by any individual other than the Attorney General. Under such reasonable terms and conditions as the Attorney General shall prescribe, documentary material while in the possession of the custodian shall be available for examination by the person who produced such material or any duly authorized representatives of such person. (4) Whenever any attorney has been designated to appear on behalf of the United States before any court or grand jury in any case or proceeding involving any alleged violation of this chapter, the custodian may deliver to such attorney such documentary material in the possession of the custodian as such attorney determines to be required for use in the presentation of such case or proceeding on behalf of the United States. Upon the conclusion of any such case or proceeding, such attorney shall return to the custodian any documentary material so withdrawn which has not passed into the control of such court or grand jury through the introduction thereof into the record of such case or proceeding. (5) Upon the completion of— (i) the racketeering investigation for which any documentary material was produced under this chapter, and (ii) any case or proceeding arising from such investigation, the custodian shall return to the person who produced such material all such material other than copies thereof made by the Attorney General pursuant to this subsection which has not passed into the control of any court or grand jury through the introduction thereof into the record of such case or proceeding. (6) When any documentary material has been produced by any person under this section for use in any racketeering investigation, and no such case or proceeding arising therefrom has been instituted within a reasonable time after completion of the examination and analysis of all evidence assembled in the course of such investigation, such person shall be entitled, upon written demand made upon the Attorney General, to the return of all documentary material other than copies thereof made pursuant to this subsection so produced by such person. (7) In the event of the death, disability, or separation from service of the custodian of any documentary material produced under any demand issued under this section or the official relief of such custodian from responsibility for the custody and control of such material, the Attorney General shall promptly— (i) designate another racketeering investigator to serve as custodian thereof, and (ii) transmit notice in writing to the person who produced such material as to the identity and address of the successor so designated. Any successor so designated shall have with regard to such materials all duties and responsibilities imposed by this section upon his predecessor in office with regard thereto, except that he shall not be held responsible for any default or dereliction which occurred before his designation as custodian. (g) Whenever any person fails to comply with any civil investigative demand duly served upon him under this section or whenever satisfactory copying or reproduction of any such material cannot be done and such person refuses to surrender such material, the Attorney General may file, in the district court of the United States for any judicial district in which such person resides, is found, or transacts business, and serve upon such person a petition for an order of such court for the enforcement of this section, except that if such person transacts business in more than one such district such petition shall be filed in the district in which such person maintains his principal place of business, or in such other district in which such person transacts business as may be agreed upon by the parties to such petition. (h) Within twenty days after the service of any such demand upon any person, or at any time before the return date specified in the demand, whichever period is shorter, such person may file, in the district court of the United States for the judicial district within which such person resides, is found, or transacts business, and serve upon such custodian a petition for an order of such court modifying or setting aside such demand. The time allowed for compliance with the demand in whole or in part as deemed proper and ordered by the court shall not run during the pendency of such petition in the court. Such petition shall specify each ground upon which the petitioner relies in seeking such relief, and may be based upon any failure of such demand to comply with the provisions of this section or upon any constitutional or other legal right or privilege of such person. (i) At any time during which any custodian is in custody or control of any documentary material delivered by any person in compliance with any such demand, such person may file, in the district court of the United States for the judicial district within which the office of such custodian is situated, and serve upon such custodian a petition for an order of such court requiring the performance by such custodian of any duty imposed upon him by this section. (j) Whenever any petition is filed in any district court of the United States under this section, such court shall have jurisdiction to hear and determine the matter so presented, and to enter such order or orders as may be required to carry into effect the provisions of this section. Appendix B. Selected Bibliography Articles and Books Douglas E. Abrams, Crime Legislation and the Public Interest: Lessons From Civil RICO , 50 SMU L. Rev. 33 (1996). Diane Marie Amann, Spotting Money Launderers: A Better Way to Fight Organized Crime? 27 Syracuse J. Int'l L. & Com. 199 (2000). American Law Reports, Federal, Validity, Construction, and Application of Provision of Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.A. §1961 et seq . , 171 ALR Fed. 1 (2011-2012). Paul A. Batista, Civil RICO Practice Manual (2008). G. Robert Blakey & Michael Gerardi, Eliminating Overlap, or Creating a Gap? Judicial Inte r preta t ion of the Private Securities Litigation Reform Act of 1995 and RICO , 28 Notre Dame J. L. Ethics & Pub. Pol'y 435 (2014). G. Robert Blakey & Brian Gettings, Racketeer Influenced and Corrupt Organizations (RICO): Basic Concepts—Criminal and Civil Remedies , 53 Temp. L. Q. 1009 (1980). G. Robert Blakey & Ronald Goldstock, On the Waterfront: RICO and Labor Racketeering , 17 Am. Crim. L. Rev. 341 (1980). G. Robert Blakey & Thomas Perry, An Analysis of the Myths That Bolster Efforts to Rewrite RICO and the Various Proposals for Reform: "Mother of God—Is This the End of RICO?" , 43 Vand. L. Rev. 851 (1990). G. Robert Blakey & Kevin P. Roddy, Reflections on Reves v. Ernst & Young: Its Meaning and Impact on Substantive, Accessory, Aiding Abetting and Conspiracy Liability Under RICO , 33 Am. Crim. L. Rev. 1345 (1996). John E. Floyd, RICO State by State: A Guide to Litigation Under the State Racketeering Statutes (1998). Susan Getzendanner, Judicial "Pruning" of "Garden Variety Fraud": Civil RICO Cases Does Not Work: it's Time for Congress to Act , 43 Vand. L. Rev. 673 (1990). Ronald M. Goldberg, RICO Forfeiture of Sexually Explicit Expressive Materials: Another Weapon in the War on Pornography, or an Impermissible Collateral Attack on Protected Expression? Alexander v. United States, 113 S. Ct. 2766 (1993) , 21 Wm. Mitchell L. Rev. 231 (1995). Michael Goldsmith, RICO and Enterprise Criminality: A Response to Gerald E. Lynch , 88 Colum. L. Rev. 774 (1988). Michael Goldsmith & Penrod W. Keith, Civil RICO Abuse: The Allegations in Context , 1986 BYU L. Rev. 55. ——, Resurrecting RICO: Removing Immunity for White-Collar Crime , 41 Harv. J. Leg. 281 (2004). Michael Goldsmith & Mark Jay Linderman, Civil RICO Reform: The Gatekeeper Concept , 43 Vand. L. Rev. 735 (1990). Rand D. Gordon, Of Gangs and Gaggles: Can a Corporation Be Part of an Association-in-Fact RICO Enterprise? Linguistic, Historical, and Rhetorical Perspectives , 53 U. Penn. J. Bus. L. 973 (2014). James B. Jacobs, Eileen M. Cunningham, & Kimberly Friday, The RICO Trusteeships After Twenty Years: A Progress Report , 19 Lab. Lawyer 419 (2004). John C. Jeffries, Jr. & John Gleeson, The Federalization of Organized Crime: Advantages of Federal Prosecution , 46 Hastings L. J. 1095 (1995). Gerard E. Lynch, A Conceptual, Practical and Political Guide to RICO Reform , 43 Vand. L. Rev. 769 (1990). ——, A Reply to Michael Goldsmith , 88 Colum. L. Rev. 802 (1988). ——, RICO: The Crime of Being a Criminal, Pts. I & II, III & IV , 87 Colum. L. Rev. 661, 920 (1987). John L. McClellan, The Organized Crime Control Act ( S.30 ) or its Critics: Which Threatens Civil Liberties? 46 Notre Dame Lawyer. 55 (1970). Yvette M. Mastin, RICO Conspiracy: Dismantles the Mexican Mafia & Disables Procedural Due Process , 27 Wm. Mitchell L. Rev. 2295 (2001). Jeremy M. Miller, RICO and Conspiracy Construction: The Mischief of the Economic Model , 104 Comm. L. J. 26 (1999). John M. Nonna & Melissa P. Corrado, RICO Reform: "Weeding Out" Garden Variety Disputes Under the Racketeer Influenced and Corrupt Organizations Act , 64 St. John's L. Rev. 825 (1990). Herbert R. Northrup & Charles H. Steen, Union "Corporate Campaigns" as Blackmail: The RICO Battle at Bayou Steel , 22 Harv. J. L. & Pub. Pol'y 771 (1999). Pamela Bucy Pierson, RICO Trends: From Gangsters to Class Actions , 65 S.C. L.Rev. 213 (2013). Terrance G. Reed, The Defense Case for RICO Reform , 43 Vand. L. Rev. 691 (1990). Thane Rehn, RICO and the Commerce Clause: A Reconsideration of the Scope of Federal Criminaol Law , 108 Colum. L. Rev. 1991 (2008). Stephan Scallan, Proximate Cause Under RICO , 20 S. Ill. U. L. J. 455 (1996). Brian Slocum , RICO and the Legislative Supremacy Approach to Federal Criminal Lawmaking , 31 Loy. U. Chi. L. J. 639 (2000). David B. Smith & Terrance G. Reed, Civil RICO (2012). Laurence A. Steckman, RICO Section 1962(c) Enterprises and the Present State of the "Distinctness Requirement" in the Second, Third, and Seventh Circuits , 21 Touro L. Rev. 1083 (2006). Yolanda Eleni Stefanou, Concurrent Jurisdiction Over Federal Civil RICO Claims: Is It Workable? An Analysis of Taffin v. Levitt, 64 St. John's L. Rev. 877 (1990). Barry Tarlow, RICO: The New Darling of the Prosecutor's Nursery , 49 Fordham L. Rev. 165 (1980). United States Department of Justice, Criminal Division, Organized Crime and Racketeering Section, Criminal RICO: 18 U.S.C. §§1961-1968 – A Manual for Federal Prosecutors (5 th ed. 2009). United States House of Representatives, Committee on the Judiciary, Subcommittee on Intellectual Property and Judicial Administration, RICO Amendments Act of 1991 , 102d Cong., 1 st Sess. (1991). ——,Subcommittee on Crime, RICO Reform Act of 1989 , 101 st Cong., 1 st Sess. (1989). ——, Subcommittee on Criminal Justice, RICO Reform , 100 th Cong., 1 st & 2d Sess. (1988). ——, RICO Reform, Pts. 1 & 2 , 99 th Cong., 1 st & 2d Sess. (1986). United States Senate, Committee on Governmental Affairs, Permanent Subcommittee on Investigations, Federal Government's Use of Trusteeships Under the RICO Statute , 101 st Cong., 1 st Sess. (1989). ——, Committee on the Judiciary, Racketeer Influenced and Corrupt Organizations Reform Act , 101 st Cong., 1 st Sess. (1989). ——, Proposed RICO Reform Legislation , 100 th Cong., 1 st Sess. (1987). Michael Vitiello, More Noise from the Tower of Babel: Making 'Sense' Out of Reves v. Ernst & Young , 56 Ohio St. L. J. 1363 (1995). Gregory J. Wallace, Outgunning the Mob , 80 ABA J. 60 (March 1994). Notes and Comments Brian Goodwin, Note . Civil Versus Criminal RICO and the "Eradication" of La Cosa No s tra , 28 New Eng. J. Crim. & Civ. Confinement 279 (2002). Marcus R. Mumford. Note . Completing Klehr v. A.O.Smith Corp., and Resolving the Oddity and Lingering Questions of Civil Statute of Limitations Accrual , 1998 BYU L. Rev. 1273. Ryan Stai. Note. Counteracting Theft and Fraud: The Applicability of RICO to Organized Retail Crime , 88 Minn. L. Rev. 1391 (2004). Christopher L. McCall. Comment. Equity Up in Smoke: Civil RICO, Disgorgement, and United States v. Philip Morris , 74 Fordham L. Rev. 2461 (2006). Jacob Poorman. Comment. Exercising the Passive Virtues of Interpreting Civil RICO "Business or Property," 75 U. Chi. L. Rev. 1773 (2008). Melissa A. Rolland, Note, Forfeiture Law, the Eighth Amendment's Excessive Fines Clause, and United States v. Bajakajian , 74 Notre Dame L. Rev. 1371 (1999). A. Lamidas Sawkar. Note. From the Mafia to Milking Cows: State RICO Act Expansion , 41 Ariz. L. Rev. 1133 (1999). Patrick Wackerly. Comment. Personal Versus Property Harm and Civil RICO Standing , 73 U. Chi. L. Rev.1513 (2006). Amy L. Higgins. Note. Pimpin' Ain't Easy Under the Eleventh Circuit's Broad RICO Enterprise Standard: United States v. Pipkins , 73 U. Cin. L. Rev. 1643 (2005). R. Stephen Stigall. Comment. Preventing Absurd Application of RICO: A Proposed Amendment to Congress' s Definition of ' Racketeering Activity' in the Wake of National Organization of Women, Inc. v. Scheidler , 68 Temp. L. Q. 223 (1995). Brian J. Murray, Note, Protesters, Extortion, and Coercion: Preventing RICO From Chilling First Amendment Freedoms , 75 Notre Dame L. Rev. 691 (1999). Steven T. Ieronimo. Note. RICO: Is It a Panacea or a Bitter Pill for Labor Unions, Union Democracy and Collective Bargaining? 11 Hofstra Lab. L. J. 499 (1994). T hirtieth Annual Survey of White Collar Crime: Racketeer Influenced and Corrupt Organizations , 52 Am. Crim. L. Rev.11507 (2015). Appendix C. State RICO Citations

Congress enacted the federal Racketeer Influenced and Corrupt Organization (RICO) provisions as part of the Organized Crime Control Act of 1970. In spite of its name and origin, RICO is not limited to "mobsters" or members of "organized crime" as those terms are popularly understood. Rather, it covers those activities which Congress felt characterized the conduct of organized crime, no matter who actually engages in them. RICO proscribes no conduct that is not otherwise prohibited. Instead it enlarges the civil and criminal consequences, under some circumstances, of a list of state and federal crimes. In simple terms, RICO condemns (1) any person (2) who (a) invests in, or(b) acquires or maintains an interest in, or(c) conducts or participates in the affairs of, or(d) conspires to invest in, acquire, or conduct the affairs of (3) an enterprise (4) which (a) engages in, or(b) whose activities affect, interstate or foreign commerce (5) through (a) the collection of an unlawful debt, or(b) the patterned commission of various state and federal crimes. Violations are punishable by (a) the forfeiture of any property acquired through a RICO violation and of any property interest in the enterprise involved in the violation, and (b) imprisonment for not more than 20 years, or for life if one of the predicate offenses carries such a penalty, and/or a fine of not more than the greater of twice the amount of gain or loss associated with the offense or $250,000 for individuals and $500,000 for organizations. RICO has generally survived constitutional challenges, although its forfeiture provisions are subject to an excessive fines clause analysis and perhaps to cruel and unusual punishment disproportionality analysis. RICO violations also subject the offender to civil liability. The courts may award anyone injured in their business or property by a RICO violation treble damages, costs and attorneys' fees, and may enjoin RICO violations, order divestiture, dissolution or reorganization, or restrict an offender's future professional or investment activities. Civil RICO has been controversial. At one time commentators urged Congress to amend its provisions. Congress found little consensus on the questions raised by proposed revisions, however, and the issue seems to have been put aside at least for the time being. The text of the RICO sections, citations to state RICO statutes, and a selected bibliography are appended. This report appears in an abridged form, without footnotes, full citations, or appendices, as CRS Report RS20376, RICO: An Abridged Sketch, by [author name scrubbed].

Introduction While Section 271(a) of the Patent Act creates strict liability for someone who directly infringes a patent, Section 271(b) of the Patent Act provides indirect infringement liability for "[w]hoever actively induces infringement of a patent." This succinct and seemingly straightforward statutory text was the subject of an interpretive dispute between the parties in Global-Tech Appliances, Inc. v. SEB S.A., a 2011 Supreme Court case. Although the statutory text does not specify a scienter requirement for a person to be found liable for actively inducing patent infringement, the Supreme Court in this case inferred that "at least some intent is required" because of the presence of the adverb "actively" before "induces," which "suggests that the inducement must involve the taking of affirmative steps to bring about the desired result." However, Section 271(b) is ambiguous in that two different interpretations are possible regarding the language "induces infringement": (1) the defendant induces another party to engage in conduct that happens to amount to infringement, or (2) the defendant persuades another party to engage in conduct that the inducer knows is patent infringement. The question in Global-Tech was whether a plaintiff must show that the defendant knew that the induced acts constituted patent infringement in order to hold him liable under Section 271(b). On May 31, 2011, the Supreme Court ruled by a vote of 8-1 that induced infringement under Section 271(b) requires actual knowledge that the induced acts constitute patent infringement. In addition, the Court held that this knowledge standard could be satisfied by proof that the defendant took deliberate actions to "willfully blind" himself to the high probability of the infringing nature of the induced activities. Although the "willful blindness" doctrine is widely used by lower federal courts in criminal cases, this is the first time that the Supreme Court has applied it to a civil patent infringement case. It is also the first time that the Court has held that proof of willful blindness can satisfy a statutory requirement of knowing or willful conduct, thus establishing a standard not only for patent infringement cases brought under Section 271(b), but also for all federal criminal cases involving knowledge. This report provides a legal analysis of Global-Tech Appliances, Inc. v. SEB S.A. and discusses its potential impact on the law. Background The Patent Act grants patent holders the exclusive right to exclude others from making, using, offering for sale, or selling their patented invention throughout the United States, or importing the invention into the United States. Whoever performs any one of these five acts during the term of the invention's patent, without the patent holder's authorization, is liable for infringement. A patent holder may file a civil action against an alleged infringer in order to enjoin him from further infringing acts. The patent statute also provides for the award of damages "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." While Section 271(a) of the Patent Act creates liability for someone who directly infringes a patent, Section 271(b) of the act "extends liability to one who actively induces infringement by another." This statutory provision "codified long-standing precedent deriving from tort law that those who aid and abet direct patent infringement shall be liable for indirect infringement." Although direct patent infringement is a strict liability offense, in that the direct infringer's knowledge or intent is irrelevant—the unauthorized use of a patented invention is sufficient for liability—indirect infringement requires some element of knowledge. Thus, the elements of a Section 271(b) inducement claim include the following: (1) evidence of actual infringement of a patent by the direct infringer, (2) evidence of the defendant's "active steps ... taken to encourage direct infringement" by third parties, and (3) proof of the defendant's mental state. With respect to this third element, however, the federal courts have struggled to clearly define what mental state is necessary to support a finding of induced infringement. Two decisions from different panels of the U.S. Court of Appeals for the Federal Circuit caused this confusion. In Hewlett-Packard Co. v. Bausch & Lomb, Inc. , a panel of the Federal Circuit held that a defendant could be liable if the plaintiff could prove that the defendant actually intended to cause the acts that ultimately turned out to be patent infringement. A different panel of the Federal Circuit held in Manville Sales Corp. v. Paramount Systems, Inc. that "[i]t must be established that the defendant possessed specific intent to encourage another's infringement and not merely that the defendant had knowledge of the acts alleged to constitute inducement. The plaintiff has the burden of showing that the alleged infringer's actions induced infringing acts and that he knew or should have known his actions would induce actual infringements." An en banc Federal Circuit attempted to resolve this conflict of authority in its 2006 decision, DSU Medical Corp. v. JMS Co., Ltd., which held that to be held liable under Section 271(b),"the inducer must have an affirmative intent to cause direct infringement." The en banc court explained that, The plaintiff has the burden of showing that the alleged infringer's actions induced infringing acts and that he knew or should have known his actions would induce actual infringements. The requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent. However, prior to its decision in Global-Tech Appliances, Inc. v. SEB S.A. , the U.S. Supreme Court had never before addressed the scope of the knowledge requirement (or even determined whether there is a requisite intent) for inducement liability under Section 271(b) of the Patent Act. Legal Analysis of Global-Tech, Inc. v. SEB S.A. Factual Background SEB S.A. is a French company that manufactures home-cooking appliances and sells its products through an indirect subsidiary, T-Fal Corp. In 1991, SEB S.A. obtained a U.S. patent, No. 4,995,312, for its design of an innovative "cool-touch" deep-fat fryer for home kitchen use that incorporated a plastic outer shell surrounding a metal frying pot. After obtaining the patent, the company sold it in the United States under its T-Fal brand and enjoyed commercial success with the product. In 1997, the U.S. company Sunbeam Products (a competitor of SEB) requested that Pentalpha Enterprises (a Hong Kong corporation and wholly owned subsidiary of Global-Tech Appliances, Inc.) develop and supply it with deep-fat fryers that Sunbeam planned to sell in the United States. In developing its fryer, Pentalpha purchased an SEB deep fryer in Hong Kong and copied its "cool touch" design. Because the SEB fryer that Pentalpha bought had been made for sale in Hong Kong, it did not bear any U.S. patent markings. Pentalpha also hired a U.S. patent attorney to conduct a "right-to-use" study regarding its deep fryer; Pentalpha did not, however, inform the attorney that it had copied everything but the cosmetic features of an SEB deep fryer. The attorney failed to locate SEB's patent in the course of his investigation and issued an opinion letter stating that Pentalpha's deep fryer did not infringe any U.S. patents he had found and analyzed. Pentalpha then sold the deep fryers to Sunbeam, which resold them in the U.S. market under its trademarks, "Oster" and "Sunbeam." Because Sunbeam had obtained the deep fryers from a manufacturer that had lower production costs than SEB, Sunbeam was able to offer the appliance to U.S. customers at a lower price than SEB. In March 1998, SEB sued Sunbeam, alleging that its sales of the fryer infringed SEB's patent. A month later, Sunbeam notified Pentalpha of the lawsuit. SEB reached a settlement with Sunbeam in which Sunbeam agreed to pay SEB $2 million. Even after being informed of the patent infringement lawsuit against Sunbeam, Pentalpha continued to sell the deep fryers to other resellers, including Fingerhut Corp. and Montgomery Ward & Co. SEB then filed a lawsuit in the U.S. District Court for the Southern District of New York against Pentalpha for direct infringement of its patent as well as for actively inducing Sunbeam, Fingerhut, and Montgomery Ward to sell or to offer to sell Pentalpha's deep fryers in violation of SEB's patent rights. District Court's Opinion On April 21, 2006, the jury found Pentalpha guilty on both infringement claims because it had willfully infringed SEB's patent and induced others to infringe the patent. The jury awarded SEB $4.65 million as a reasonable royalty. Pentalpha then filed a variety of post-trial motions, including one in which it asked the district court to reduce the damages award by $2 million to account for Sunbeam's settlement with SEB. The court agreed to this reduction, but also approved SEB's request for enhanced damages and an award of attorneys' fees due to the jury's finding that Pentalpha's infringement had been willful. Pentalpha also filed a motion seeking a new trial or judgment as a matter of law because Pentalpha believed that SEB did not adequately prove inducement under 35 U.S.C. Section 271(b). Pentalpha argued that because it did not actually know of SEB's patent until it had received notice of the lawsuit against Sunbeam, the jury erred in finding Pentalpha liable for actively inducing infringement during the time it was selling its deep fryers to Sunbeam. The district court rejected Pentalpha's argument and upheld the jury's finding of inducement liability under Section 271(b). Pentalpha appealed the decision to the U.S. Court of Appeals for the Federal Circuit. Federal Circuit's Opinion On appeal, a panel of the Federal Circuit affirmed the district court's judgment on February 5, 2010. The appellate court first explained that its decision in DSU Medical Corp. v. JMS Co., Ltd . had established the intent necessary to support a finding of induced infringement under Section 271(b): "the plaintiff must show that the alleged infringer knew or should have known that his actions would induce actual infringements." The court observed, however, that the en banc Federal Circuit's opinion in DSU Medical Corp. had not "set out the metes and bounds of the knowledge-of-the-patent requirement," nor did it "address the scope of the knowledge requirement for intent ." The court stated that "a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit." Elaborating upon this point, the court ruled that constructive knowledge of the patent could be shown by proof of the defendant's "deliberate indifference of a known risk" that an infringement of a patent may occur. The Federal Circuit acknowledged that there was no direct evidence in the record to show that Pentalpha actually knew of SEB's patent before being informed of the Sunbeam lawsuit. However, applying its newly articulated intent standard for Section 271(b) to the facts of the case, the court found in the record "adequate evidence to support a conclusion that Pentalpha deliberately disregarded a known risk that SEB had a protective patent." Such evidence included, among other things, Pentalpha's failure to inform the patent lawyer it had hired to conduct a patent search that it had copied SEB's fryer design. According to the Federal Circuit, the deliberate indifference to an overt risk that a patent exists "is not different from actual knowledge, but is a form of actual knowledge." Pentalpha and Global-Tech (its parent company) petitioned the U.S. Supreme Court for writ of certiorari on June 23, 2010. The Supreme Court accepted the petition on October 12, 2010. Supreme Court's Opinion On May 31, 2011, in an 8-1 decision, the Supreme Court affirmed the Federal Circuit's ruling that Pentalpha was liable for inducing infringement of SEB's patent. However, the Court rejected the Federal Circuit's "deliberate indifference" standard for proving intent under Section 271(b) in the absence of proof of actual knowledge of the existence of a patent; instead, the Court adopted a higher standard, borrowing the concept of "willful blindness" from criminal law. Justice Alito, author of the majority opinion, first explained that the text of Section 271(b) is inconclusive with respect to the question presented in the case: whether a party who "actively induces infringement of a patent" under 35 U.S.C. Section 271(b) must know that the induced acts constitute patent infringement. As a threshold matter, the Court noted that "[a]lthough the text of §271(b) makes no mention of intent, we infer that at least some intent is required" for liability to attach. Such an inference was based on dictionary definitions of "induce" and "actively" that imply an intent to bring about a particular result, the Court noted. The Court then observed that there are two possible interpretations of the statutory phrase "induces infringement": 1. [T]his provision [of §271(b)] may require merely that the inducer lead another to engage in conduct that happens to amount to infringement, i.e., the making, using, offering to sell, selling, or importing of a patented invention. 2. [It] may also be read to mean that the inducer must persuade another to engage in conduct that the infringer knows is infringement. To resolve this ambiguity in the statutory text, the Court relied on an examination of the legislative history of the Patent Act of 1952 as well as case law, specifically its 1964 opinion, Aro Mfg. Co. v. Convertible Top Replacement Co. ("Aro II"). Justice Alito determined that the Aro II decision "resolves the question in this case." Aro II concerned the requisite state of mind under Section 271(c), which was enacted at the same time as Section 271(b) and shares a "common origin" in contributory infringement case law. Section 271(c) provides that "[w]hoever offers to sell or sells ... a component of a patented [invention] ..., constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent ... shall be liable as a contributory infringer." Justice Alito noted that Section 271(c) contains the same ambiguity as the language in Section 271(b), in that the italicized phrase above may be read in either of two ways: (1) requiring a violator to know that the component is "especially adapted for use" in a product that happens to infringe a patent, or (2) requiring, in addition, knowledge of the existence of the patent that is infringed. He explained that "a badly fractured" Aro II Court voted 5-4 in favor of the second interpretation, that knowledge of the patent was required. Justice Alito also observed that Congress had not changed Section 271(c)'s intent requirement in the decades since Aro II and he specifically mentioned the "special force" of the doctrine of stare decisis for matters of statutory interpretation . Given that the language of the two provisions [Section 271(b) and Section 271(c)] "creates the same difficult interpretative choice," the majority opinion stated that "[i]t would thus be strange to hold that knowledge of the relevant patent is needed under § 271(c) but not under § 271(b)." Therefore, the Court held that induced infringement under Section 271(b) requires knowledge that the induced acts constitute patent infringement. Next, the Court ruled that the Federal Circuit was erroneous in holding that a "deliberate indifference to a known risk that a patent exists" would satisfy this knowledge requirement. The Court explained that the Federal Circuit's standard contained two flaws: First, it permits a finding of knowledge when there is merely a "known risk" that the induced acts are infringing. Second, in demanding only "deliberate indifference" to that risk, the Federal Circuit's test does not require active efforts by an inducer to avoid knowing about the infringing nature of the activities. Instead of the Federal Circuit's "deliberate indifference" standard, the Supreme Court decided that the more appropriate standard for Section 271(b) inducement cases that lack direct evidence of the accused inducer's actual knowledge of a patent is "willful blindness." Justice Alito noted that the doctrine of willful blindness is used widely within the federal judiciary in criminal law cases involving criminal statutes that require proof that a defendant acted knowingly or willfully, in order to hold defendants accountable so that they "cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances." He also explained that "persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts." To supports its claim that willful blindness can substitute for a statutory requirement of knowledge, the majority opinion relied on opinions from the federal courts of appeals that applied the willful blindness doctrine in criminal matters. The Court stated that "we can see no reason why the doctrine should not apply in civil lawsuits for induced patent infringement under 35 U.S.C. § 271(b)." The Court described a two-part test for the willful blindness doctrine: 1. The defendant must subjectively believe that there is a high probability that a fact exists. 2. The defendant must take deliberate actions to avoid learning of that fact. The Court believed that these two requirements of the willful blindness doctrine provide "an appropriately limited scope that surpasses recklessness and negligence." The differences between these three standards, according to the Court, are as follows: "[A] willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts." "[A] reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing." "[A] negligent defendant is one who should have known of a similar risk but, in fact, did not." Finally, the Court affirmed the Federal Circuit's finding of inducement liability for Pentalpha because it determined that the evidence in the case led to that same conclusion under the Court's new "willful blindness" test: "Taken together, this evidence was more than sufficient for a jury to find that Pentalpha subjectively believed there was a high probability that SEB's fryer was patented, that Pentalpha took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of Sunbeam's sales." Dissenting Opinion In lone dissent, Justice Kennedy agreed with the majority opinion's first holding that in order to hold a defendant liable for inducing infringement under Section 271(b), the defendant must know that the induced acts constitute patent infringement. However, he disagreed with the Court's second significant holding, that "willful blindness will suffice" for the statutory requirement of knowledge. He criticized the majority opinion for failing to cite any Supreme Court precedent for the specific proposition that willful blindness can substitute for a statutory requirement of knowledge, relying instead on precedent from the courts of appeals. He insisted that "[w]illful blindness is not knowledge" and opined that "judges should not broaden a legislative proscription by analogy." He faulted the Court's willful blindness test for its potential to cause the following problem: One can believe that there is a "high probability" that acts might infringe a patent but nonetheless conclude they do not infringe. The alleged inducer who believes a device is noninfringing cannot be said to know otherwise. Finally, Justice Kennedy criticized the Court for "endors[ing] the willful blindness doctrine here for all federal criminal cases involving knowledge ... in a civil case where it has received no briefing or argument from the criminal defense bar, which might have provided important counsel on this difficult issue." Potential Impact of Global-Tech The Supreme Court in Global-Tech held that Section 271(b) requires specific intent to induce acts that constitute patent infringement. However, the alleged inducer's actual knowledge of the patent is not necessarily required, as the knowledge requirement may be satisfied by the "willful blindness" doctrine. This standard is stricter than the Federal Circuit's "deliberate indifference" standard for establishing inducement of infringement that would have allowed a finding of knowledge when there is only a "known risk" that the induced acts infringe a patent. Thus, the Court has raised the bar for proving that a defendant is liable for actively inducing infringement of a patent under Section 271(b). In addition, as Justice Kennedy noted in his dissent, the Court's opinion not only impacts patent law, but it also appears to apply to federal cases that involve criminal statutes with knowledge requirements. One observer praised the Court's decision by saying that the Court's "willful blindness" rule "is truly narrow, limited to cases like this one with particularly bad facts showing that the defendant almost certainly knew they were infringing on the plaintiff's patent." Another commentator believed that the ruling "will eliminate a lot of the ambiguity in the Federal Circuit's 'deliberate indifference' standard." Several questions remain following Global-Tech. The Court did not decide whether a defendant's "willful blindness" may extend to the induced acts that constitute infringement (as opposed to being willfully blind to the existence of the patent), as the question was not at issue in the case because "Pentalpha was indisputably aware that its customers were selling its products" in the United States. Another unresolved matter is whether "knowledge of the patent" means knowledge of a specific patent, or knowledge of the high probability that a patent exists. These questions remain left to be resolved by future litigation or by Congress.

While Section 271(a) of the Patent Act (35 U.S.C. § 271(a)) creates liability for someone who directly infringes a patent (by the unauthorized use of a patented invention), Section 271(b) of the act provides indirect infringement liability for someone who "actively induces" another party to engage in infringing activities. "Inducement" is a theory of indirect patent infringement, in which a party causes, encourages, influences, or aids and abets another's direct infringement of a patent. In Global-Tech Appliances, Inc. v. SEB S.A., the question was the legal standard for the mental state necessary for a defendant to be liable for actively inducing infringement under Section 271(b). The U.S. Court of Appeals for the Federal Circuit had ruled that a plaintiff may hold a defendant liable for induced patent infringement by showing that the defendant had a "deliberate indifference of a known risk" that the induced acts may violate an existing patent. On May 31, 2011, the Supreme Court rejected the Federal Circuit's "deliberate indifference" standard. By a vote of 8-1, the Court ruled that induced infringement under Section 271(b) requires actual knowledge that the induced acts constitute patent infringement. However, in a somewhat surprising step, the Court declared that this statutory knowledge requirement could be satisfied by proof of the accused inducer's "willful blindness" (that is, the defendant subjectively believes there is a high probability that a patent exists and takes deliberate actions to avoid learning of that fact). This is the first time that the Supreme Court has applied "willful blindness," a criminal law doctrine, to a civil patent infringement case. It is also the first time that the Court has held that proof of willful blindness can substitute for actual knowledge, thus establishing a standard not only for patent infringement cases brought under Section 271(b), but also potentially for all federal criminal cases involving knowledge.

Most Recent Developments The FY2010 Agriculture appropriations bill ( P.L. 111-80 ) was enacted on October 21, 2009. The House passed the conference agreement ( H.Rept. 111-279 to H.R. 2997 ) on October 7, 2009, by a vote of 263-162. The Senate passed it one day later on October 8 by a vote of 76-22. The act contains $121.1 billion, 12% more than FY2009. Mandatory appropriations total $97.8 billion, $10 billion more than FY2009 (+11%). Discretionary funding totals $23.3 billion, $2.7 billion more than FY2009 (+13%) and $325 million more than the Administration's request. Most of the mandatory growth is due to rising demand for domestic nutrition assistance. The largest increases in discretionary appropriations also are for nutrition assistance, both domestic and foreign. Most programs see an increase in funding over FY2009. Among the important policy issues resolved in the act are dairy financial assistance and imports of poultry from China. P.L. 111-80 includes $350 million for dairy farmer assistance in response to low farm milk prices, along the lines of the Senate bill, to be split with $60 million to purchase dairy products and $290 million for direct payments to farmers. P.L. 111-80 also allows poultry imports from China under specified preconditions, along the lines of the Senate bill. Scope of the Agriculture Appropriations Bill The Agriculture appropriations bill—formally known as the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act—provides funding for the following agencies and departments: all of the U.S. Department of Agriculture (except the Forest Service, which is funded by the Interior appropriations bill), the Food and Drug Administration (FDA) in the Department of Health and Human Services, and in the House, the Commodity Futures Trading Commission (CFTC). In the Senate, CFTC appropriations are handled by the Financial Services appropriations subcommittee. Jurisdiction for the appropriations bill rests with the House and Senate Committees on Appropriations, particularly each committee's Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. These committees are separate from the agriculture authorizing committees—the House Committee on Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry. USDA Activities The U.S. Department of Agriculture (USDA) carries out widely varied responsibilities through about 30 separate internal agencies and offices staffed by some 100,000 employees. USDA spending is not synonymous with farm program spending. USDA also is responsible for many activities outside of the agriculture budget function, such as conservation and nutrition assistance. USDA reports that its regular budget authority for FY2009 was $114.6 billion, excluding supplemental appropriations. Food and nutrition programs constitute the largest mission area, with $76 billion, or 66% of the total, to support the food stamp program, the Women, Infants, and Children (WIC) program, and child nutrition programs ( Figure 1 ). The second-largest mission area, with $21 billion (18%) in budget authority, is farm and foreign agricultural services. This mission area includes the farm commodity price and income support programs of the Commodity Credit Corporation, certain mandatory conservation and trade programs, crop insurance, farm loans, and foreign food aid programs. Other USDA activities include natural resource and environmental programs (8% of the total), rural development (3%), research and education programs (2%), marketing and regulatory programs (2%), and food safety (1%). About two-thirds of the budget for natural resources programs (the third-largest slice in Figure 1 ) goes to the Forest Service (about $7 billion), which is funded through the Interior appropriations bill. The Forest Service is the only USDA agency not funded through the Agriculture appropriations bill; it also accounts for about one-third of USDA's personnel, with nearly 34,000 staff years in FY2009. Comparing USDA's organization and budget data to the Agriculture appropriations bill in Congress is not always easy. USDA defines its programs using "mission areas" that do not always correspond to categories in the Agriculture appropriations bill. Spending may not match up between USDA summaries and the appropriations bill for other reasons. For example, foreign agricultural assistance programs are a separate title in the appropriations bill (Title V in Figure 2 ); foreign assistance programs are joined with domestic farm support in USDA's "farm and foreign agriculture" mission area (the second-largest slice in Figure 1 ). Conversely, USDA has separate mission areas for agricultural research, marketing and regulatory programs, and food safety (three of the smaller slices in Figure 1 ), but these are joined with other domestic farm support programs in Title I of the appropriations bill (the second-largest slice in Figure 2 ). The type of funding (mandatory vs. discretionary) is also important. Conservation in the appropriations bill (Title II) includes only discretionary programs, whereas USDA's natural resources mission area includes both discretionary and mandatory conservation programs in addition to the Forest Service. Related Agencies In addition to the USDA agencies mentioned above, the Agriculture appropriations subcommittees have jurisdiction over appropriations for the Food and Drug Administration (FDA) of the Department of Health and Human Services (HHS) and—in the House only—the Commodity Futures Trading Commission (CFTC, an independent financial markets regulatory agency) . The combined share of FDA and CFTC funding in the overall Agriculture and Related Agencies appropriations bill is about 2% (see Title VI in Figure 2 ). Jurisdiction over CFTC appropriations is assigned differently in the House and Senate. In the House, appropriations jurisdiction for CFTC remains with the Agriculture appropriations subcommittee. In the Senate, jurisdiction moved to the Financial Services appropriations subcommittee with the FY2008 appropriations cycle. Final placement in recent appropriations acts has alternated annually between the subcommittees. The FY2010 appropriation put CFTC funding in the Agriculture bill; the consolidated FY2009 appropriation put CFTC in the Financial Services bill; and CFTC's FY2008 funding was in the Agriculture bill. These agencies are included in the Agriculture appropriations bill because of their historical connection to agricultural markets. However, the number and scope of non-agricultural issues has grown at these agencies in recent decades. Some may argue that these agencies no longer belong in the Agriculture appropriations bill. But despite the growing importance of non-agricultural issues, agriculture and food issues are still an important component of FDA's and CFTC's work. At FDA, medical and drug issues have grown in relative importance, but food safety responsibilities that are shared between USDA and FDA have been in the media during recent years and are the subject of legislation and hearings. At CFTC, the market for financial futures contracts has grown significantly compared with agricultural futures contracts, but volatility in agricultural commodity markets has been a subject of recent scrutiny at CFTC and in Congress. Discretionary vs. Mandatory Spending Discretionary and mandatory spending are treated differently in the budget process. Discretionary spending is controlled by annual appropriations acts and consumes most of the attention during the appropriations process. The subcommittees of the House and Senate Appropriations Committees originate bills each year that provide funding and direct activities among discretionary programs. Eligibility for mandatory programs (sometimes referred to as entitlement programs) is usually written into authorizing laws, and any individual or entity that meets the eligibility requirements is entitled to the benefits authorized by the law. Congress generally controls spending on mandatory programs through authorizing committees that set rules for eligibility, benefit formulas, and other parameters, not through appropriations. Approximately 19%-20% of the Agriculture appropriations bill is for discretionary programs, and 80%-81% is classified as mandatory. Major discretionary programs include certain conservation programs, most rural development programs, research and education programs, agricultural credit programs, the Supplemental Nutrition Program for Women, Infants, and Children (WIC), the Public Law (P.L.) 480 international food aid program, meat and poultry inspection, and food marketing and regulatory programs. The discretionary accounts also include FDA and CFTC appropriations. The vast majority of USDA's mandatory spending is for food and nutrition programs—primarily the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) and child nutrition (school lunch)—along with the farm commodity price and income support programs, the federal crop insurance program, and various agricultural conservation and trade programs (nearly all of Figure 1 's largest two pie pieces). Some mandatory spending, such as the farm commodity program, is highly variable and driven by program participation rates, economic and price conditions, and weather patterns. Formulas are set in the 2008 farm bill ( P.L. 110-246 ). But in general, mandatory spending has tended to rise over time, particularly as food stamp participation and benefits have risen. Although these programs have mandatory status, many of these accounts receive funding in the annual Agriculture appropriations act. For example, the food stamp and child nutrition programs are funded by an annual appropriation based on projected spending needs. Supplemental appropriations generally are made if these estimates fall short of required spending. The Commodity Credit Corporation operates on a line of credit with the Treasury, but receives an annual appropriation to reimburse the Treasury and to maintain its line of credit. Outlays, Budget Authority, and Program Levels In addition to the difference between mandatory and discretionary spending, three other terms are important to understanding differences in discussions about the federal spending: budget authority, outlays, and program levels. 1. Budget authority is how much money Congress allows a federal agency to commit to spend. It represents a limit on funding and is generally what Congress focuses on in making most budgetary decisions. Most of the amounts mentioned in this report are budget authority. 2. Outlays are how much money actually flows out of an agency's account. Outlays may differ from appropriations (budget authority) because, for example, payments on a contract may not flow out until a later year. For construction or delivery of services, budget authority may be committed (contracted) in one fiscal year and outlays may be spread across several fiscal years. 3. Program levels reflect the activities supported or undertaken by an agency. A program level may be much higher than its budget authority for several reasons. User fees support some activities (e.g., food or border inspection). The agency makes loans; for example, a large loan authority (program level) is possible with a small budget authority (loan subsidy) because the loan is expected be repaid. The appropriated loan subsidy makes allowances for defaults and interest rate assistance. Transfers are received from other agencies, or funds are carried forward from a previous year. Action on FY2010 Appropriations The FY2010 Agriculture appropriations bill ( P.L. 111-80 ) was enacted on October 21, 2009. The House passed the conference agreement ( H.Rept. 111-279 to H.R. 2997 ) on October 7, 2009, by a vote of 263-162. The Senate passed it one day later on October 8 by a vote of 76-22. Table 1 summarizes the steps in the passage of the bill in each chamber. Before enactment of the FY2010 appropriation, agencies affected by the bill were funded at FY2009 levels under a continuing resolution that ran until October 31, 2009 ( P.L. 111-68 ). The FY2010 appropriation marks a return to regular order for passing the Agriculture appropriations bill, which was last enacted separately in FY2006. In FY2009, neither the House nor Senate acted on a stand-alone version of the bill, and an Agriculture appropriations bill had not reached the Senate floor since the FY2006 bill ( Table A-1 in the appendix). The FY2010 appropriation is also the earliest that an Agriculture appropriations bill has been enacted since FY1999 ( Figure A-1 ). Table A-1 has links to each appropriation and annual CRS report. House Action The House Agriculture Appropriations Subcommittee marked up the FY2010 Agriculture appropriations bill on June 11, 2009. The bill was reported by the full Appropriations Committee a week later by voice vote ( H.R. 2997 , H.Rept. 111-181 ). The full House passed the bill on July 9, 2009, by a vote of 266-160 after adopting five budget-neutral amendments. A restrictive rule for floor consideration was adopted by the House Committee on Rules ( H.Res. 609 ), allowing consideration of only a certain number of preprinted amendments. The Administration supported passage of the House bill, although it noted concern about a provision restricting imports of poultry products from China. A conference agreement was reported on September 30, 2009 ( H.Rept. 111-279 to H.R. 2997 ). The House passed the conference agreement on October 7, 2009, by a vote of 263-162. Senate Action The Senate Appropriations Committee reported its version of the FY2010 Agriculture appropriations bill ( S. 1406 , S.Rept. 111-39 ) on July 7, 2008. The full committee bypassed subcommittee action by "polling" the bill out of subcommittee—a procedure that permits a bill to advance if subcommittee members independently agree to move it along. This expedited committee procedure was formerly uncommon for the Agriculture appropriations bill, but was used for the FY2009 agriculture appropriations bill. The full Senate passed the bill on August 4, 2009—as an amendment to H.R. 2997 —by a vote of 80-17 after adopting 18 amendments. Most of the amendments did not change dollar amounts in the bill; those that did were budget-neutral—with the exception of a supplemental dairy price support assistance provision, which received a three-fifths vote to waive budget rules and allow the bill to exceed its discretionary budget cap. The Administration supported passage of the Senate bill, although it again noted concern about the restrictions on imports of poultry products from China. The Senate passed the conference agreement one day after the House on October 8, 2009, by a vote of 76-22. Major Policy Differences Among the more publicized and notable policy differences between the House- and Senate-passed bills was the treatment of poultry imports from China. The House-passed bill included a provision that would continue to prohibit the USDA Food Safety and Inspection Service (FSIS) from implementing a rule to allow certain poultry products from China to be imported into the United States. In contrast, the Senate-passed bill would have permitted such imports, but only under specified preconditions. In P.L. 111-80 , conferees followed the Senate's approach regarding poultry imports by allowing imports under specified preconditions. Another important difference between the House and Senate bills was $350 million in the Senate bill for dairy financial assistance in response to low prices. None of this money was in the House bill. P.L. 111-80 includes $350 million for dairy support, along the lines of the Senate bill, but splits the amount, with $60 million to be used to purchase dairy products and $290 million for direct payments. Funding Levels FY2010 Funding Summary For FY2010, the Administration requested $123.9 billion for accounts in the Agriculture appropriations bill, 14% higher than the enacted FY2009 appropriation. The Administration requested 11.7% more for discretionary appropriations, and 15% more for mandatory appropriations. Both the House and Senate bills generally followed this total amount. They were nearly identical to the Administration's request on mandatory appropriations and within 1% of the Administration on discretionary appropriations (before including the Senate's dairy support). The enacted FY2010 Agriculture appropriation, P.L. 111-80 , contains $121.1 billion, 12% more than FY2009 ( Table 2 ). This total is about $2.7-$3.3 billion less than the Administration's request or House- and Senate-passed amounts, primarily because of a re-estimate of the amount needed for domestic nutrition programs. Mandatory appropriations in P.L. 111-80 are $97.8 billion, which is $10 billion more than FY2009 (+11%). Nearly two-thirds of this increase is for domestic nutrition assistance ($6.2 billion increase, +9% over FY2009), and most of the rest is for farm commodity programs ($2.8 billion increase, +25% over FY2009) and crop insurance ($0.9 billion increase, +14% over FY2009). Demand for nutrition assistance programs has risen sharply during the current recession, although the enacted appropriation has a smaller increase for the mandatory nutrition programs over FY2009 (+$6.2 billion) than the Administration requested or was in the House and Senate bills (+$9.2 billion) due to re-estimates of program needs. Farm commodity program outlays are expected to rise since commodity prices have fallen below support levels from historical highs a year ago, and will likely trigger more government payments. Discretionary appropriations in P.L. 111-80 are $23.3 billion, $2.7 billion more than FY2009 (+13%; Table 2 ). This discretionary total is $325 million more than the Administration's request and $404 million more than the House-passed bill, but $253 million less than the Senate-passed bill. The largest discretionary increases are for nutrition assistance: $421 million more than FY2009 (+6%) for domestic nutrition assistance, and $590 million more for foreign food assistance (+39% over FY2009,). Other discretionary programs at USDA, FDA, and CFTC shared in the remainder of the increase. Discretionary support of agricultural programs increased $486 million (+7% over FY2009); FDA by $306 million (+15% over FY2009); rural development by $246 million (+9% over FY2009); conservation by $40 million (+4% over FY2009); and CFTC by $23 million (+16% over FY2009). The enacted appropriation was clearly greater than either the individual House or Senate amounts for agricultural research, the farm loan programs, watershed and flood prevention, rural housing, McGovern-Dole food for education, and FDA (see Table 3 for details). The totals in the FY2010 Agriculture appropriations bill are more transparent this year than in previous years. The tables published at the end of the report language include items for FY2010 that were formerly categorized as "scorekeeping adjustments" and were not necessarily published. These include about $1 billion of Section 32 funds that are now listed under the Agricultural Marketing Service in the table, and about $400-$500 million of reductions in mandatory programs that are now included under General Provisions. The prior extensive use of scorekeeping adjustments sometimes required analysts to use terms like "allowed" and "official" discretionary appropriations to reconcile various published totals. However, the new approach in the FY2010 bills is more straightforward. Table 2 summarizes the totals of the FY2010 bill by title or broad program, comparing FY2009 to the House-passed, Senate-passed, and enacted totals. Table 3 provides more detail within each title by including accounts and agencies. The table also shows the Administration's request and supplemental appropriations enacted for FY2009. The supplemental appropriations are included for comparison—especially since some were relatively large in the economic stimulus act ( P.L. 111-5 )—but are not included in the fiscal year totals because the primary purpose of this report is to compare the regular annual appropriation across years. Descriptions of the issues within each agency's appropriation follow later in this report. Historical Trends Agriculture appropriations have increased in absolute terms for more than the past decade. This section puts some of that growth in perspective—by type of funding or purpose, and in relation to inflation and other variables. Total mandatory and total discretionary Agriculture appropriations each have increased at a 5% average annualized rate over the past 10 years (since FY2000, Table 4 ). Figure 3 shows the total budget authority of the Agriculture appropriations bill divided between mandatory and discretionary spending. As discussed earlier, domestic nutrition programs are the largest component of spending in the agriculture appropriations bill (68% of the total in FY2010). Figure 4 shows the same agriculture bill total as in Figure 3 , but divided between domestic nutrition programs and other spending. The share going to domestic nutrition programs generally is increasing, rising from 46% in FY2000-FY2001 to 68% in FY2010. Since FY2000, total nutrition program spending has increased at an average 9% annual rate, compared to a -1% average annual change in outlays for "other" spending (the rest of USDA, including the farm commodity programs but excluding the Forest Service, plus FDA and CFTC). But these changes are sensitive to the time period (e.g., the farm commodity programs were unusually high in 2000 because of supplemental payments to farmers). And much of the steady growth in the nutrition programs is outside the control of the appropriations committees and dependent on economic conditions, benefit formulas, and program participation. Nonetheless, nutrition programs increased faster than non-nutrition spending for the 5-, 10-, and 15-year periods ending in FY2010 ( Table 4 ). But in the 1-year period since FY2009, the non-nutrition "other" agricultural programs increased at a higher rate than the nutrition programs, again because of the farm commodity programs. Most of the spending on nutrition programs is categorized as mandatory spending, primarily the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) and child nutrition (school lunch). Figure 5 takes the orange-colored bars from Figure 4 (total domestic nutrition programs) and divides them into mandatory and discretionary spending. Over the past 10 years, mandatory spending on domestic nutrition programs has increased at an average 9% rate per year, while discretionary nutrition programs have increased at an average 6% per year. This growth is fairly steady since FY2000, but is not representative of the period between FY1995 and FY2000. Spending on the non-nutrition programs in the Agriculture appropriations bill (the rest of USDA except the Forest Service, plus FDA and CFTC), is more evenly divided between mandatory and discretionary spending, more variable over time, and generally changing at a slower rate than domestic nutrition spending. Figure 6 takes the yellow-colored bars from Figure 4 (total non-nutrition "other" spending) and divides them into mandatory and discretionary spending. Since FY2000, this subtotal of mandatory spending has shown a -3% average annual change, primarily because of the volatility in farm commodity programs. For the 5-year and 15-year period ending in FY2010, its growth was an average +1% per year. The 20% 1-year growth indicates again that this component is variable and dependent on factors outside the control of the appropriators. The $15.6 billion of non-nutrition discretionary spending in FY2010 ( Table 4 )—arguably the component of Agriculture appropriations over which appropriators have the most control—has grown at increasing rates over the past 15 years, although with a short period of decline from FY2004 to FY2006 ( Figure 6 ). The 15-year average growth rate is 3% per year, 5% over the most recent 10 years, 7% over the most recent 5 years, and 17% from FY2009 to FY2010 ( Table 4 ). The Agriculture appropriations totals can also be viewed in inflation-adjusted terms and in comparison to other economic variables ( Figure 7 through Figure 10 ). If the general level of inflation is subtracted, total Agriculture appropriations still have experienced positive "real" growth—that is, growth above the rate of inflation. The total of the annual bill has increased at an average annual 2% real rate over the past 10 years ( Figure 7 ). Within that total, nutrition programs have increased at a higher average annual real rate of 6%, while non-nutrition programs had a -3% average annual real change over 10 years. Comparing Agriculture appropriations to the entire federal budget authority, the Agriculture bill's share has declined from 4.4% of the federal budget in FY1995 to 3.5% in FY2010 ( Figure 8 ). The share of the federal budget for nutrition programs has declined (from 2.5% in FY1995 to 1.8% in FY2009), although the increase in FY2010 returns the share (2.4%) to levels last seen in FY1997. The share for the other agriculture programs also has declined from 1.8% in FY1995 and 2.2% in FY2000, to about 1.1% in FY2010. As a percentage of gross domestic product (GDP), Agriculture appropriations have been fairly steady at about 0.75% of GDP for the past 10 years ( Figure 9 ). Nutrition programs have been rising as a percentage of GDP since FY2000 (0.36% in FY2000 to 0.56% in FY2010), while non-nutrition agricultural programs have been declining (0.42% in FY2000 to 0.26% in FY2010). Finally, on a per capita basis, inflation-adjusted total Agriculture appropriations have risen slightly over the past 10 to 15 years ( Figure 10 ). Nutrition programs have risen more steadily on a per capita basis, while the non-nutrition "other" agricultural programs have been more steady over a 15-year period and declining over a 10-year period. Limits on Mandatory Program Spending In recent years, appropriators have placed limitations on mandatory spending authorized in the farm bill. Mandatory programs usually are not part of the annual appropriations process since the authorizing committees set the eligibility rules and payment formulas in multi-year authorizing legislation (such as the 2008 farm bill). Funding for mandatory programs usually is assumed to be available based on the authorization without appropriations action. Passage of a new farm bill in 2008 made more mandatory funds available for programs that appropriators or the Administration may want to reduce, either because of policy preferences or jurisdictional issues between authorizers and appropriators. Historically, decisions over expenditures are assumed to rest with the appropriations committees. The current tension over who should fund certain agriculture programs—appropriators or authorizers—has roots dating to the 1930s and the creation of the farm commodity programs. Outlays for the farm commodity programs were highly variable, difficult to predict and budget, and based on multi-year programs that resembled entitlements. Thus, a mandatory funding system—the Commodity Credit Corporation (CCC)—was created to remove the unpredictable funding issue from the appropriations committee. This separation worked for many decades. But the dynamic changed particularly in the late 1990s and the 2002 farm bill when authorizers began writing farm bills using mandatory funds for programs that typically were discretionary. Appropriators had not funded some of these programs as much as authorizers had desired, and agriculture authorizing committees wrote legislation with the mandatory funding at their discretion. Thus, tension arose over who should fund these typically discretionary activities: authorizers with mandatory funding sources at their disposal, or appropriators having standard appropriating authority. Thus the question arises: Does creation of the CCC in the 1930s for the hard-to-predict farm commodity programs justify modern mandatory spending on programs that are not highly variable and typically considered discretionary? Appropriator-placed limits on mandatory programs have affected conservation, rural development, bioenergy, and research programs. The limits have not affected the farm commodity programs or the nutrition assistance programs such as food stamps, both of which are generally accepted by appropriators as legitimate mandatory programs. When the appropriators limit mandatory spending, they do not change the authorizing law. Rather, appropriators have put limits on mandatory programs by using appropriations language such as: "None of the funds appropriated or otherwise made available by this or any other Act shall be used to pay the salaries and expenses of personnel to carry out section [ ... ] of Public Law [ ... ] in excess of $[ ... ]." These provisions usually have appeared in Title VII, General Provisions, of the Agriculture appropriations bill. For FY2010, the enacted appropriation contains $511 million in reductions from three mandatory programs. This equals the Senate's approach, and is larger than the reduction in the House bill because of the inclusion of a fruit and vegetable program. The Administration proposed even greater reductions totaling $582 million from nine mandatory programs ( Table 5 ). Limits on mandatory programs in the FY2010 enacted appropriation are comparable to the $484 million of reductions in FY2009 that affected the same three programs. These reductions, however, are not as large as those during the height of the 2002 farm bill period that reached $1.5 billion in FY2006. Since appropriators had consistently limited various mandatory programs in the 2002 farm bill, authorizers in the agriculture committees chose to reduce or eliminate those programs when savings needed to be scored during budget reconciliation in FY2005. Thus, as the 2002 farm bill ended by the FY2008 appropriations cycle, relatively little authorization was left among the mandatory programs that the appropriators had limited from FY2003 to FY2006. Nonetheless, passage of the 2008 farm bill—with a host of new and reauthorized mandatory conservation, research, rural development, and bioenergy programs—creates new possibilities for appropriators to limit mandatory programs. Earmarks Congress adopted earmark disclosure rules in 2007 that require appropriations acts to disclose "earmarks and congressionally directed spending items." The disclosure—self-identified by Congress—includes the agency, project, amount, and requesting Member(s). Prior to FY2008, earmark lists were subject to agency or analyst definitions as to what constituted an earmark. Earmarks specified in a conference report generally are not considered to have the same force of law as if they were in the text of the law itself. But in the past, executive branch agencies usually have followed such directives since, when they testify before Congress, they do not wish to explain why congressional directives were not followed. The FY2008 Consolidated Appropriations Act varied in its treatment of earmarks in the bill text—some were mentioned in the text of the law, some were incorporated by specific reference to the report language, and others were printed in the report language without reference in the act. In January 2008, President Bush issued Executive Order 13457 instructing agencies not to honor earmarks unless they are in the text of the law. Beginning in FY2009 appropriations acts, appropriators responded by incorporating the earmarks, at least by reference, in the text of the bill. For FY2010, Congress disclosed 462 earmarks for Agriculture and Related Agencies, down by 59 earmarks from FY2009 (-11%) and down 161 earmarks (-26%) from FY2008. The total value of these earmarks was $355.4 million, down 6% from the value in FY2009 and down 12% from the value in FY2008. Three USDA agencies—NIFA (formerly CSREES), ARS, and NRCS —account for nearly 90% of the earmarks for Agriculture and Related Agencies ( Table 6 ). By agency, the number of earmarks has declined steadily since FY2008 ( Figure 11 ), and value of earmarks is generally declining also ( Figure 12 ). The median FY2010 project size was $422,500. USDA Agencies and Programs The Agriculture appropriations bill funds all of the U.S. Department of Agriculture (USDA) except for the Forest Service. This amounts to about 94% of USDA's total appropriation. The Forest Service is funded through the Interior appropriations bill. USDA carries out widely varied responsibilities through about 30 internal agencies and offices staffed by about 100,000 employees; about 34,000 of those employees are in the Forest Service. The order of the following sections reflects the order that the agencies are listed in the Agriculture appropriations bill. See Table 3 for more details on the amounts for specific agencies. Agricultural Research, Education, and Extension Four agencies carry out USDA's research, education, and economics (REE) mission: The Agricultural Research Service (ARS) , the Department's intramural science agency, conducts long-term, high-risk, basic and applied research on food and agriculture issues of national and regional importance. The National Institute of Food and Agriculture (NIFA)— formerly the Cooperative State Research, Education, and Extension Service (CSREES ) —distributes federal funds to land grant colleges of agriculture to provide partial support for state-level research, education, and extension. The Economic Research Service (ERS) provides economic analysis of issues regarding public and private interests in agriculture, natural resources, food, and rural America. The National Agricultural Statistics Service (NASS) collects and publishes current national, state, and county agricultural statistics. NASS also is responsible for administration of the Census of Agriculture, which occurs every five years and provides comprehensive data on the U.S. agricultural economy. The 2008 farm bill institutes significant changes in the structure of the REE mission area, but retains and extends the existing authorities for REE programs. The 2008 farm bill called for the establishment of a new agency called the National Institute of Food and Agriculture (NIFA), which USDA launched on October 8, 2009. The 2008 farm bill also created the Research, Education, and Extension Office (REEO), which coordinates the activities of ARS, ERS, NASS, and NIFA. Future budget requests for the REE mission area are to be in the form of a single line item. The 2008 farm bill provides mandatory funds for an expanded number of competitive grant programs, including the Agriculture and Food Research Initiative (AFRI, to be administered by NIFA), although it repeals the mandatory-funded Initiative for Future Agriculture and Food Systems (established in 1998 legislation, but for which funding was repeatedly blocked). When adjusted for inflation, USDA-funding levels for agriculture research, education, and extension have remained relatively flat from 1970 to 2000. From FY2001 through FY2003, supplemental funds appropriated specifically for anti-terrorism activities, not basic programs, accounted for most of the increases in the USDA research budget. Funding levels since have trended downward to historic levels ( Figure 13 ), although ARS received supplemental funding for buildings and facilities in FY2009. ARS and NIFA (formerly CSREES) account for most of the research budget and their appropriations generally have tracked each other ( Figure 14 ). In an effort to find new money to boost the availability of competitive grants in the REE mission area, the House and Senate Agriculture Committees have tapped sources of available funds from the mandatory side of USDA's budget and elsewhere (e.g., the U.S. Treasury) twice since 1997. However the annual Agriculture appropriations act has prohibited the use of those mandatory funds for the purposes the agriculture committees intended, except in FY1999. On the other hand, in many years during the FY1999-FY2006 period, and again in FY2010, appropriations conferees provided more discretionary funds for ongoing REE programs than were contained in either the House- or Senate-passed versions of the bills. Nonetheless, once adjusted for inflation, these increases are not viewed by some as significant growth in spending for agricultural research. Agricultural scientists, stakeholders, and partners express concern for funding over the long term. Agricultural Research Service The enacted FY2010 appropriation provides a total of $1.25 billion for USDA's in-house science agency, the Agricultural Research Service (ARS), which is 5% more than the regular FY2009 levels and 7.8% more than the President's request. It is also an increase over the amount proposed in both the House and the Senate bills. This FY2010 amount includes $1.18 billion of salaries and expenses, and nearly $71 million for buildings and facilities. The research priorities in the enacted appropriation coincided with the Administration's, and include initiatives on preventing childhood obesity, developing new bioenergy feedstocks, assessing and managing climate change, and reducing world hunger. The enacted appropriation provides the following increases: $5.9 million for increased research on human nutrition; $3.4 million for animal disease research; $2.4 million for environmental stewardship research; $1.5 million for research related to colony collapse disorder; $1 million to bolster efforts to develop Ug99-resistant wheat varieties; $1.1 million to strengthen grain research to protect the world grain supply; and $246,000 to index and mine the U.S. seed collections for energy genes among other things. As in both the House and Senate passed bills, the enacted appropriation does not support the Administration's proposal to transfer the Office of Pest Management Policy from ARS to the Office of the Chief Economist. Though the enacted appropriation includes a cooperative research agreement to begin transitioning the Rift Valley Fever, African Swine Fever, and Peste des Petits Ruminants research activities of the Plum Island Animal Disease Center to the intended National Bio- and Agro-Defense Facility (NBAF) on the campus of Kansas State University, funding for construction of the DHS facility continues to be blocked by the Department of Homeland Security (DHS) appropriations process. National Institute of Food and Agriculture The 2008 farm bill established a new agency called the National Institute of Food and Agriculture (NIFA), which replaced the Cooperative State Research, Education, and Extension Service (CSREES) at the beginning of October 2009. Like CSREES, NIFA will be the primary extramural funding agency for food and agricultural research at the USDA. Its mission continues to be to work with university partners to advance research, extension, and higher education in the food, agricultural, and related environmental and human sciences to benefit people, communities, and the nation. NIFA will administer competitive grants, special research grants, federal administration grants, and the so-called formula funds for research and extension. The enacted appropriation provides $1.34 billion for NIFA, which represents a 10% increase over the regular FY2009 level for CSREES and a 15% increase over the President's request. It is also an increase from both the House- and Senate-passed proposals. The enacted appropriation includes an increase in funding over FY2009 for all major activities carried out by NIFA, including research and education, extension, and integrated activities ( Table 7 ). The Administration's request for research and education activities was considerably lower than levels enacted in FY2009 because the Administration removed most of the special and federally administered grants. Both the House and Senate bills included funds for these earmarked grant programs, and the Senate bill in particular included a substantial increase in funding for competitive grants program, specifically the Agriculture and Food Research Initiative (AFRI). The enacted appropriation reflects both the House and Senate proposals for modest increases in research and education activities provided for formula fund programs. The enacted appropriation, like the House and Senate bills, provides $215 million for the Hatch Act formula fund program that supports State Agriculture Experiment Stations (SAES), which is 3.8% over the $207.1 million enacted in FY2009 and the Administration's request for FY2010. The enacted appropriation includes $29 million for the McIntire-Stennis formula fund program for Cooperative Forestry Research, which is $1.5 million over FY2009. The farm bill authorizes appropriations of $700 million annually for the newly created competitive grant program, called the Agriculture and Food Research Initiative (AFRI). The enacted appropriation provides $262.5 million for AFRI, which is a considerable increase of about 30% over the $201.5 million enacted in FY2009 (the same level requested by the Administration for FY2010). The enacted appropriation provides $52.5 million more for AFRI than the House proposal, but $32.6 million less that that of the Senate. AFRI replaces two other grant programs: the Initiative for Future Agriculture and Food Systems (IFAFS), which emphasized more applied research, and the National Research Initiative (NRI) competitive grants program, which emphasized more fundamental, or basic, research. Both of these grant programs were eliminated in the 2008 farm bill. The enacted appropriation includes $494.9 million for extension activities for FY2010 (instead of $485.4 million as proposed by the House and $491.3 million by the Senate). This is an increase of $20.6 million, or 4%, over FY2009 funding levels for extension activities. The enacted appropriation includes $297.5 million for Smith-Lever formula funds for extension (Sections 3(b) and 3(c)), and over $11.8 million in congressionally designated extension projects. In addition, the enacted appropriation provides $101.3 million for Smith-Lever Section 3(d) competitive programs activities, which include programs in food and nutrition education ($68.1 million), pest management ($9.9 million), sustainable agriculture ($4.7 million), extension services on Indian reservations ($3 million) and children, youth, and families at risk ($8.4 million). Economic Research Service The enacted appropriation provides $82.5 million for USDA's Economic Research Service (ERS), an increase of $3 million (+4%) over FY2009 and equal to the amount requested by the Administration. It is slightly lower than the House amount, but higher than the Senate amount. National Agricultural Statistics Service The enacted appropriation provides $161.8 million for the National Agricultural Statistics Service (NASS), which is an increase of $10.3 million over the FY2009 level. It equals the Administration's request, as well as the amounts in the House and Senate bills. The increase includes funds for the restoration of the Agricultural Chemical Use program and for the analysis of bio-energy production and utilization from agricultural systems. For more information on USDA research, education, and extension programs, see CRS Report RL34352, Agricultural Research, Education, and Extension: Farm Bill Issues , by [author name scrubbed]. Marketing and Regulatory Programs Three agencies carry out USDA's marketing and regulatory programs mission area: the Animal and Plant Health Inspection Service (APHIS), the Agricultural Marketing Service (AMS), and the Grain Inspection, Packers, and Stockyards Administration (GIPSA). Animal and Plant Health Inspection Service The Animal and Plant Health Inspection Service (APHIS) is responsible for protecting U.S. agriculture from domestic and foreign pests and diseases, responding to domestic animal and plant health problems, and facilitating agricultural trade through science-based standards. APHIS has key responsibilities for dealing with such prominent concerns as avian influenza (AI), bovine spongiform encephalopathy (BSE or "mad cow disease"), bovine tuberculosis, a growing number of invasive plant pests—such as the Emerald Ash Borer, the Asian Long-horned Beetle, and the Glassy-winged Sharpshooter—and a national animal identification (ID) program for animal disease tracking and control, among other things. APHIS is also the USDA agency charged with administering the Animal Welfare Act (AWA), which seeks to protect pets and other animals used for research and entertainment. The enacted appropriation provides a total of $909.7 million for APHIS for FY2010. This includes $905.0 million for APHIS salaries and expenses, which is more than the amount in the House-passed bill ($881.0 million) but less than in the Senate-passed bill ($909.4 million). The enacted appropriation also authorizes $4.7 million for buildings and facilities. The enacted appropriation provides more compared to the President's FY2009 budget request of $877.1 million and the FY2008 level of $881.4 million. Within APHIS, the enacted appropriation identifies funding for certain programs, including $24.4 million for certain congressionally designated projects; $5.3 million for a National Animal Identification System program; $2.1 million to control outbreaks of insects, plant diseases, animal diseases under emergency conditions; $23.4 million for the cotton pests program for cost share purposes or for debt retirement for active eradication zones; and $60.2 million to prevent and control avian influenza. The enacted appropriation includes many of the same provisions identified in the House and Senate bills, including a requirement that matching state funds be at least 40% for formulating and administering a brucellosis eradication program, limitations on the operation and maintenance of aircrafts and aircraft purchases, and a requirement that any repair and alteration of leased buildings and improvements not exceed 10% of the current replacement value of the building. The enacted appropriation also provides for the following funding levels: pest and disease exclusion ($166.7 million); plant and animal health monitoring ($248.7 million); pest and disease management ($369.1 million); animal care ($22.5 million); scientific and technical services ($87.7 million); and management initiatives ($10.2 million). The conference report also highlights that appropriators expect the Secretary of Agriculture to continue to use the authority provided in this bill to transfer funds from other appropriations or funds available to USDA for activities related to the arrest and eradication of animal and plant pests and diseases. The Office of Management and Budget (OMB) and congressional appropriators have sparred for years over whether APHIS should—as appropriators have preferred—reach as needed into USDA's Commodity Credit Corporation (CCC) account for mandatory funds to deal with emerging plant pests and other plant and animal health problems on an emergency basis, or be provided the funds primarily through the annual USDA appropriation, as OMB has argued. National Animal Identification System The enacted appropriation provides $5.3 million for a National Animal Identification System (NAIS), $9.1 million less than FY2009. This is in contrast to no funding under the House bill and is $2 million less than the Senate bill. The conference report expresses concern that the lack of progress by APHIS in registering animal premises in the United States will prohibit APHIS from implementing an effective national animal ID system, and that such a system is needed for animal health and would benefit livestock markets. As of mid-2009, about 37% of premises were registered under NAIS, out of an estimated 1.4 million U.S. animal and poultry operations. USDA has stated that much higher levels of participation are needed to successfully implement NAIS. The conference report states further that, "[i]f significant progress is not made, the conferees will consider eliminating funding for the program." Since FY2004, approximately $142 million has been appropriated for NAIS, including $14.5 million in FY2009. The Administration proposed slightly increasing the funding for NAIS to $14.6 million in FY2010. The House-passed bill would have eliminated all funding for NAIS for FY2010 and the Senate bill would have provided only half the requested amount. The original Senate version, S. 1406, would have provided the entire $14.6 million proposed by the Administration. An amendment to zero out Senate funding failed to pass in committee; however, a floor amendment ( S.Amdt. 2230 by Senators Tester and Enzi) reduced the Senate-passed bill's amount to $7.3 million. See CRS Report R40832, Animal Identification: Overview and Issues , by [author name scrubbed] for more information. Emerging Plant Pests The emerging plant pests (EPP) account within the "Pest and Disease Management" spending area is funded at $158.8 million for FY2010 in the enacted appropriation. This compares with an Administration request of $143.8 million and a FY2009 level of $133.7 million. The enacted appropriation further specifies how most of this money should be divided among plant problems of major concern, including citrus health ($44.7 million); Asian long-horned beetle ($33.0 million); glassy-winged sharpshooter ($23.0 million); sudden oak death ($5.4 million); Karnal bunt ($2.2 million); emerald ash borer ($37.2 million, including an increase of $2.5 million for operations and improved eradication methods); potato cyst nematode ($8.3 million); light brown apple moth ($1.0 million); sirex woodwasp ($1.5 million); miscellaneous pests ($2.1 million); and varroa mite suppression ($0.5 million). The enacted appropriation also includes $16.8 million for bovine tuberculosis, which includes $2.0 million for indemnity and depopulation. Agricultural Marketing Service and Section 32 The Agricultural Marketing Service (AMS) is responsible for promoting the marketing and distribution of U.S. agricultural products in domestic and international markets. User fees and reimbursements, rather than appropriated funds, account for a substantial portion of funding for the agency. Such fees, which now cover AMS activities like product quality and process verification programs, commodity grading, and Perishable Agricultural Commodities Act licensing, total about $140 million. AMS historically receives additional funding each year through two separate appropriations mechanisms—the direct annual USDA appropriation and a transfer from the so-called Section 32 account. For FY2010, the enacted appropriation provides $91.1 million (slightly more than the President's request or the House and Senate versions), compared with $86.7 million in the enacted FY2009 omnibus bill. Also under the AMS Marketing Services account, $6.7 million is provided for the National Organic Program. Payments to states total $1.3 million under the Federal-State Marketing Improvement Program (FSMIP). The Section 32 program is funded by a permanent appropriation of 30% of the previous calendar year's customs receipts, less certain mandatory transfers. The enacted appropriation concurs with the House, Senate and Administration estimates to fund Section 32 activities at $1,300 million, compared with $1.169 billion in FY2009. This amount has been used, at the Secretary's discretion, primarily to fund commodity purchases for school lunch and other domestic programs and support farm prices, and to provide disaster assistance. Rescissions of Section 32 carryover funds are generally used to achieve budgetary savings. The enacted appropriation for FY2010 contains, under Title VII (General Provisions) a rescission of $52.5 million from unobligated balances carried over from FY2009. The 2008 farm bill also effectively sets new annual caps on how much Section 32 money is available for other activities, the most significant being the purchase of surplus agricultural commodities. These caps are intended as a way to fund a fresh produce program for school nutrition programs and a computer system for commodity purchase support without raising spending above the budget baseline, as estimated by the Congressional Budget Office (CBO). The farm bill cap for FY2010 is $1.199 billion, and was not reduced in the enacted appropriation. This was not the case in FY2009. The farm bill cap for FY2009 was set at $1.173 billion, but the enacted FY2009 omnibus lowered that to $1.072 billion. The apparent effect of this reduction was to free up additional Section 32 money (i.e., $101 million). The 2008 farm bill also requires $199 million of Section 32 funds be used during FY2010 to purchase fruit, vegetables, and nuts for domestic food assistance programs. Grain Inspection, Packers, and Stockyards Administration One branch of the Grain Inspection, Packers, and Stockyards Administration (GIPSA) establishes the official U.S. standards for inspection and grading of grain and other commodities. Another branch is charged with ensuring competition and fair-trading practices in livestock and meat markets. In FY2009, $40.3 million was provided for GIPSA salaries and expenses. Both the Administration and the House bill proposed that FY2010 funding for GIPSA be increased by $1.6 million to $42 million, including $900,000 for increased staff for the Packers and Stockyards program to strengthen the agency's compliance, investigative, and enforcement activities in the field. In contrast, the Senate version proposed a slightly smaller funding increase of $1.2 million to $41.6 million for FY2010. The enacted FY2010 appropriation provides $42 million as proposed by both the Administration and the House bill. Agency activities also are supported by user fees, amounting to approximately $42.5 million annually or about half the agency's overall budget. The Administration again proposed additional user fees—to take effect after FY2010—to offset some grain inspection and Packers and Stockyards (P&S) activities, to recoup an estimated $27 million annually; however, the conference report did not make note of this proposal, which would require authorizing legislation. Meat and Poultry Inspection24 Funding USDA's Food Safety and Inspection Service (FSIS) conducts mandatory inspection of meat, poultry, and processed egg products to ensure their safety and proper labeling. Conferees approved new budget authority for FSIS of $1.019 billion, which was the amount in the House-passed and Senate-passed versions as well as the Administration's request, a $48 million or 4.9% increase over the enacted FY2009 level. This congressional appropriation would be augmented in FY2010 by existing (currently authorized) user fees, which FSIS had earlier estimated would total approximately $150 million. The final bill does not assume the adoption of a new user fee, proposed by the Administration, to be charged establishments involved in product retesting, recalls, or illness outbreaks. Estimated revenue from this fee, which would require new authorizing legislation, was $4 million. As in past years, the final bill directs that $3 million of the total be obligated to maintain the Humane Animal Tracking System. It also requires that a minimum of 140 full-time staff positions be devoted solely to inspections and enforcement under the Humane Methods of Slaughter Act. The final bill contains a separate House provision to continue a prohibition on the use of funds or user fees to inspect horses destined for human food. China Poultry Issue The House and Senate bills differed over the issue of permitting poultry products to be imported into the United States from China. FSIS had published a final rule on April 24, 2006, that would allow certain poultry products processed in China to be imported into the United States. However, USDA appropriation measures for recent years have prohibited FSIS from using funds to implement the rule. The House-passed bill (Section 723) would have continued this prohibition. The Senate version (Section 744) would have permitted such imports but only under specified preconditions . Conferees adopted language that appears to be closer (but not identical) to the Senate approach. More specifically, Section 743 of the final measure states that funds cannot be used to implement the rule unless the Secretary of Agriculture formally notifies Congress that China will not receive any preferential consideration of any application to export poultry or poultry products to the United States; the Secretary will conduct audits of inspection systems and on-site reviews of slaughter and processing facilities, laboratories, and other control operations before any Chinese facilities are certified to ship products to the United States, and subsequently such audits and reviews will be conducted at least annually (or more frequently if the Secretary determines it necessary); there will be a "significantly increased level" of reinspections at U.S. ports of entry; and a "formal and expeditious" information sharing program will be established with other countries importing Chinese processed poultry products that have conducted audits and plant inspections. Furthermore, USDA must provide a report to the House and Senate Appropriations Committees within 120 days and every 180 days thereafter, indefinitely, that includes both initial and new actions taken to audit and review the Chinese system to ensure it meets sanitary standards equivalent to those of the United States, the level of port of entry reinspections being conducted on Chinese poultry imports, and a work plan incorporating any agreements between FSIS and the Chinese government regarding a U.S. equivalency assessment. USDA also is to meet specified requirements (spelled out in Section 743) for notifying the public about audits and site reviews in China and of lists of certified Chinese facilities. Many food safety advocates were supportive of the House appropriations language banning the poultry rule, arguing that China—the third leading foreign supplier of food and agricultural imports into the United States—lacks effective food safety protections, and that the 2006 rule was rushed into approval without an adequate safety evaluation. Opponents of a ban, particularly those in the U.S. animal industries, argued that it would undermine U.S. trade commitments, and lead to trade retaliation by the Chinese. For details on the Chinese imports issue, see CRS Report R40706, China-U.S. Poultry Dispute , by [author name scrubbed]. For background on food safety generally, see CRS Report RL32922, Meat and Poultry Inspection: Background and Selected Issues , by [author name scrubbed]. Farm Service Agency USDA's Farm Service Agency (FSA) is probably best known for administering the farm commodity subsidy programs and the disaster assistance programs. It makes these payments to farmers through a network of county offices. In addition, FSA also administers USDA's direct and guaranteed farm loan programs, certain mandatory conservation programs (in cooperation with the Natural Resources Conservation Service), and certain international food assistance and export credit programs (in cooperation with the Foreign Agriculture Service). FSA Salaries and Expenses All of the administrative funds used by FSA to carry out its programs are consolidated into one account. A direct appropriation for FSA salaries and expenses pays to carry out the activities such as the farm commodity programs. Transfers also are received from other USDA agencies to pay for FSA administering CCC export credit guarantees, P.L. 480 loans, and the farm loan programs. This section discusses amounts for regular FSA salaries and expenses, plus transfers for the salaries and expenses of the farm loan programs. Amounts transferred to FSA for export programs and P.L. 480 are included with the originating account. The FY2010 enacted appropriation provides $1.575 billion for regular FSA salaries and expenses, $87 million more than FY2009 (+6%). The amounts in the House- and Senate-passed bills were nearly the same. The increase over FY2009 is for information technology improvements and routine pay cost (salary) adjustments. Unlike recent appropriations bills through FY2008, the FY2010 bills do not contain language prohibiting closure of FSA county offices. That language was incorporated into the 2008 farm bill as a two-year prohibition, with certain exceptions ( P.L. 110-246 , Sec. 14212). Information Technology The enacted appropriation concurs with the House and Senate bills by including the Administration's requested funding for FSA's computer infrastructure. The Administration requested $67.3 million for FY2010 for information technology ($20.4 million for stabilization, and $46.9 million for modernization). Additional appropriations for modernization (about $266 million) will be needed after FY2010, according to USDA's plans. The enacted appropriation requires a series of reports from UDSA on the progress of improvements to FSA's information technology, especially relating to department-wide computer improvements. It also requires reports on the use of past- and current-year information technology appropriations, noting the cost, schedule, and achievement of computer modernization milestones. For many years, FSA has had problems with an outdated mainframe computer system. Its service to farmers—particularly through its network of county offices where enrollment and verification occurs—has been jeopardized by computer malfunctions. At one time in 2007, the computer system would fail daily or county offices would be rationed in the amount of time they would be allowed to use or access their computers because of overloading the system. Data processing requirements are increasing with each farm bill, and the 2008 farm bill's new Average Crop Revenue Election (ACRE) and adjusted gross income limits are expected to further stress the antiquated computer system. For many years, FSA has sought increased funding for computers, and to some extent partial funding has been appropriated through annual appropriations bills, but the computer problems have continued. Following the 2007 computer system failures, USDA developed a "stabilization and modernization" plan in consultation with industry experts. The stabilization plan is meant to shore up the current computer system while upgrades are implemented and prepare it for migration to the new system. The modernization plan (called MIDAS, "modernize and innovate the delivery of agricultural systems") would replace antiquated mainframe hardware that relies on the outdated COBOL computer language with a modern Web-based system. A May 2008 report by the Government Accountability Office (GAO) finds that the USDA plan addresses technical issues, but lacks details in the business plan for efficient implementation. The regular FY2009 FSA appropriation noted $22 million for information technology expenses and stabilization of the existing network, and the economic stimulus act (ARRA, P.L. 111-5 ) provided another $50 million for maintaining and modernizing FSA's computer system. These amounts address "stabilization" and a limited amount of "modernization" of the existing outdated USDA mainframe system. FSA Farm Loan Programs The USDA Farm Service Agency serves as a lender of last resort for family farmers unable to obtain credit from a commercial lender. USDA provides direct farm loans (loans made directly from USDA to farmers), and it also guarantees the timely repayment of principal and interest on qualified loans to farmers from commercial lenders. FSA loans are used to finance farm real estate, operating expenses, and recovery from natural disasters. Some loans are made at a subsidized interest rate. An appropriation is made to FSA each year to cover the federal cost of making direct and guaranteed loans, referred to as a loan subsidy. Loan subsidy is directly related to any interest rate subsidy provided by the government, as well as a projection of anticipated loan losses from farmer non-repayment of the loans. The amount of loans that can be made—the loan authority—is several times larger than the subsidy level. The FY2010 enacted appropriation exceeds the amounts for both loan authority and budget authority in the House-passed and Senate-passed bills. This is likely due to a re-estimate of the demand for the farm loan programs. FSA experienced higher demand for its loans in FY2009, given the financial pressures of the global financial crisis. An unusually high number of direct operating loan applications were from new customers: 45% in FY2009 compared with about 20% usually. The enacted appropriation provides $141 million of budget authority to support $5.084 billion of loan authority ( Table 8 ). This is nearly $1.66 billion more of loan authority (+48%) than the regular loan authority for FY2009, but with about $7 million less in budget authority (-4.6%). The FY2010 bill incorporates for the first time the 2008 farm bill authorizations for the new conservation loan program and Indian highly-fractured land loans. These programs account for about 10% of the increase in loan authority over FY2009 ($160 million of the $1.66 billion). The rest of the increase over FY2009 is split among the traditional direct and guaranteed farm operating and farm ownership loan programs, with the biggest percentage increase going to the direct farm ownership program (up 194% over the regular FY2009 appropriation). Other loan program increases include a 21% increase in guaranteed farm ownership loans, 74% for direct farm operating loans, and 47% for guaranteed unsubsidized farm operating loans. These increases are needed to meet the increased demand for USDA loans and guarantees as a result of the global financial crisis, and are larger than the supplemental funding enacted for FY2009 that was all quickly consumed by the end of the fiscal year. The guaranteed interest assistance operating loan program is slated for a 37% reduction, consistent with the internal transfer UDSA made from the program in FY2009, and the lower demand for the program in the current low interest rate environment. Reflecting this increased demand during the financial crisis, Congress made two supplemental appropriations in FY2009 for FSA farm loans and USDA made an internal transfer within the loan program. These supplemental appropriations and transfers more than doubled the loan authority for the direct loan programs and increased the guaranteed unsubsidized operating loan program by nearly 20%. By early September 2009, USDA had used 93% of its FY2009 loan authority, including supplemental appropriations and transfers. The Administration had requested $5 million for the new farm-bill authorized Individual Development Accounts program. Neither the House bill, the Senate bill, nor the enacted appropriation provided any funding for the program. The program is for beginning farmers and ranchers, and provides matching funds for deposits made to savings accounts that can be used for capital expenses. Dairy Financial Assistance Low financial returns for dairy farmers in 2009 prompted Congress to make additional financial assistance available to the dairy sector. The enacted appropriation (in the General Provisions, Section 748) provides a total of $350 million, divided between $290 million for supplemental income payments to dairy farmers and $60 million for the purchase of cheese and other dairy products to be distributed through food banks and similar locations. Provisions for expedited rulemaking are expected to enable the Secretary of Agriculture to make the additional payments in a timely manner. The enacted appropriation does not specify how the Secretary should allocate the funding among producers. Under the Milk Income Loss Contract (MILC) program, for comparison, the payment quantity is limited to 2.985 million pounds of annual production (equivalent to about a 160-cow operation). The additional income payments will supplement the more than $700 million in direct payments made to producers in fiscal 2009 through the MILC program. USDA also announced on July 31, 2009, a temporary increase in price support for cheese and nonfat dry milk from August 2009 through October 2009. The idea for additional dairy appropriation originated in the Senate-passed bill, which included an amendment for an additional $350 million in FSA salaries and expenses, ostensibly for dairy farmer financial assistance through an increase in dairy product price supports. The amendment was controversial since it was designated emergency funding and was not offset elsewhere in the bill. The Sanders amendment ( S.Amdt. 2276 ) was adopted by voice vote, after a procedural vote of 60-37 to waive budget rules to allow the bill to exceed its 302(b) appropriations subcommittee allocation. The House-passed bill did not have a similar provision. The funding in the enacted appropriation does not have the emergency designation and is instead included within the annual discretionary allocation for the Agriculture bill. For more background on the economic forces affecting the dairy sector, see CRS Report R40205, Dairy Market and Policy Issues , by [author name scrubbed]. Commodity Credit Corporation The Commodity Credit Corporation (CCC) is the funding mechanism for the mandatory subsidy payments that farmers receive. (Discretionary appropriations for Farm Service Agency salaries and expenses pay for administration of the programs.) Most spending for USDA's mandatory agriculture and conservation programs was authorized by the 2008 farm bill ( P.L. 110-246 ). The CCC is a wholly owned government corporation that has the legal authority to borrow up to $30 billion at any one time from the U.S. Treasury (15 U.S.C. 714 et seq .). These borrowed funds finance spending for programs such as farm commodity subsidies and various conservation, trade, and rural development programs. Emergency supplemental spending also has been paid from the CCC over the years, particularly for ad hoc farm disaster payments, for direct market loss payments to growers of various commodities in response to low farm commodity prices, and for animal and plant disease eradication efforts. Although the CCC can borrow from the Treasury, it eventually must repay the funds it borrows. It may earn a small amount of money from activities such as buying and selling commodities and receiving interest payments on loans. But because the CCC never earns more than it spends, its borrowing authority must be replenished periodically through a congressional appropriation so that its $30 billion debt limit is not depleted. Congress generally provides this infusion through the annual Agriculture appropriation law. In recent years, the CCC has received a "current indefinite appropriation," which provides "such sums as are necessary" during the fiscal year. Mandatory outlays for the commodity programs rise and fall automatically based on economic or weather conditions. Funding needs are difficult to estimate, which is a primary reason that the programs are mandatory rather than discretionary. More or less of the Treasury line of credit may be used year to year. Similarly, the congressional appropriation may not always restore the line of credit to the previous year's level, or may repay more than was spent. For these reasons, the appropriation to the CCC may not reflect outlays. Outlays (e.g., payments to farmers) in FY2010 will be funded initially through the borrowing authority of the CCC and reimbursed to the Treasury through a separate (and possibly future) appropriation. USDA projects that CCC net expenditures will be $10.8 billion in FY2010, less than the $12.1 billion in FY2009 but more than the $8.2 billion in FY2008. To replenish CCC's borrowing authority with the Treasury, the FY2010 enacted appropriation, as well as the House and Senate bills, concur with the Administration request for an indefinite appropriation ("such sums as necessary") for CCC. The appropriation is estimated to be $13.9 billion, up from an average of $12.3 billion in FY2008-09 but down from $23 billion in FY2007. With these amounts of outlays and appropriations, the CCC would have about $24 billion of its $30 billion line of credit available at the end of the FY2010, consistent with prior years. Crop Insurance The federal crop insurance program is administered by USDA's Risk Management Agency (RMA). It offers basically free catastrophic insurance to producers who grow an insurable crop. Producers who opt for this coverage have the opportunity to purchase additional insurance coverage at a subsidized rate. Policies are sold and completely serviced through approved private insurance companies that have their program losses reinsured by USDA and are reimbursed by the government for their administrative and operating expenses. The annual Agriculture appropriations bill traditionally makes two separate appropriations for the federal crop insurance program. First, it provides discretionary funding for the salaries and expenses of the RMA. Second, it provides "such sums as are necessary" for the Federal Crop Insurance Fund, which finances all other expenses of the program, including premium subsidies, indemnity payments, and reimbursements to the private insurance companies. For the salaries and expenses of the RMA, the enacted appropriation provides $80.3 million, 4% more than FY2009. Absent from the conference language, but appearing in the House-passed bill, was a directive for additional staff to enhance compliance and oversight work. The enacted appropriation allows RMA to tap mandatory money made available under the Federal Crop Insurance Act for improving the agency's information management system. The enacted appropriation provides $7.5 billion for the Federal Crop Insurance Fund ($900 million more than FY2009), although the amount actually required to cover program losses and other subsidies is subject to change based on actual crop losses and farmer participation rates in the program. The estimated amount for the fund is higher in FY2010 than in FY2009 because crop prices—and associated crop values and prospective losses—were relatively high at the time the estimates were made. Also, expenditures in FY2009 have been limited by relatively low loss ratios (indemnities paid divided by premiums collected) for 2008 crops. More than half of the crop insurance policies sold in recent years have been revenue products, which provide protection against both a loss of yield and a decline in commodity prices. For more information on crop insurance, see CRS Report R40532, Federal Crop Insurance: Background and Issues , by [author name scrubbed]. Conservation The enacted FY2010 appropriation provides increased funding for discretionary Natural Resource Conservation Service (NRCS) programs, rejecting many of the Administration's proposed reductions. The act makes few changes to mandatory programs. Discretionary Programs The enacted appropriation provides $1.009 billion total for FY2010 discretionary conservation programs, $40.2 million (+4%) more than in FY2009. It has $22.4 million more than the House bill, $5.6 million less than the Senate bill, and $101.1 million more than was requested by the Administration. All the discretionary conservation programs are administered by NRCS. Most of the increase was in appropriations for Conservation Operations (CO), the largest discretionary program. The enacted appropriation provides $887.6 million for FY2010 ($34.2 million over FY2009, $20.4 million more than the Administration's request, $13.2 million more than the House bill, and $61.9 million less than the Senate bill). Unlike previous appropriations, the Senate bill included funding for the Resource Conservation and Development (RC&D) program ($50.7 million) within CO. This proposal was rejected during conference and the RC&D program is funded separately ($50.7 million, the same as in FY2009). The conference report, H.Rept. 111-279 , requires that $37.4 million (4.2% of total CO funding) be available for congressionally designated projects (earmarks, Table 6 ) and specifies that no more than $250,000 be available for alterations and improvements to buildings and other public improvements. The enacted appropriation maintains funding for other discretionary programs that the Administration proposed to terminate, including the Watershed and Flood Prevention Operations ($30 million to remain available until expended, which is $10 million more than the House bill and $5.6 million more than the Senate, with no more than $12 million allowed for technical assistance) and the Resource Conservation and Development (RC&D) program ($50.7 million for FY2010). No more than $3.1 million of funds for RC&D could be available for national headquarters activities under the House bill. Of the $30 million for the Watershed and Flood Prevention Operations, $22.1 million (74%) are directed to congressionally designated projects ( Table 6 ). The Administration proposed to reduce funding for the Watershed Rehabilitation Program to $40.2 million (available until expended) and both the House and Senate bills concur. Mandatory Programs Mandatory conservation programs are administered by NRCS and the Farm Service Agency (FSA). Funding comes from the Commodity Credit Corporation (CCC) and therefore does not require an annual appropriation. The enacted appropriation rejects most of the Administration's proposed reductions to mandatory conservation programs, which totaled $547 million. Overall, FY2010 funding for NRCS's mandatory spending programs in the agreement was reduced by $435 million from the FY2010 level authorized by the 2008 farm bill (see discussion in " Limits on Mandatory Program Spending " and Table 5 for more background). Specifically, funding levels for the Environmental Quality Incentives Program (EQIP) are limited to $1.18 billion for FY2010—a reduction of $270 million from the authorized level of $1.45 billion in the 2008 farm bill. Funding for the largest conservation program, FSA's Conservation Reserve Program (CRP), did not change and was estimated at about $1.9 billion for FY2010. The Watershed Rehabilitation Program is authorized to receive mandatory funding in addition to the $40.2 million in discretionary funding for FY2010 as described above. The 2008 farm bill authorized $100 million of mandatory funding for FY2009 (available until expended). The House and Senate bills specified that no mandatory funds be used for the Watershed Rehabilitation Program, which includes the authorized $100 million in FY2009 and $65 million in carryover from an FY2007 funding restriction. The FY2010 enacted appropriation continues this restriction. Rural Development Three agencies are responsible for USDA's rural development mission area: Rural Housing Service (RHS), Rural Business-Cooperative Service (RBS), and Rural Utilities Service (RUS). An Office of Community Development provides support through field offices. This mission area also administers the rural portion of the Empowerment Zones and Enterprise Communities Initiative, Rural Economic Area Partnerships, and the National Rural Development Partnership. Federal assistance for USDA Rural Development programs comes predominantly from loans and grants. Part of the appropriation covers the cost of making loans (referred to as a loan subsidy) and another part covers grants. Loan subsidy is directly related to any interest rate reduction and a projection of anticipated loan losses from non-repayment. The amount of loans that can be made (the loan authority) is several times larger than the loan subsidy. For FY2010, the enacted rural development appropriation provides $2.98 billion in discretionary budget authority and supports a combined loan authority of $24.4 billion. This is $246 million more (+9%) in budget authority than the regular FY2009 appropriation, and $7.4 billion more (+44%) in loan authority. This appropriation and loan authority are more than the House recommended but less than in the Senate bill ( Table 3 ). Most of the sizeable growth in loan authority is from single family housing guaranteed loans, as described in a following section. RHS receives about 60% of the total amounts above: $1.89 billion in budget authority (+8% over regular FY2009) and $13.9 billion of loan authority (+71%). RBS receives $189.7 million in budget authority in FY2010 (+44% over regular FY2009) and $1.21 billion in loan authority (+12%). RUS receives $693.4 million of budget authority (+6% over regular FY2009) and $9.3 billion of loan authority (+20%). Rural Housing Service The enacted appropriation provides $1.89 billion in budget authority to RHS, $139 million more (+8%) than FY2009. This budget authority will support $13.9 billion of loan authority, $5.8 billion (+71%) more than FY2009. Nearly all of the growth in rural housing loan authority is for single family housing guaranteed loans. Rural housing programs and funding levels are outlined in Table 9 , with highlights below. Single-family housing loans (Section 502 direct and guaranteed loans) are the largest RHS loan account and represent 94% of the total rural housing loan authority. The enacted $1.12 billion of single family direct loan authority is constant with FY2009. However, P.L. 111-80 follows the Senate's recommendation for $12 billion of guaranteed loan authority (+93% over FY2009), and is supported by a 119% increase in guaranteed loan subsidy. The Section 502 program also received supplemental funding under the American Recovery and Reinvestment Act of 2009 (ARRA) to support an additional $11.5 billion in direct and guaranteed loans in FY2009-FY2010. The Section 521 rental assistance program is nearly half of the RHS budget, even bigger than the budget authority for the Section 502 loan program. The rental assistance appropriation rises to $969 million in FY2010, up 9% over FY2009. The FY2010 appropriation for multifamily housing revitalization is up 56%; rural housing assistance grants are up 10%; and mutual and self-help housing grants are up 8%. Farm labor housing grants and loan subsidies are each up 8% over FY2009, and the associated loan authority is up 26%. Most of these amounts are less than or the same as the House bill, but more than the Senate bill. For the rural community facilities account, the enacted appropriation provides $55 million of budget authority and supports $501 million of loans. This is a 14% decrease in budget authority from FY2009, but the same amount of loan authority. The decrease in loan subsidy for direct community facility loans is responsible for the decrease in budget authority. Loan authority for the program, however, will remain the same due to the continuing low interest rate environment. Rural community facilities will receive $20 million in grants, $295 million in direct loans, and $206 million in guaranteed loans—all the same as the regular FY2009 appropriation. Economic Impact Initiative grants receive $13.9 million, a 39% increase over FY2009. These grants support essential community facilities in communities with high rates of unemployment. The community facilities program also received supplemental funds under ARRA to support $1.17 billion of loans and $63 million of grants over FY2009 and FY2010. The enacted appropriation includes a general provision from the Senate bill to allow USDA to fund eligible community facility project applications in Massachusetts, Connecticut, and Rhode Island that were filed before August 1, 2009. Rural Business-Cooperative Service For loans and grants administered by RBS, P.L. 111-80 provides $189.7 million of budget authority (+44% over FY2009) and supports $1.21 billion of direct and guaranteed loan authority (+12%). These programs and funding levels are outlined in Table 10 , with highlights below. About half of the RBS budget authority, $97.1 million, is for the Rural Business Program Account (see footnote 35 ). The appropriation is divided among the Business and Industry (B&I) guaranteed loan ($53 million of loan subsidies to support $993 million of loans), Rural Business Enterprise Grants ($38.7 million), and Rural Business Opportunity Grants ($2.5 million). These grant and loan levels are the same as the request and the regular FY2009 appropriation. Rural Business Enterprise Grants and the B&I loan guarantee program also received supplemental budget authority under ARRA to support $20 million of grants and $2.99 billion of loans. The next largest RBS appropriation is for the Rural Energy for America Program (REAP), which encourages use of renewable energy by farmers, ranchers, and rural small businesses through energy audits, direct loans, loan guarantees, and grants. P.L. 111-80 provides $39.3 million for REAP (with half in grants and half in loan subsidies), up nearly seven-fold over FY2009. The loan subsidy will support $144 million in loan authority, up significantly from $26 million in FY2009. The 2008 farm bill (P.L. 110-246) also authorized $60 million in mandatory spending for the program in FY2010. The enacted appropriation nearly triples funding for Rural Cooperative Development Grants compared to FY2009. The biggest increase within this program is for Value-Added Product Grants ($20 million in FY2010 compared with $4 million in FY2009). The increase reflects support for the program in the 2008 farm bill, which also provided $15.0 million in mandatory spending to be available until expended. The FY2010 appropriations approximately double for cooperative development grants and grants to assist minority producers ($7.9 million and $3.5 million, respectively). The Rural Microenterprise Investment Program, which is designed to create new sources of equity capital in rural areas, receives $5.0 million, half for grants and half for loan subsidies to support $11.7 million in loan authority. The Senate and the Administration recommended more than four times those amounts, but the House bill had no funding. The program was authorized in the 2008 farm bill and provided $4 million each in FY2009 and FY2010. The proposed rule for the program, however has not been published and the program is unlikely to begin awarding funds until summer 2010 . The Biorefinery Assistance Program—which supports the development of new and emerging technologies for the development of advanced (non-corn) biofuels through grants and loans for biorefinery conversion and construction—receives no funding in the FY2010 appropriation, consistent with the House bill. The Senate and the Administration recommended $17.3 million. There was no appropriation for the program in FY2009. P.L. 111-80 provides no funding for the rural Empowerment Zone/Enterprise Communities (EZ/EC) grants programs ($8.1 million for FY2009). It did, however, adopt a general provision from the Senate bill to provide $499,000 for rural development programs in communities suffering from extreme outmigration and situated in an Empowerment Zone (under the Community Renewal Tax Relief Act of 2000, Appendix G of P.L. 106-554 ). The Senate report directs the Government Accountability Office to prepare a report on developing the tourism potential of rural communities. Rural Utilities Service The Rural Utilities Service (RUS) provides loan and grant assistance for rural electricity, telecommunications, and rural water/wastewater projects. For FY2010, P.L. 111-80 provides $693.4 million in budget authority to support $9.3 billion in loan authority. This is 20% more in loan authority than FY2009, and 6% more in budget authority. Rural utilities programs and funding levels are outlined in Table 11 , with highlights below. The Rural Water and Waste Disposal Program Account (see footnote 35 ) represents 82% of RUS budget authority. P.L. 111-80 provides $568.7 million in budget authority (+2% over FY2009) to support $1.1 billion in direct and guaranteed loans. Guaranteed loan authority is constant at $75 million, but the FY2010 appropriation has $1 billion of new direct loan authority as proposed by both chambers and the Administration. Supplemental funding also has been provided recently. The ARRA provided funds to support $3.8 billion of water and wastewater direct loans and grants, and the 2008 farm bill provided $120 million of budget authority to help clear a backlog of applications. Similar to a provision for community facilities provision mentioned earlier, P.L. 111-80 allows USDA to fund eligible water and wastewater project applications in Massachusetts, Connecticut, and Rhode Island that were filed before August 1, 2009. The appropriation supports water projects in areas where delivery of basic services is deemed to be especially needed, including $70 million for water and waste disposal systems for Native American tribes and Hawaiian homelands. It also continues the same FY2009 funding for water projects in Empowerment Zones/Enterprise Communities and communities in Rural Economic Area Partnership Zones. However, no funding targets the colonias (areas primarily in Texas that border Mexico), as in some past appropriations. The Senate bill requires USDA to provide a report assessing where water and wastewater assistance have been provided and where additional resources are most needed. For the High Energy Cost Grant program, part of the water and wastewater account, the enacted appropriation provides $17.5 million, the same as FY2009. The program provides grants for a variety of energy projects where average home energy costs exceed 275% of the national average. The Administration proposed eliminating it on the basis of duplication with the electrification loan program. For rural electric loans, P.L. 111-80 provides $7.1 billion of loan authority. This follows the Senate's recommendation for $500 million of new loan authority for guaranteed underwriting loans. The $6.6 billion of direct loan authority remains constant at FY2009 levels. For broadband telecommunication, the enacted appropriation includes $18 million for grants and $29 million of loan subsidy to support $400 million in direct loans. This is the same loan authority as FY2009 and the House bill, but less than the Senate bill and Administration request. These annual appropriation amounts are small compared to the supplemental funding under ARRA, which provided $2.5 billion for rural broadband infrastructure, including an estimated $12.4 billion in loan authorization and $500 million of grants. For more information on USDA rural development programs, see CRS Report RL31837, An Overview of USDA Rural Development Programs , by [author name scrubbed]. Domestic Food Assistance Funding for domestic food assistance represents over two-thirds of USDA's budget. These programs are, for the most part, mandatory entitlements; that is, funding depends directly on program participation and indexing of benefits and other payments. The biggest mandatory programs include the newly renamed Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program), child nutrition programs, and The Emergency Food Assistance Program (TEFAP). The three main discretionary budget items are the Special Supplemental Nutrition Program for Women, Infants, and Children (the WIC program), the Commodity Supplemental Food Program (the CSFP), and federal nutrition program administration. The FY2010 regular appropriation for domestic food assistance totals $82.8 billion. This amount is $3.3 billion below what was included in the separate House and Senate bills and $3.5 billion less than requested by the Administration, although it is $6.6 billion above the FY2009 figure. Virtually all of the differences are accounted for by differing appropriations for the SNAP and the WIC program, which, in turn, are based on varying estimates of need and the availability of alternate funding sources like contingency funds and the two laws noted immediately below. In addition to the FY2010 regular appropriation, the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) provided substantial new FY2010 funding for the SNAP and nutrition assistance grants for Puerto Rico and American Samoa. Also, the FY2010 Department of Defense appropriations act ( P.L. 111-118 ) adds extra funding for emergency requirements of FY2010 programs under the Food and Nutrition Act like the SNAP. Programs under the Food and Nutrition Act (Formerly the Food Stamp Act) Appropriations under the Food and Nutrition Act support (1) the regular Supplemental Nutrition Assistance Program (SNAP), (2) a Nutrition Assistance Block Grant for Puerto Rico and small nutrition assistance grants to American Samoa and the Commonwealth of the Northern Mariana Islands (all in lieu of the SNAP), (3) the cost of food commodities and administrative/distribution expenses under the Food Distribution Program on Indian Reservations (FDPIR), (4) the cost of commodities for TEFAP (but generally not administrative/distribution expenses, which are covered under the Commodity Assistance Program budget account), and (5) Community Food Projects and grants to improve access to the SNAP. The FY2010 appropriations law provides a total of $58.28 billion for programs under the Food and Nutrition Act. This includes a $3 billion contingency reserve for the regular SNAP, but does not include $3 billion in leftover FY2009 SNAP contingency funding available for use in FY2010—effectively making at least $61.3 billion available for FY2010. Funding in the final FY2010 appropriation represents a $4.3 billion increase over the total amount available for FY2009 (primarily because of added money for the SNAP), but is $3.1 billion less than the amount requested by the Administration and included in the separate House and Senate appropriations bills. They would have appropriated a total of $61.35 billion for FY2010 (including the $3 billion contingency reserve for the regular SNAP). The enacted FY2010 Food and Nutrition Act appropriation provides: $56.14 billion for the regular SNAP, including a $3 billion contingency reserve, $1.75 billion for Puerto Rico's grant, plus some $19 million for American Samoa and the Commonwealth of the Northern Mariana Islands, $113 million for the FDPIR, $248 million for TEFAP commodities (with permission to use up to 10% of this amount for distribution costs), and $5 million each for Community Food Projects and SNAP program access grants. In addition to the regular FY2010 appropriation, ARRA provides substantial new FY2010 funding for the SNAP and the nutrition assistance grants for Puerto Rico and American Samoa. ARRA-added SNAP benefits and spending on SNAP administrative costs are estimated to be at least $5.8 billion in FY2010; Puerto Rico's grant is expected to rise by about $130 million over the regular appropriation; and American Samoa will receive an extra $500,000. Finally, in addition to regular and ARRA appropriations, the FY2010 Department of Defense appropriations act ( P.L. 111-118 ) appropriates (1) effectively unlimited funding ("such sums as may be necessary") for any emergency requirements of programs under the Food and Nutrition Act and (2) $400 million for state administrative expenses related to the SNAP. Child Nutrition Programs Appropriations under the child nutrition budget account fund a number of programs and activities covered by the Richard B. Russell National School Lunch Act and the Child Nutrition Act. These include the School Lunch and Breakfast programs, the Child and Adult Care Food Program (CACFP), the Summer Food Service program, the Special Milk program, assistance for child-nutrition-related state administrative expenses (SAE), procurement of commodities for child nutrition programs (in addition to those funded from separate budget accounts within USDA), state-federal reviews of the integrity of school meal operations ("Coordinated Reviews"), "Team Nutrition" and food safety education initiatives to improve meal quality and safety in child nutrition programs, and support activities such as technical assistance to providers and studies/evaluations. In addition to funding directly from the child nutrition appropriation, child nutrition efforts are supported by mandatory permanent appropriations and other funding sources; these are covered later in the section headed " Special Program Initiatives, Policy Changes, and Other Funding Support ." The final FY2010 appropriation for the child nutrition account is $1.9 billion larger than the regular FY2009 appropriation and marginally higher than the Administration's request and the separate House and Senate appropriations bills. It provides a total of $16.86 billion, as opposed to about $16.8 billion put forward by the Administration, House, and Senate. This is primarily the result of added funding for school meal programs (based on estimates of higher-than-anticipated participation), a reduced appropriation for procurement of commodities (replaced by funding from other sources), and new funding for technical assistance to state and local administrators to promote payment accuracy ($2 million), "Hunger-Free Community" grants ($5 million), and "school community garden pilot projects" ($1 million). While the child nutrition appropriation itself is not broken down program by program and funding can be shifted among program areas if needed, estimates for FY2010 for the more significant components of the child nutrition account are: $9.97 billion for the School Lunch program, $2.92 billion for the School Breakfast program, $2.64 billion for the CACFP, $686 million for procurement of commodities for child nutrition programs, $387 million for the Summer Food Service program, and $193 million for SAE. The WIC Program The enacted FY2010 appropriation provides $7.252 billion for the WIC program. This is $392 million above the regular FY2009 appropriation of $6.860 billion, but significantly less than the amounts asked for by the Administration ($7.777 billion) or included in the separate House and Senate bills ($7.541 billion and $7.552 billion, respectively). While the final WIC appropriation is less than was requested and passed by the House and Senate, it is expected to provide enough money to fully fund the program for all those who are eligible because it uses participation and food cost estimates that are more up-to-date (lower) than those used when the Administration submitted its budget and the House and Senate acted, and it takes into account nearly $500 million available as a contingency reserve for FY2010. The FY2010 appropriation also allocates some $170 million of the total for specific WIC support activities: up to $15 million for performance evaluations, at least $74 million for program infrastructure development and state management information systems (including support for conversion to electronic benefit transfer systems), and $80 million for breastfeeding peer counseling (well above the $15 million provided in FY2009 and the Administration's request). As in the House and Senate bills, the final appropriation explicitly requires (and funds) an increase in the value of fruit and vegetable vouchers for all participating women up to the full amount recommended by the National Academy of Sciences' Institute of Medicine. Commodity Assistance Program Funding under the Commodity Assistance Program budget account supports several discretionary programs and activities: (1) the Commodity Supplemental Food Program (CSFP), (2) funding for TEFAP administrative and distribution costs, (3) the WIC Farmers Market Nutrition program, and (4) special Pacific Island assistance for nuclear-test-affected zones in the Pacific (the Marshall Islands) and in the case of natural disasters. The FY2010 appropriations law provides a total of $248 million for the commodity assistance program account. While this is $8 million below the amount proposed by the House, it is $17 million above the FY2009 amount and $15 million over the Senate's bill (which matched the Administration's request). Of the total, $171 million is allocated to the CSFP. This generally follows the House bill, with the expectation of supporting larger caseloads in states with existing projects and funding projects in seven new states ($5 million). The enacted FY2010 law also provides funding for TEFAP costs other than the value of federally provided commodities (which are funded under the Food and Nutrition Act budget account). As requested by the Administration and included in the House and Senate bills, $50 million is appropriated for TEFAP administrative/distribution costs (in addition to up to 10% of the commodity amount provided in the Food and Nutrition Act account). This is supplemented with $6 million to fund infrastructure development grants to TEFAP providers (see the later discussion under " Special Program Initiatives, Policy Changes, and Other Funding Support "). Following the Administration's request and the House and Senate bills, the final FY2010 appropriation provides $20 million (as in FY2009) for the FY2010 WIC Farmers' Market Nutrition Program. As with FY2009, the enacted appropriation makes a total of $1 million available for Pacific Island assistance in FY2010. Nutrition Programs Administration (and the Congressional Hunger Center) This budget account covers spending for federal administration of all the USDA domestic food assistance program areas noted above, special projects for improving the integrity and quality of these programs, and the Center for Nutrition Policy and Promotion (CNPP), which provides nutrition education and information to consumers (including various dietary guides). For FY2010, the enacted appropriation provides $148 million (as recommended by the House and Senate), up from $143 million in FY2009 but $2 million less than the Administration requested. The Administration proposed $5 million for new program integrity initiatives, but the appropriation effectively allows for only about $3 million. Discretionary grants to support the Congressional Hunger Center (and its Bill Emerson and Mickey Leland hunger fellowships) also have typically been administered out of this budget account. Because it views it as a congressional entity, the Administration has traditionally not requested funding for the center. However, as in the past, the final Agriculture appropriation (Section 727) provides funding for FY2010—$3 million (up from $2.5 million in FY2009). Expiring Child Nutrition Legislative/Funding Authorities Extension ("reauthorization") of expiring legislative/funding authorities in the two major laws governing child nutrition programs—the Richard B. Russell National School Lunch Act (NSLA) and the Child Nutrition Act (CNA)—was scheduled for 2009. Expiration of these authorities would, in some cases, have resulted in federal costs or termination of funding authority for ongoing programs or policies. Congressional action on child nutrition reauthorization has effectively been postponed until 2010 and, as a result, a number of authorities set to expire September 30, 2009, were extended through September 2010 by the enacted FY2010 Agriculture appropriations act. These extensions were not included in either the House or Senate bills and are expected to be reviewed for further extension in 2010. Commodity Assistance The NSLA requires that USDA provide a specific, inflation-indexed per-lunch value of commodity assistance to schools in the School Lunch program; for school year 2009-2010, this equals 19.5 cents a lunch. Commodities acquired and given to schools because of this per-lunch mandate are often referred to as "entitlement" commodities. In addition, the law mandates that at least 12% of all school lunch support (per-meal cash subsidies plus the value of commodities) be in some form of federally provided commodities. If the value of entitlement commodities in a given year (19.5 cents times the number of lunches served) equals or exceeds the 12% threshold, the Department need do nothing more. However, if the value of entitlement commodities does not meet the 12% test, the Department must fill in the gap with additional commodities. This can be done in two ways: (1) the Department can use appropriated money (or, if necessary, funds from its "Section 32" account) to purchase the needed commodities, thereby incurring an additional cost; or (2) the Department can count the value of "bonus" commodities it regularly donates to schools, thereby incurring no additional cost beyond what it would have otherwise spent. Bonus commodities are surplus food items that USDA acquires to support the farm economy and subsequently donates to various domestic food assistance programs like the School Lunch program. USDA's authority to count the value of bonus commodities in meeting the 12% test (option #2 above) was scheduled to expire September 30, 2009. This would have had a significant fiscal effect because the value of regular entitlement commodities alone (19.5 cents x the number of lunches) was not projected to be enough to equal or surpass the 12% threshold. This would have obliged the Department to purchase additional commodities (since bonus commodities could not be used to make up the difference). The Congressional Budget Office (CBO) estimated the shortfall at $150 million for FY2010. In response, Section 749(a) of the enacted FY2010 Agriculture appropriation extends authority to count bonus commodities toward the 12% threshold through FY2010. The CBO scored this as creating a budget "savings" of $150 million, and other provisions in the appropriations law (discussed later in the section headed " Special Program Initiatives, Policy Changes, and Other Funding Support ") in effect use these savings to fund several child nutrition initiatives. Use of "Weighted Averaging" in Analyzing School Meals' Nutrient Content Schools participating in federally subsidized meal programs may use several approaches to fulfill federal nutrition standards for the meals they serve. In many cases, they choose to use "nutrient standard menu planning," which generally involves weekly analysis and adjustment of menus according to how well they conform to various nutrient measures. Regulations governing nutrient standard menu planning originally envisioned a requirement that schools use "weighted averaging" reflecting actual student choice from offered menus when doing their analysis and adjustments. Since 1998, the NSLA has waived this requirement, effectively barring USDA from mandating the use of weighted averaging. The waiver was scheduled to expire September 30, 2009. In response, Section 749(b) of the enacted FY2010 appropriation extends the waiver through September 30, 2010. Food Safety Audits and Reports States have been mandated by the NSLA to audit food safety inspections conducted by schools and report the results to the USDA. In turn, the Department has been directed to audit these state reports. These directives were scheduled to expire September 30, 2009. In response, Section 749(c) of the FY2010 law extends them through September 30, 2010. California Community Child Nutrition Snack Project The NSLA provides mandatory funding for a California-based pilot project—most often known as the Community Child Nutrition Snack Project. This project supports local sponsors offering year-round snack/meal service to needy children outside the traditional school, after-school, and summer programs. FY2008 federal costs were about $2 million. Mandatory funding for this project was scheduled to expire September 30, 2009. In response, Section 749(d) of the FY2010 appropriations law extends funding for the project through September 30, 2010. Federal Administrative Support Funding The NSLA provides mandatory funding for federal administrative support to state and local agencies implementing child nutrition programs—training, technical assistance, and materials related to improving program integrity and assistance for state agencies in reviewing local operations. Funding is set at $2 million a year and was scheduled to end with FY2009. In response, Section 749(e) of the FY2010 appropriation extends funding authority through FY2010. Information Clearinghouse Since 1994, the NSLA has provided mandatory funding for an information clearinghouse for non-governmental groups. It provides information on a range of topics including food assistance sources and self-help activities aimed at reducing reliance on governmental food aid. Funding ($250,000 per year) was scheduled to end September 30, 2009. In response, Section 749(f) of the FY2010 appropriation extends authority to fund the clearinghouse through FY2010. Special Program Initiatives, Policy Changes, and Other Funding Support In addition to regular FY2010 appropriations and extension of expiring legislative/funding authorities, the FY2010 Agriculture and Defense appropriations laws provide money for newly authorized or unfunded existing initiatives and change program rules established in underlying legislative and regulatory authorities for domestic food assistance programs. Substantial support also is available from sources outside the regular domestic food assistance portion of the annual appropriation. Child Nutrition Programs Section 730 of the FY2010 Agriculture appropriation adds the District of Columbia, Connecticut, Nevada, and Wisconsin to the ten states receiving federal subsidies for suppers served in after-school programs. The ten existing states are Delaware, Illinois, Maryland, Michigan, Missouri, New York, Oregon, Pennsylvania, Vermont, and West Virginia. Extension to additional jurisdictions was in both the House and Senate bills. Section 734(a) of the enacted appropriation requires that military combat pay be disregarded in judging eligibility for free and reduced-price meals in child nutrition programs. This exception originated in the Senate bill. As alternatives to existing summer food assistance initiatives, Section 749(g) of the FY2010 appropriation provides $85 million for demonstration projects to develop and test new methods of providing access to food for children during summer months when schools are not in regular session. This provision was not in either the House or Senate bill. Section 749(h) of the FY2010 appropriation provides a total of $25 million for (1) grants to low-performing states to improve their rates of "direct certification" for free school meals ($22 million) and (2) federal technical assistance to states to help them improve their direct certification performance ($3 million). Direct certification is the use of participation information from public assistance programs (primarily the SNAP) to automatically qualify children for free school meals. This provision was not in either the House or Senate bill. Section 749(j) of the appropriation funds payments ($25 million) to state educational agencies for the purpose of making competitive grants to local school authorities in the School Lunch program for the purchase of food-service-related equipment. Recipients must have applied for aid under the equipment assistance program funded by the 2009 ARRA (and not received a grant), and priority is given to schools where at least 50% of enrolled students are needy children eligible for free or reduced-price school meals. This provision was not in either the House or Senate bill. Section 749(k) of the FY2010 law provides $8 million for competitive grants to state agencies administering the Child and Adult Care Food Program (the CACFP) to improve the health and nutrition status of children in child care settings. This provision was not in either the House or Senate bill. The WIC Program Section 733 of the final FY2010 Agriculture appropriation allows state WIC agencies to be authorized to exceed regulatory maximums on the amount of reconstituted liquid concentrate infant formula given to WIC participants. This provision was in both the House and Senate bills. Section 734(b) of the appropriation requires that military combat pay be disregarded in determining eligibility for WIC benefits. This exception originated in the Senate bill. Section 749(i) of the appropriation provides $5 million to make bonus payments to state WIC agencies that demonstrate the highest proportion of breastfed infants participating in the WIC program or the greatest improvement in the proportion of breastfed infants. Hunger-Free Community Grants Section 4405 of the 2008 farm bill authorized Hunger-Free Community grants (1) to food program service providers and nonprofits for collaborative efforts to assess community hunger problems and to achieve "hunger-free" communities and (2) to emergency feeding organizations for infrastructure development. Funding is divided equally between these two initiatives and the federal match is limited to 80%. As recommended by the Administration, the House, and the Senate (as part of the appropriation for the Child Nutrition budget account), the final FY2010 Agriculture appropriation provides $5 million to fund this initiative in FY2010. It also suspends the requirement that the grants be divided equally as set forth in the underlying law. School Community Garden Pilot Program The NSLA authorizes, but does not fund, pilot projects for school gardens (and other means of accessing local foods). The final FY2010 appropriations act (as part of the appropriation for the Child Nutrition budget account) provides $1 million for school community garden pilots, not the $2 million proposed by the Senate. TEFAP Infrastructure Grants Section 4202 of the 2008 farm bill authorized, but did not fund, grants to TEFAP emergency feeding organizations to improve the infrastructure for handling and delivering commodities. The enacted FY2010 appropriations law provides $6 million for this effort in FY2010 (as part of its Commodity Assistance Program appropriation). Both the House and the Senate provided money for these grants ($5 million in the House and $7 million in the Senate). Pandemic Influenza Emergency Assistance Section 746 of the FY2010 Agriculture appropriation authorizes and funds (from money available to operate programs under the Food and Nutrition Act) SNAP assistance to households with children attending a school closed for at least five consecutive days during a federally declared pandemic flu emergency. Benefits would be available to SNAP households and those not already receiving SNAP benefits. They would be in the form of specially increased SNAP allotments set by USDA and would not be means-tested. In addition, the Department is authorized to purchase food commodities for emergency distribution in any area during a pandemic emergency. Iraqi and Afghani Refugees Earlier laws—Section 1244(g) of the FY2008 National Defense Reauthorization Act (P.L. 110-181) and Section 602(b)(8) of the FY2009 Omnibus Appropriations Act (P.L. 111-8)—allowed certain Iraqis and Afghanis granted special immigrant status as refugees to qualify for resettlement support provided to other refugees. This included entitlement programs like the SNAP; however, eligibility was limited to eight months. Section 8120 of the 2010 Department of Defense appropriations act ( P.L. 111-118 ) removes the eight-month limit. Other Funding Support As in earlier years, domestic food assistance programs will receive substantial FY2010 support from sources other than noted above (regular Agriculture appropriations, ARRA, and the FY2010 Defense appropriation). Food commodities are provided to child nutrition programs in addition to those purchased with appropriations from the Child Nutrition account. They are financed through the use of permanent appropriations under Section 32. For example, out of a total of about $1.1 billion in commodity support provided in FY2008, about $480 million worth came from outside the Child Nutrition account. Historically, about half the value of commodities distributed to child nutrition programs has come from the Section 32 account. The Fresh Fruit and Vegetable program offers fresh fruits and vegetables in selected elementary schools nationwide. It is financed with mandatory funding directed by the 2008 farm bill. The underlying law (Section 4304 of the farm bill) provides funds at the beginning of every school year (each July)—$65 million in July 2009, $101 million in July 2010. However, as was done for FY2009, Section 721 of the FY2010 appropriation (as proposed by the Senate) delays the availability of much of the $101 million scheduled for July 2010 until October 2010. It would make $74 million available during FY2010 ($49 million from the delayed July 2009 distribution plus $25 million as the first installment of the July 2010 amount, Table 5 ). As a result, the FY2009 and FY2010 Agriculture appropriations acts effectively allocate the total annual spending for the Fresh Fruit and Vegetable program mandated by the farm bill by fiscal year rather than school year, with no reduction in overall support. The Food Service Management Institute (providing technical assistance to child nutrition providers) is funded through a permanent annual appropriation of $4 million a year. The Seniors Farmers' Market Nutrition program receives $21 million of mandatory funding per year from outside the regular appropriations process under the terms of its underlying law (Section 4402 of the 2008 farm bill). Agricultural Trade and Food Aid The Agricultural appropriations act funds programs that the 2008 farm bill reauthorized to promote U.S. commercial agricultural exports and to provide international food aid. The Foreign Agricultural Service (FAS) also helps to increase income and food availability globally by providing technical assistance to developing countries. Four primary appropriations are made to USDA in the area of agricultural trade and food aid: The Foreign Agricultural Service (FAS), the primary USDA agency responsible for international activities, works to improve the competitive position of U.S. agriculture and products in the world market, and also administers USDA's export credit guarantee and food aid programs. The Food for Peace Program (P.L. 480), which is actually administered through the U.S. Agency for International Development (USAID), has a mission to combat hunger and malnutrition, and promote equitable and sustainable development and global food security. The Commodity Credit Corporation (CCC) Export Credit Guarantee Program provides payment guarantees for the commercial financing of U.S. agricultural exports. The McGovern-Dole International Food for Education and Child Nutrition Program , which was originally authorized by the 2002 farm bill, provides donations of U.S. agricultural products and financial and technical assistance for school feeding and maternal and child nutrition projects in developing countries. The enacted appropriation provides $2.089 billion for USDA's international activities in FY2010, which is about $590 million, or 39% more than the regular enacted FY2009 level. It is $10 million more than the Administration's request and the Senate proposal, and $13 million more than the House proposal. These programs also received $700 million in supplemental appropriations during FY2009. In addition, the President's budget allocates about $500 million in mandatory spending authorized in the 2008 farm bill, including programs for overseas market development, dairy export, international food assistance, and $90 million from the American Recovery and Reinvestment Act (ARRA) of 2009 for trade adjustment assistance for farmers. Foreign Agricultural Service The enacted appropriation provides $180.4 million for the Foreign Agricultural Service, almost $15 million more than enacted in FY2009, and the same as proposed by the Senate, instead of $177.1 million as proposed by the House. The budget increase would allow FAS to maintain and strengthen its overseas presence so that FAS can continue to represent and advocate on behalf of U.S. agriculture. Funds would also go towards upgrading and rebuilding FAS's information technology infrastructure Food for Peace Program (P.L. 480) Food for Peace (P.L. 480) Title II humanitarian food aid, which is by far the largest component of requested international programmatic expenditures at USDA, is appropriated $1.69 billion. This equals the House and Senate proposals, and is $464.1 million more (+38%) than the regular FY2009 appropriation. The increase in funding to the program is intended to reduce the need for future emergency supplemental funding (approximately $700 million in FY2009; P.L. 111-32 ) and reflects the fact that the global need for food assistance has increased substantially in recent years. The budget includes no funding for Title I credit sales and grants. Unlike in the previous Administration, the Obama budget request did not propose to allow the Administrator of USAID to use up to 25% of Food for Peace Title II funds for local or regional purchases of commodities (i.e., non-U.S. commodities) to address international food crises. To date, Congress has not supported this request. Instead, for FY2010, the President requested that $300 million from the International Disaster Assistance Account within USAID be made available for local and regional procurement of food assistance to address food insecurity in emergency situations. The House bill for State, Foreign Operations appropriations ( H.R. 3081 ) provides $200 million for this purpose. In addition, the 2008 farm bill authorizes $60 million of CCC funds (mandatory funds, not Title II appropriations), over four years for a pilot project to assess local and regional purchases of food aid for emergency relief. The President requested $25 million for this Local and Regional Commodity Procurement Pilot Program, which was allocated $5 million in FY2009. McGovern-Dole Food for Education and Child Nutrition The enacted appropriation provides $209.5 million for the McGovern-Dole International Food for Education and Child Nutrition Program Grants, instead of $199.5 million as proposed by the House and Senate, and the President's request. The enacted appropriation provides for a major expansion in appropriated funding for the McGovern-Dole program by more than doubling the program from the level enacted in FY2009. The additional resources would build upon an existing expansion in programming, which was included as a one-time authorization in the 2008 farm bill, of $84 million of CCC funding to the program in FY2009. The enacted appropriation includes an appropriation to the Secretary of $10 million to conduct pilot projects to develop and field test new and improved micronutrient fortified products to improve the nutrition of populations served through the McGovern-Dole program. Commodity Credit Corporation—Export Credit Guarantee Programs The enacted appropriation provides $6.8 million for the Commodity Credit Corporation Export Loans Program Account (as proposed by the House and Senate, and similar to the Administration's request). This represents an increase of $1.5 million above the amount available in FY2009. The President's budget estimated this would support an overall program level of $5.5 billion for CCC export credit guarantees in FY2010, compared with $5 billion in FY2009. In addition to and consistent with provisions in the 2008 farm bill, other mandatory programs promote export market development. These include: $200 million for the Market Access Program (MAP, although the President requested only $160 million); $34.5 million for the Foreign Market Development Program; $8 million for the Technical Assistance for Specialty Crops (TASC) Program, up from $7 million in 2009; $10 million for the Emerging Markets Program; and $25 million for the Dairy Export Incentive Program (DEIP). Mandatory funding levels requested by the Administration for international food assistance programs include: $146 million for Food for Progress; and $25 million for the Local and Regional Commodity Procurement Pilot Program. In addition, the American Recovery and Reinvestment Act of 2009 reauthorized the Trade Adjustment Assistance for Farmers (TAAF) program, which was originally authorized by the Trade Act of 2002, and provides funding of $90 million for FY2009 and FY2010. For additional information on USDA's international activities, see CRS Report RL33553, Agricultural Export and Food Aid Programs , by [author name scrubbed]. Food and Drug Administration The enacted appropriation provides a direct appropriation for the Food and Drug Administration (FDA) of $2.357 billion for FY2010, $7 million more than in either the House or Senate bills, and $306 million (+15%) more than FY2009. In addition, the enacted appropriation includes $922 million in user fees. The combined program level for FY2010 thus would be $3.279 billion for FY2010, up 23% from the FY2009 program level (up 14% from FY2009 before adding newly authorized user fees described below). The $922 million funded by user fees is up about 50% from $613 million in FY2009, but three-fourths of the increase in user fees is accounted for by $235 million in newly authorized user fees to support a new Center for Tobacco Products. The new user fees were included in anticipated House and Senate floor amendments, since authorizing language for the tobacco product user fees was enacted after the House appropriations bills was reported. Regarding the $2.357 billion of appropriated funding, the 15% increase would increase support for food and medical product safety that would cover, for example, more foreign and domestic inspections. Both bills or reports recommend priority attention to products for neuroblastoma, and mention a proposed standard of identity to prevent the misbranding and adulteration of honey. The House committee report also noted increases for research in biomarkers, collection and analysis of data on foodborne illnesses, research on screening tests for bloodborne diseases, adverse events from medical devices used in pediatric hospitals, evaluations of drug risk evaluation and mitigation strategies, over-the-counter sunscreen testing and labeling; and the upcoming Dietary Guidelines Advisory Committee report. The Senate committee report encouraged FDA to increase inspection of imported shrimp for banned antibiotics, to issue guidance regarding antibiotic development and to work with others to promote development and appropriate use of antibacterial drugs for humans, to continue activities on antimicrobial resistance, and to clarify the relationship of dietary supplements to a definition of food. The Senate bill mentions a $2 million increase (+25%) for the cosmetics program, and $3 million for demonstration grants for improving pediatric device availability. The enacted appropriation instructs FDA to report on adverse events and seizures associated with brand and generic anti-epileptic drugs, specifically the pharmacokinetic profiles of drugs that FDA rates as therapeutically equivalent, and to recommend changes to current bioequivalence testing. The enacted appropriation directs FDA to report on safety challenges associated with imported seafood. It also directs FDA to report regarding personal care products for which organic content claims are made, to include recommendations on the need for labeling standards and premarket approval of labeling. For more background of FDA appropriations issues, see CRS Report R40792, Food and Drug Administration Appropriations for FY2010 , by [author name scrubbed]. Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is the independent regulatory agency charged with oversight of derivatives markets. The CFTC's functions include oversight of trading on the futures exchanges, registration and supervision of futures industry personnel, prevention of fraud and price manipulation, and investor protection. Although most futures trading is now related to financial variables (interest rates, currency prices, and stock indexes), congressional oversight remains vested in the agriculture committees because of the market's historical origins as an adjunct to agricultural trade. Appropriations for the CFTC are under the jurisdiction of the Agriculture Subcommittee in the House, and the Financial Services and General Government Subcommittee in the Senate. In the Consolidated Appropriations Act, 2008, the CFTC was funded in Division A, Agriculture and Related Agencies. In the Omnibus Appropriations Act, 2009, the CFTC was funded in Division A, Financial Services and General Government. The FY2010 enacted appropriation provides $168.0 million, 4.6% more than the Administration's request and 15.1% more than the FY2009 enacted. The Administration had requested $160.6 million, 10% more than the FY2009 enacted amount of $146.0 million. The Senate Financial Services Appropriations bill recommended $177.0 million, and the House Agriculture Appropriations bill approved $161.0 million. Appendix.

The FY2010 Agriculture appropriations bill provides funding for all of the U.S. Department of Agriculture (USDA) except the Forest Service, plus the Food and Drug Administration (FDA) and the Commodity Futures Trading Commission (CFTC). Appropriations jurisdiction for the Commodity Futures Trading Commission (CFTC) is split between two subcommittees—the House Agriculture appropriations subcommittee and the Senate Financial Services appropriations subcommittee. The FY2010 Agriculture appropriations bill (P.L. 111-80) was enacted on October 21, 2009. This is the first time that the bill was enacted separately since FY2006, and is the earliest that an Agriculture appropriations bill has been enacted since FY1999. The House passed the conference agreement (H.Rept. 111-279 to H.R. 2997) on October 7, 2009, by a vote of 263-162. The Senate passed it one day later on October 8 by a vote of 76-22. The enacted appropriation contains $121.1 billion, 12% more than FY2009. This total, however, is roughly $3 billion less than the Administration's request or House- and Senate-passed amounts, primarily because of a downward re-estimate of the amount needed for domestic nutrition programs. Most programs see an increase in funding over FY2009. About two-thirds of the $121 billion total—$83 billion—is for domestic nutrition programs. The remaining one-third—$38 billion—supports the rest of USDA (including the farm commodity programs, but excluding the Forest Service), FDA, and CFTC. Mandatory appropriations total $97.8 billion, $10 billion more than FY2009 (+11%). Nearly two-thirds of this increase is for domestic nutrition assistance ($6.2 billion increase, +9% over FY2009), and most of the rest is for farm commodity programs ($2.8 billion increase, +25% over FY2009) and crop insurance ($0.9 billion increase, +14% over FY2009). Demand for nutrition assistance programs has risen sharply during the current recession. Discretionary appropriations total $23.3 billion, $2.7 billion more than FY2009 (+13%). This discretionary total is $325 million more than the Administration's request and $404 million more than the House-passed bill, but $253 million less than the Senate-passed bill. The largest discretionary increases are for nutrition assistance, including a $421 million increase for domestic nutrition assistance (+6% over FY2009) and a $590 million increase for foreign food assistance (+39% over FY2009). Discretionary support of agricultural programs increased by $486 million (+7% over FY2009); FDA by $306 million (+15% over FY2009); rural development by $246 million (+9% over FY2009); conservation by $40 million (+4% over FY2009); and CFTC by $23 million (+16% over FY2009). Among the important differences between the House and Senate bills were supplemental dairy financial assistance and imports of poultry from China. Conferees maintained $350 million for dairy support in response to low prices, along the lines of the Senate bill, but split the amount with $60 million to purchase dairy products and $290 million for direct payments to farmers. Conferees also followed the Senate's approach regarding poultry imports to allow imports from China under specified preconditions. The appropriation also includes extension of expiring authorities for child nutrition programs. These were due to expire at the end of FY2009, and P.L. 111-80 extends them to September 30, 2010.

Most Recent Developments The Administration requested a total budget authority of $67.551 billion in budget authority for Commerce, Justice, Science, and Related Agencies (CJS) for FY2010. This amounts to a $6.904 billion, or 11.1% increase over the $60.79 billion enacted for FY2009 (not including funding included in the American Recovery and Reinvestment Act, P.L. 111-5 ). The Administration's proposal included $13.789 billion for Commerce, $27.074 billon for Justice, $25.737 billion for Science, and $950.9 million for related agencies. On June 12, 2009, the House Appropriations Committee reported the FY2010 CJS appropriations bill ( H.R. 2847 ). The House passed H.R. 2847 on June 18, 2009. The House-passed bill included a total of $67.695 billion for CJS, 11.4% more than the total appropriated for FY2009 and 0.2% more than the Administration's FY2010 request. On June 25, 2009, the Senate Appropriations Committee reported H.R. 2847 with an amendment in the nature of a substitute. The Senate passed its version of H.R. 2847 on November 5, 2009. The Senate-passed version of H.R. 2847 would have provided a total of $67.953 billion for CJS. The proposed amount would have represented a 11.8% increase over what was appropriated for FY2009. The Senate-passed amount would have been a 0.6% increase over the Administration's request, and it would have been 0.4% more than what was included in the House-passed bill. The Supplemental Appropriations Act, 2009 ( P.L. 111-32 ), was signed into law by President Obama on June 24, 2009. The Supplemental Appropriations Act provided a total of $205.1 million for CJS departments and agencies. Of this amount, $40.0 million was for the Department of Commerce and $165.1 million was for the Department of Justice (DOJ). On December 8, 2009, a conference committee met to resolve differences between the House- and Senate-passed versions of Transportation-Housing and Urban Development (HUD) appropriations bill ( H.R. 3288 ). The version of H.R. 3288 reported by the conference committee—now entitled the Consolidated Appropriations Act, 2010—included six of the seven FY2010 appropriations bills that had not yet been signed into law. On December 16, 2009, President Obama signed the Consolidated Appropriations Act, 2010 ( P.L. 111-117 , hereafter, "the act") into law. The act includes a total of $68.705 billion for CJS, an amount that is 13.0% more than the FY2009-enacted amount, 1.7% more than the Administration's request, 1.5% more than the House-passed amount, and 1.1% more than the Senate-passed amount. The American Recovery and Reinvestment Act of 2009 On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ; ARRA). The amounts appropriated by Congress in the ARRA are in addition to the amounts appropriated in the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ) (described above). The ARRA included $15.922 billion for CJS departments and agencies. For Commerce, the ARRA provided $7.916 billion, for Justice, the ARRA provided $4.002 billion, and for science agencies, the ARRA provided $4.004 billion. FY2010 Appropriations This report uses the House report to accompany H.R. 2847 ( H.Rept. 111-149 ) and the text of the Supplemental Appropriations Act, 2009 ( P.L. 111-32 ), as the source for the FY2009-enacted and the FY2010-requested amounts, and it uses the Senate report to accompany H.R. 2847 ( S.Rept. 111-34 ) as the source for the amounts in the House-passed bill. The Senate-passed version of H.R. 2847 is used as the source for the Senate-passed amounts. The joint explanatory statement to accompany the Consolidated Appropriations Act, 2010 (P.L. 111-117, H.Rept. 111-366), is the source for the FY2010 enacted amounts. The Administration requested a total of $67.551 billion in budget authority for CJS for FY2010. This amounts to a $6.094 billion, or 11.1%, increase over the $60.79 billion enacted for FY2009 (not including and funding included in the ARRA). The Administration's proposal included $13.789 billion for Commerce, $27.074 billon for Justice, $25.737 billion for Science, and $950.9 million for related agencies. The House-passed bill would have provided a total of $67.695 billion for CJS for FY2010, which would have been 11.4% more than the amount appropriated for FY2009 and 0.2% more than the Administration's request. This amount included $13.841 billion for Commerce, $27.751 billion for Justice, $25.147 billion for Science, and $956.2 million for related agencies. The Senate-passed bill would have provided a total of $67.953 billion for CJS for FY2010, which would have been 11.8% more than what was appropriated for FY2009, 0.6% more than the Administration's request, and 0.4% more than the House-recommended amount. The proposed funding would have included $14.043 billion for Commerce, $27.385 billion for Justice, $25.609 billion for Science, and $916.0 million for related agencies. The act includes a total of $68.705 billion for CJS, an amount that is 13.0% more than the FY2009-enacted amount, 1.7% more than the Administration's request, 1.5% more than the House-passed amount, and 1.1% more than the Senate-passed amount. The act provides $14.035 billion for Commerce, $28.078 billion for Justice, $25.658 billion for Science, and $934.8 million for related agencies. Survey of Selected Issues Department of Commerce Congress could have considered the following FY2010 appropriations issues concerning the Department of Commerce: funding and overseeing the implementation of the 2010 decennial census; whether to have funded proposed increases for programs under the Economic Development Administration to assist distressed areas affected by unemployment as a result of the recession; the ability of U.S. trade agencies and the U.S. Patent and Trademark Office to fight intellectual property infringement abroad; the efficacy of U.S. trade agency enforcement of U.S. trade remedy laws against unfair foreign competition; whether to have provided the U.S. Patent and Trademark Office with the authority to use all the fees it collects in a fiscal year; supporting the National Oceanic and Atmospheric Administration's (NOAA's) climate research, endangered species recovery, and fisheries management; and whether to have funded NOAA's satellite programs to enhance environmental and weather data and information. Department of Justice (DOJ) There are several issues Congress could have considered when determining the appropriate level of funding for DOJ agencies and bureaus. Those issues include the following: continued oversight of the Federal Bureau of Investigation's (FBI) transformation and the redirection of a larger share of its resources away from traditional crime and towards combating domestic and international terrorism; limitations on the use of funds for anticipated DOJ administrative costs related to transferring Guantánamo detainees before closing the facility; increased funding to improve law enforcement's capacity to combat the trafficking of illicit drugs and firearms along the southwest border; increased funding for investigating and prosecuting mortgage and financial fraud; whether to have eliminated funding for the State Criminal Alien Assistance Program (SCAAP); increased funding for the Bureau of Prisons (BOP) in light of its recent reporting that BOP facilities were operating at 36% over rated capacity at the end of 2008 and they project that facilities will be 37% over rated capacity at the end of 2009; and whether to have fully funded the re-entry programs authorized by the Second Chance Act of 2007. Science Agencies Among the issues facing science agencies that Congress could have addressed in the FY2010 appropriations process were: whether to have funded research and related activities at the National Science Foundation (NSF), National Institute of Standards and Technology, and Department of Energy Office of Science at the levels authorized in the America COMPETES Act ( P.L. 110-69 ) and endorsed in the FY2010 joint budget resolution ( S.Con.Res. 13 ) ; whether to have increased funding to the President's Office of Science and Technology Policy (OSTP) to support two additional associate directors, the President's Open Government Initiative, and the President's Council of Advisors on Science and Technology; whether to have funded climate change and clean energy research that has been requested in the NSF FY2010 budget request; whether to have funded NSF's work under the National Nanotechnology Initiative directed at understanding and exploiting the unique properties of matter that can emerge at the nanoscale, as well as toward understanding and addressing nanotechnology-related environmental, health, and safety concerns; and determining the future direction of the National Aeronautics and Space Administration's (NASA) human spaceflight program. For the past few years this has been guided by the Vision for Space Exploration, announced by President Bush in 2004 and endorsed by Congress in the 2005 and 2008 NASA authorization acts ( P.L. 109-155 and P.L. 110-422 ). In May 2009, NASA announced an independent review of its human spaceflight plans. Nearly $4 billion of NASA's budget request for FY2010 is tentative pending the results of the review. Related Agencies The Related Agencies include the Commission on Civil Rights (Commission), the Equal Employment Opportunity Commission (EEOC), The U.S. International Trade Commission (ITC), the Legal Services Corporation (LSC), the Marine Mammal Commission (MMC), the Office of the U.S. Trade Representative (USTR), and the State Justice Institute (SJI). Some of the issues that Congress could have addressed in the FY2010 appropriations process include whether to have increased funding to accommodate the Administration's request to, in part, hire 224 new employees who would help address the anticipated increase in its workload (EEOC is projecting that its backlog of private sector charges will increase by 39% between FY2010 and FY2009); whether to have funded for the Commission should be increased as appropriations for it have remained at about $9 million each fiscal year (FY) since FY1995; whether to have funded for the LSC should be increased to reflect the Administration's proposal to increase LSC by $45 million; and whether to have eliminated some of the restrictions on permissible activities of LSC-funded legal service programs. Department of Commerce7 The origin of the Department of Commerce (Commerce Department) dates to 1903 with the establishment of the Department of Commerce and Labor. The separate Commerce Department was established on March 4, 1913. The department's responsibilities are numerous and quite varied; its activities center on five basic missions: (1) promoting the development of U.S. business and increasing foreign trade; (2) improving the nation's technological competitiveness; (3) encouraging economic development; (4) fostering environmental stewardship and assessment; and (5) compiling, analyzing, and disseminating statistical information on the U.S. economy and population. The following agencies within the Commerce Department carry out these missions: International Trade Administration (ITA) seeks to develop the export potential of U.S. firms and to improve the trade performance of U.S. industry; Bureau of Industry and Security (BIS), formerly the Bureau of Export Administration, enforces U.S. export laws consistent with national security, foreign policy, and short-supply objectives; Economic Development Administration (EDA) provides grants for economic development projects in economically distressed communities and regions; Minority Business Development Agency (MBDA) seeks to promote private and public sector investment in minority businesses; Economic and Statistics Administration (ESA) , excluding the Bureau of the Census, provides (1) information on the state of the economy through preparation, development, and interpretation of economic data; and (2) analytical support to department officials in meeting their policy responsibilities; Bureau of the Census, a component of ESA, collects, compiles, and publishes a broad range of economic, demographic, and social data; National Telecommunications and Information Administration (NTIA) advises the President on domestic and international communications policy, manages the federal government's use of the radio frequency spectrum, and performs research in telecommunications sciences; United States Patent and Trademark Office (USPTO) examines and approves applications for patents for claimed inventions and registration of trademarks; National Institute of Standards and Technology (NIST) assists industry in developing technology to improve product quality, modernize manufacturing processes, ensure product reliability, and facilitate rapid commercialization of products on the basis of new scientific discoveries; and National Oceanic and Atmospheric Administration (NOAA) provides scientific, technical, and management expertise to (1) promote safe and efficient marine and air navigation; (2) assess the health of coastal and marine resources; (3) monitor and predict the coastal, ocean, and global environments (including weather forecasting); and (4) protect and manage the nation's coastal resources. FY2010 Budget Request Table 2 presents the following funding information for the Commerce Department: the FY2009- enacted appropriations, emergency supplemental appropriations, the President's FY2010 request, the House-passed and Senate-passed amounts, and the amounts in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). The Administration requested a total of $13.789 billion for the Department of Commerce, a $4.481 billion, or 48.1%, increase over FY2009 appropriations. The House-passed bill would have provided a total of $13.841 billion for Commerce, an increase of 48.7% over FY2009 funding and 0.4% more than the FY2010 request. The Senate-passed measure would have provided a total of $14.043 billon for Commerce. This figure would have been 50.9% more than the FY2009-enacted funding, 1.8% more than the President's FY2010 request, and 1.5% more than the amount in the House-passed bill . The act provides $14.035 billion for Commerce, 50.8% above the FY2009-enacted amount, 1.8% more than the Administration's request, 1.4% more than the House approved, and 0.06% below the Senate's recommendation. International Trade Administration (ITA)11 The ITA provides export promotion services, works to assure compliance with trade agreements, administers trade remedies such as antidumping and countervailing duties, and provides analytical support for ongoing trade negotiations. ITA's mission is to improve U.S. prosperity by strengthening the competitiveness of U.S. industry, promoting trade and investment, and ensuring fair trade and compliance with trade laws and agreements. ITA strives to accomplish this through the following organizational units: (1) the Manufacturing and Services Unit, which is responsible for certain industry analysis functions and promoting the competitiveness and expansion of the U.S. manufacturing sector; (2) the Market Access and Compliance Unit, which is responsible for monitoring foreign country compliance with trade agreements, identifying compliance problems and market access obstacles, and informing U.S. firms of foreign business practices and opportunities; (3) the Import Administration Unit, which is responsible for administering the trade remedy laws of the United States; (4) the Trade Promotion/U.S. Foreign Commercial Service program, which is responsible for conducting trade promotion programs, providing U.S. companies with export assistance services, and leading interagency advocacy efforts for major overseas projects; and (5) the Executive and Administrative Directorate, which is responsible for providing policy leadership, information technology support, and administration services for all of ITA. The FY2010 enacted amount for ITA is $446.8 million, $6.5 million (1.5%) more than the Administration's request of $440.3 million and $26.4 million (6.3%) more than the FY2009 funding level of $420.4 million. The enacted legislation anticipates the collection of $9.4 million in fees, the same amount as in the budget request, which would raise available FY2010 funds to $456.2 million. The House-passed bill would have provided $435.0 million for ITA, a 3.5% increase over FY2009 appropriations but 1.2% less than the Administration's request. The Senate-passed bill would have provided ITA with $446.3 million, $25.8 million (6.1%) above the FY2009 appropriation, $6.0 million (1.4%) above the budget request, and $11.3 million (2.6%) above the House-recommended amount. ITA's budget request listed the following priorities for FY2010: improving the domestic business environment to ensure that U.S. firms remain competitive; expanding market access and promoting U.S. exports; ensuring compliance with and enforcement of trade agreements; supporting the conclusion of the Doha Round of World Trade Organization negotiations; supporting the development and implementation of free trade agreements; strengthening public-private partnerships and implementing commercial strategies to promote exports; and advancing communication and outreach efforts to improve customer satisfaction. Some issues that Congress may have considered in its evaluation of the budget request were ITA's role in ensuring compliance with and enforcement of trade agreements, and the diminishing number of officers conducting core commercial activities in the U.S. Foreign Commercial Service of ITA. The Senate-passed bill directed the Administration to reverse the trend of staff reductions and improper staff assignments in the Foreign Commercial Service, and recommended an additional $4.5 million above the budget request for ITA to address these staffing issues. The Senate-passed bill also recommended an additional $1.5 million above the budget request for ITA for congressionally designated projects. Bureau of Industry and Security (BIS)13 The BIS administers export controls on dual-use goods and technology through its licensing and enforcement functions. It cooperates with other nations on export control policy and provides assistance to the U.S. business community to comply with U.S. and multilateral export controls. BIS also administers U.S. anti-boycott statutes, and is charged with monitoring the U.S. defense industrial base. Authorization for the activities of BIS, the Export Administration Act, expired in August 2001. On August 17, 2001, President George W. Bush invoked the authorities granted by the International Economic Emergency Powers Act to continue in effect the system of controls contained in the act and by the Export Administration Regulations, and that authority has been renewed yearly. The act includes $100.3 million for BIS, the same figure as both the House-passed and Senate-passed bills and the President's request. The FY2010 request was a $16.7 million (20.0%) increase from the FY2009-enacted funding level of $83.7 million. The FY2010 request for BIS was divided among licensing activities ($54.4 million), enforcement activities ($39.9 million), and management and policy coordination ($6.1 million). Of these amounts, $14.8 million was requested for Chemical Weapons Convention enforcement. The $16.7 million increase in the BIS request was divided between $11.8 million for new policy initiatives and $4.9 million for base adjustments. The new policy initiatives consisted of $10.0 million to overhaul the Bureau's information technology system after reports of cyber-espionage attempts against its systems and $1.8 million for the Bureau's weapons of mass destruction and improvised explosive device enforcement initiative. In FY2009, BIS had budget authority for 353 positions. With base adjustments and new initiatives, BIS sought budget authority for 362 positions for FY2010. Economic Development Administration (EDA)17 The EDA was created by the passage of the Public Works and Economic Development Act (PWEDA) of 1965, with the objective of fostering growth in economically distressed areas characterized by high levels of unemployment and low per-capita income levels. Federally designated disaster areas and areas affected by military base realignment or closure (BRAC) are also eligible for EDA assistance. One of EDA's policy priorities for FY2010 is to assist distressed areas affected by unemployment as a result of the recession, in particular funding for regional planning and matching grants for regional innovation clusters, and the launch of a national network of public-private business incubators. The President requested $284.0 million for EDA for FY2010, a decrease of 9.2% compared to the FY2009 appropriation of $312.8 million. Funding for the Economic Development Assistance Program (EDAP) would have decreased 1.2%, from $249.1 million to $246.0 million. Salaries and expenses would have increased 23.2%, from $30.8 million to $38.0 million. For FY2010, the President's request would have funded seven programmatic areas, including public works, planning assistance, technical assistance, research and evaluation, trade adjustment assistance, economic adjustment assistance, and the Global Climate Change Mitigation Incentive Fund. The House-passed bill approved $293.0 million for EDA, 6.3% less than FY2009 funding and 3.2% more than the FY2010 request. The Senate-passed bill included $238.0 million for EDA, 23.9% less than the FY2009 appropriation, 16.2% less than the FY2010 request, and 18.8% less than the House-passed amount. The act provides $293.0 million in funding for EDA, a decrease of 6.3% over the FY2009 appropriation of $312.8 million. This amount is 3.2% above the $284.0 million included in the Administration's request, the same as the original House-passed bill, and 23.9% above the $238.0 million in the Senate-passed bill. Minority Business Development Agency (MBDA)20 The MBDA, established by Executive Order 11625 on October 13, 1971, is charged with the lead role in coordinating all of the federal government's minority business programs. As part of its strategic plan, the MBDA seeks to develop an industry-focused, data-driven, technical assistance approach to give minority business owners the tools essential for becoming first- or second-tier suppliers to private corporations and the federal government in the new procurement environment. Progress is measured in increased gross receipts, number of employees, and size and scale of firms associated with minority business enterprise. For FY2010, the President requested $31.0 million for the MBDA, an increase of 3.9% over the FY2009 appropriation of $29.8 million. Funding was to be available for Minority Business Enterprise Centers and for Native American Business Enterprise Centers to provide management and technical assistance, and Minority Business Opportunity Centers to provide contract opportunities and financial transactions for minority-owned businesses. The House-passed bill included $31.0 million for MBDA, the same as the Administration's request. The Senate recommended $31.2 million for MBDA, 4.6% more than what was appropriated for FY2009 and 0.6% more than both the President's request and the House-recommended amount. The act provides $31.5 million in funding for MBDA, a 5.7% increase over the FY2009 appropriation of $29.8 million. This amount is 1.6% above the Administration's request, 1.6% above the House-passed bill, and 1.0% above the Senate-passed bill. Economic and Statistics Administration (ESA)22 The ESA provides economic data, analysis, and forecasts to government agencies and, where appropriate, to the public. The ESA includes the Bureau of the Census (discussed separately), the Bureau of Economic Analysis (BEA), and STAT-USA. The ESA has three core missions: to compile a system of economic data, to interpret and communicate information about the forces at work in the economy, and to support the information and analytical needs of the executive branch. The Administration recommended $105.0 million in budget authority for ESA for FY2010, an increase of 15.9% over the FY2009 figure of $90.6 million. Funding for ESA in FY2010 includes two primary accounts: ESA headquarters, and the BEA. The ESA headquarters staff provides economic research and policy analysis in support of the Secretary of Commerce and the Administration. The BEA account funds the National Income and Product Accounts (NIPAs), which include estimates of national Gross Domestic Product and related measures. The House-passed bill included $97.3 million for ESA, a 7.3% increase over FY2009 funding, but 7.4% less than the Administration's request. The Senate-passed bill included $100.6 million for ESA, 11.0% more than the FY2009 appropriation and 3.4% more than the House-recommended amount, but 4.2% less than the Administration's request. The act provides $97.3 million in funding for ESA, an increase of 7.3% increase over the FY2009 enacted amount. This figure is 7.3% above the Administration's request, 7.4% below the House-passed bill, and 3.3% below the Senate-passed bill. Bureau of the Census24 The U.S. Constitution requires a population census every 10 years, to serve as the basis for reapportioning seats in the House of Representatives. Decennial census data also are used for within-state redistricting and in certain formulas that determine the annual distribution of more than $400 billion in federal and state funds. The Bureau of the Census, established as a permanent office on March 6, 1902, conducts the decennial census under Title 13 of the U.S. Code, which also authorizes the Census Bureau to collect and compile a wide variety of other demographic, economic, housing, and governmental data. Major activities for the decennial census program in FY2010 include mailing out questionnaires by the official Census Day of April 1, receiving and processing the forms as they are mailed back, and conducting nonresponse follow-up with households that do not return their forms. In 2010, as in previous decades, the questionnaire that will collect data for reapportionment and redistricting is a "short form," intended to cover the entire population. Another part of the decennial program is the American Community Survey (ACS). It is replacing the census "long form," which collected socioeconomic and housing data from a sample of the U.S. population (about 17.0% in 2000). The ACS is an ongoing survey of about 250,000 households per month that, with few exceptions, gathers the same data as its predecessor. A key difference between the two surveys is that whereas the long form collected data once a decade, the ACS is continuous and provides more timely, annual information. To fund the Census Bureau in FY2010, the Administration requested $7.375 billion, 134.9% more than the FY2009-enacted amount of almost $3.140 billion. The FY2010 request included $259.0 million for salaries and expenses (10.9% over the $233.6 million FY2009 amount) and $7.116 billion for periodic programs (144.9% more than the $2.906 billion for FY2009). Under the ARRA, the Bureau received a $1.0 billion FY2009 supplemental appropriation to address problems resulting from a flawed 2010 decennial census information technology initiative. The Administration estimated that $898.0 million of the $1.0 billion would be carried forward as an unobligated balance at the beginning of FY2010, for total new obligations of $8.014 billion in periodic programs, if Congress had approved the full request. Of the $8.014 billion, $7.799 billion (97.3%) would have been available for the 2010 census. The House-passed version of H.R. 2847 included $7.375 billion for the Bureau, as requested. The Senate-passed bill recommended $7.325 billion, $50.0 million below the request. Although the Senate approved the $259.0 million request for salaries and expenses, it recommended $7.066 billion instead of $7.116 billion for periodic programs. The act provides $7.325 billion for the Bureau, equal to the Senate-passed amount, $50.0 million (0.7%) less than the House-approved amount and the Administration's request, and $4.185 billion (133.3%) more than for FY2009. Of the $7.325 billion, $259.0 million is for salaries and expenses; $7.066 billion is for periodic censuses and programs, with the proviso that $100.0 million of this amount is to come from unobligated balances of previously appropriated funds that will remain available until September 30, 2011. National Telecommunications and Information Administration (NTIA)30 NTIA is the executive branch's principal advisory office on domestic and international telecommunications and information technology policies. Its mandate is to provide greater access for all Americans to telecommunications services, support U.S. attempts to open foreign markets, advise on international telecommunications negotiations, fund research grants for new technologies and their applications, and assist nonprofit organizations converting to digital transmission in the 21 st century. NTIA manages the distribution of funds for several key grant programs. Its role in federal spectrum management includes acting as a facilitator and mediator in negotiations among the various federal agencies regarding usage, priority access, causes of interference, and other radio spectrum questions. In recent years, one of the responsibilities of the NTIA has been to oversee the transfer of some radio frequencies from the federal domain to the commercial domain. Many of these frequencies have subsequently been auctioned to the commercial sector and the proceeds paid into the U.S. Treasury. There are two major components to the NTIA annually appropriated budget. The Administration requested $20.0 million for FY2010 for the Salaries and Expenses category, a 4.1% increase over the $19.2 million appropriated for FY2009. The House-passed and Senate-passed bills included $20.0 million for NTIA's salaries and expenses account, the same as the Administration's FY2010 request. In addition, the NTIA receives appropriated funds for Public Telecommunications and Facilities Planning and Construction (PTFPC); the Administration did not request any funding for PTFPC for FY2010. The House-passed and Senate-passed bills include $20.0 million for PTFPC, the same as what was appropriated for FY2009, bringing the total appropriation to $40.0 million.. The act provides $40.0 million to the NTIA, as approved by both the House and Senate. The NTIA also collects management fees from federal agencies, based on each agencies' spectrum holdings, to defray the cost of its activities on their behalf. These collected funds may also be used for telecommunications, research, and related activities of the NTIA's Institute for Telecommunications Sciences. The ARRA provided an additional $4.7 billion to the NTIA for its existing Broadband Technology Opportunities Program for a "national broadband service development and expansion program." The NTIA also administers the Digital Television Transition and Public Safety Fund, created by the Deficit Reduction Act of 2005 ( P.L. 109-171 , Title III). The fund received the receipts of the 2008 auction of spectrum licenses created by the transition from analog to digital television broadcasting. Of the auction proceeds, $2.7 billion was made available for grant programs. The digital-analog converter box coupon program received $1.5 billion from the fund to assist consumers in meeting the 2009 deadline for receiving television broadcasts in digital. The ARRA provided up to $650.0 million in additional funding for this program. Unspent funds from this appropriation were returned to the Treasury. The fund also provided $1.0 billion for public safety interoperable communications (PSIC) grants. The PSIC grant program was contracted to the Department of Homeland Security for implementation. U.S. Patent and Trademark Office (USPTO)31 The USPTO examines and approves applications for patents on claimed inventions and administers the registration of trademarks. It also assists other federal departments and agencies to protect American intellectual property in the international marketplace. The USPTO is funded by user fees paid by customers that are designated as "offsetting collections" and subject to spending limits established by Congress. The act provides the U.S. Patent and Trademark Office with $1.887 billion in budget authority, a 9.6% decrease from the FY2009 figure of $2.010 billion and 2.2% below the $1.930 billion in budget authority in the Administration's budget and the original appropriations bills passed by the House and Senate ( H.R. 2847 ). H.R. 3288 also mandates that past fee increases remain in effect. Until recently, appropriation measures limited USPTO use of all fees accumulated within a fiscal year. Critics of this approach argued that because agency operations are supported by payments for services, all fees were necessary to fund these services in the year they were provided. Some experts claimed that a portion of the patent and trademark collections were being used to offset the cost of other, non-related programs. Proponents of limiting use of funds collected maintained that the fees appropriated back to the USPTO were sufficient to cover the agency's operating budget. National Institute of Standards and Technology (NIST)32 NIST is a laboratory of the Department of Commerce with a mandate to increase the competitiveness of U.S. companies through appropriate support for industrial development of precompetitive, generic technologies and the diffusion of government-developed technological advances to users in all segments of the American economy. NIST research also provides the measurement, calibration, and quality assurance techniques that underpin U.S. commerce, technological progress, improved product reliability, manufacturing processes, and public safety. The act provides $856.6 million in funding for NIST, an increase of 4.6% over the FY2009 appropriation of $819.0 million. This amount is 1.2% below the $846.1 million included in the Administration's request, 9.7% above the $781.1 million in the original House-passed bill ( H.R. 2847 ), and 2.5% below the $878.8 million in the version of H.R. 2847 passed by the Senate. Support for in-house research and development under the Scientific and Technical Research and Services (STRS) account (including the Baldrige National Quality Program) increases 9.1% to $515.0 million from the $472.0 million provided in FY2009. This figure represents a decrease of 3.7% from the $534.6 million in the President's budget proposal, an increase of 1.0% from the $510.0 million in the initial House-passed bill and 1.0% less than the $520.3 million in the bill originally passed by the Senate. The Manufacturing Extension Program (MEP) will receive $124.7 million, 13.4% more than FY2009 ($110.0 million), and the same amount included in the Administration's budget and both House and Senate bills. Financing for the Technology Innovation Program (TIP) is budgeted at $69.9 million, an increase of 7.5% over the $65.0 million appropriated in FY2009 and identical to the funding appropriated in the budget proposal and the initial House and Senate appropriations legislation. The act provides $147.0 million in construction support. This figure is 14.5% below the FY2009 appropriation of $172.0 million, 25.7% above the President's request of $116.9 million, almost twice that included in the original House-passed bill ($76.5 million), and 10.3% less than the $163.9 million in the earlier Senate-passed legislation. Continued funding for NIST extramural programs directed toward increased private sector commercialization has been a major issue. Some Members of Congress have expressed skepticism over a "technology policy" based on providing federal funds to industry for development of pre-competitive generic technologies. This approach, coupled with pressures to balance the federal budget, led to significant reductions in funding for NIST. The Advanced Technology Program (ATP) and the Manufacturing Extension Partnership, which accounted for more than 50% of the FY1995 NIST budget, were proposed for elimination. In 2007, ATP was terminated and replaced by the Technology Innovation Program. While much of the legislative debate has focused on ATP and MEP, increases in spending for the NIST laboratories that perform the research essential to the mission responsibilities of the agency have tended to remain small. As part of the American Competitiveness Initiative, announced by former President Bush in the 2006 State of the Union address, the Administration stated its intention to double funding over 10 years for "innovation-enabling research" done at NIST through its "core" programs (defined as internal research in the STRS account and the construction budget). While additional funding has been forthcoming, it remains to be seen how support for internal R&D at NIST will evolve and how this might affect financing of extramural efforts such as TIP and MEP. National Oceanic and Atmospheric Administration (NOAA)34 The National Oceanic and Atmospheric Administration (NOAA) conducts scientific research in areas such as ecosystems, climate, global climate change, weather, and oceans; supplies information on the oceans and atmosphere; and conserves coastal and marine resources. NOAA was created in 1970 by Reorganization Plan No. 4. The reorganization plan was designed to unify the nation's environmental activities and to provide a systematic approach for monitoring, analyzing, and protecting the environment. NOAA's administrative structure has evolved into five line offices that include the National Environmental Satellite, Data, and Information Service (NESDIS); the National Marine Fisheries Service (NMFS); the National Ocean Service (NOS); the National Weather Service (NWS); and the Office of Oceanic and Atmospheric Research (OAR). In addition to NOAA's five line offices, Program Support (PS), a cross-cutting budget activity, includes the NOAA Education Program, Corporate Services, Facilities, and the Office of Marine and Aviation Services (OMAO). The Obama Administration requested $4.474 billion for NOAA's 2010 budget. The request was 2.5% or $108.6 million more than the FY2009-enacted amount of $4.365 billion. NOAA's budget is divided into three general accounts including Operations Research and Facilities (ORF), Procurement, Acquisition, and Construction (PAC), and Other Accounts. Of the $4.474 billion requested for FY2010, ORF would have been funded at $3.091 billion; PAC would have been funded at $1.391 billion; and NOAA's Other Accounts would have been funded at a net total of -$8.0 million. NOAA emphasized programs related to climate research, endangered species recovery, and fisheries management. The House-passed bill ( H.R. 2847 ) recommended funding of $4.603 billion for NOAA. This would have provided an increase of 5.5% compared with the FY2009-enacted funding level and a 2.9% increase over the Administration's request. Of the $4.603 billion recommended by the House, ORF would have been funded at $3.202 billion; PAC would have been funded at $1.409 billion; and NOAA's Other Accounts would have been funded at a net total of -$8.0 million. The House passed one amendment to the Appropriations Committee's recommendation to provide $500,000 to support special fishery demonstration projects in the Western Pacific. The Senate-passed version of H.R. 2847 recommended funding of $4.773 billion for NOAA. This represented an increase of 9.3% compared with the FY2009-enacted level and an increase of 6.7% over the Administration's request. Of the $4.773 billion recommended by the Senate, ORF would have been funded at $3.304 billion; PAC would have been funded at $1.398 billion; and NOAA's Other Accounts would have been funded at a net total of $71.0 million. The act provides NOAA with $4.737 billion for FY2010. This represents an increase of 8.5% compared to the FY2009 enacted level and an increase of 5.9% over the Administration's request. Of the $4.737 billion in the act, $3.308 billion funds ORF; $1.358 billion funds PAC; and a net total of $71.0 million funds NOAA's Other Accounts. One of NOAA's priorities is to support NESDIS satellite programs to maintain and enhance environmental data collection. The Administration requested $1.429 billion for NESDIS, a 21.3% increase over the FY2009 appropriation of $1.178 billion. The House recommended $1.468 billion, while the Senate-passed bill would have provided $1.408 billion for NESDIS. The act provides NESDIS with $1.399 billion. Most of the increase supports satellite engineering development and production activities for the next generation geostationary satellite (GOES-R), and contributes to development of sensors and spacecraft for the tri-agency polar-orbiting satellite system (NPOESS). However, both Senate and House Appropriations Committees expressed concerns with NPOESS management structure, projected cost growth, and schedule slippage. The Pacific Coastal Salmon Recovery Fund (PCSRF), one of several funds in NOAA's Other Accounts category, was not funded in the President's budget. On May 21, 2009, the Obama Administration sent a budget amendment to Congress to clarify that Pacific salmon recovery is funded at $50.0 million under the new Species Recovery Grant Program in ORF. The Senate recommended restoring funding for the PCSRF under Other Accounts at the FY2009 funding level of $80.0 million and the conference agreement includes $80.0 million in the act. The ARRA provided additional funding of $830.0 million for NOAA's ORF and PAC accounts. The ORF account was funded at $230.0 million. Proposed ORF activities include $40.0 million to reduce the hydrographic survey backlog, $167.0 million to restore marine and coastal habitat, $3.0 million to conduct ESA section 7 consultations, and $20.0 million to repair and maintain NOAA research vessels. The Procurement, Acquisitions, and Construction account was funded at $600.0 million. Proposed PAC activities include $170.0 million to enhance NOAA's computing capabilities, $7.4 million to enhance NOAA's weather radar system, $9.0 million to upgrade weather forecast offices, $74.0 million to develop the National Polar-orbiting Operational Environmental Satellite System, $261.6 million for construction and maintenance of facilities, and $78.0 million to complete construction of a fishery survey vessel. Department of Justice41 Established by an act of 1870 with the Attorney General at its head, DOJ provides counsel for citizens in federal cases and protects them through law enforcement. It represents the federal government in all proceedings, civil and criminal, before the Supreme Court. In legal matters, generally, the department provides legal advice and opinions, upon request, to the President and executive branch department heads. The major functions of DOJ agencies and offices are described below. United States Attorneys prosecute criminal offenses against the United States, represent the federal government in civil actions, and initiate proceedings for the collection of fines, penalties, and forfeitures owed to the United States. United States Marshals Service provides security for the federal judiciary, protects witnesses, executes warrants and court orders, manages seized assets, detains and transports unsentenced prisoners, and apprehends fugitives. Federal Bureau of Investigation (FBI) investigates violations of federal criminal law; helps protect the United States against terrorism and hostile intelligence efforts; provides assistance to other federal, state, and local law enforcement agencies; and shares jurisdiction with Drug Enforcement Administration over federal drug violations. Drug Enforcement Administration (DEA) investigates federal drug law violations; coordinates its efforts with state, local, and other federal law enforcement agencies; develops and maintains drug intelligence systems; regulates legitimate controlled substances activities; and conducts joint intelligence-gathering activities with foreign governments. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) enforces federal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. It was transferred from the Department of the Treasury to the DOJ by the Homeland Security Act of 2002 ( P.L. 107-296 ). Federal Prison System (Bureau of Prisons) provides for the custody and care of the federal prison population, the maintenance of prison-related facilities, and the boarding of sentenced federal prisoners incarcerated in state and local institutions. Office on Violence Against Women coordinates legislative and other initiatives relating to violence against women and administers grant programs to help prevent, detect, and stop violence against women, including domestic violence, sexual assault, and stalking. Office of Justice Programs (OJP) manages and coordinates the activities of the Bureau of Justice Assistance, Bureau of Justice Statistics, National Institute of Justice, Office of Juvenile Justice and Delinquency Prevention, and the Office of Victims of Crime. Community Oriented Policing Services (COPS) advances the practice of community policing by awarding grants to law enforcement agencies to hire and train community policing professionals, acquire and deploy crime-fighting technologies, and develop and test innovative policing strategies. Most crime control has traditionally been a state and local responsibility. With the passage of the Crime Control Act of 1968 (P.L. 90-351), however, the federal role in the administration of criminal justice has increased incrementally. Since 1984, Congress has approved five major omnibus crime control bills, designating new federal crimes, penalties, and additional law enforcement assistance programs for state and local governments. FY2010 Budget Request For FY2010, the Administration requested almost $27.074 billion for DOJ (as shown in Table 3 ), or a $741.6 million increase compared with the FY2009-enacted appropriation of $26.332 billion. This 2.8% proposed increase in funding was largely the result of proposed increases for the FBI, DEA, ATF, the U.S. Marshals, and the U.S. Attorneys. In addition to the FY2009-enacted appropriation for DOJ, the ARRA included $4.002 billion for DOJ accounts. Funding in ARRA for DOJ was almost exclusively for DOJ-administered grant programs. For FY2010, the House-passed bill would have provided a total of $27.751 billion for DOJ, 5.4% more than what was appropriated for FY2009 and 2.5% more than the Administration's request. The Senate-passed bill would have provided a total of $27.385 billion for DOJ. The Senate-passed bill would have provided $1.053 billion, or 4.0%, more than the FY2009-enacted level, 1.2% more than the Administration's request, but would have represented a 1.3% decrease when compared with the FY2010 amount recommended by the House. For FY2010, the act provides $28.078 billion for DOJ appropriations. This amount is $1.745 billion more than the FY2009 enacted appropriation, representing an increase of 6.6%, and is almost $1.004 billion (3.7%) more than the Administration's FY2010 request. Compared to the House-passed bill, the act provides additional FY2010 funding of $326.9 million (1.2%), and $692.4 million (2.5%) more than the amount recommended under the Senate-passed bill. One issue facing Congress as it considered DOJ's FY2010 funding level was whether to increase support for DOJ's role in strengthening immigration enforcement and increasing border security. Escalating drug-related violence in Mexico related to the Mexican government's three-year battle with drug cartels has resulted in thousands of fatalities and has raised concern about the possibility that the violence could spread into the United States. The federal government's response has included initiatives across a range of federal agencies—including DOJ—to combat violence, fight drug trafficking, stop firearms trafficking, and strengthen immigration enforcement. For FY2010, the Administration's budget request included funding for additional agents, attorneys, and other staff to strengthen immigration enforcement and border security along the Southwest border. The Administration requested funding for the Southwest Border Initiative under several different DOJ accounts, including the Office of the Federal Detention Trustee, the United States Attorneys, the United States Marshals Service, and the Drug Enforcement Administration. The House and Senate-passed bills also included increased FY2010 appropriations levels for a DOJ-wide Southwest Border Initiative. The act similarly provides additional FY2010 appropriations to support DOJ's role in the Initiative, including $8.1 million to fund additional positions to strengthen prosecutions of criminal enterprises (human, drug, and weapon smuggling) along the southwest border by the U.S. Attorneys, and almost $18 million for the Bureau of Alcohol, Tobacco, Firearms and Explosives' anti-gun trafficking initiative, Project Gunrunner. General Administration The General Administration account provides funds for salaries and expenses for the Attorney General's office, the Inspector General's office, as well as other programs designed to ensure that the collaborative efforts of DOJ agencies are coordinated to help fight crime as efficiently as possible. The Administration requested almost $2.371 billion for FY2010. This amount was nearly $303.1 million more than the enacted FY2009 appropriation of almost $2.068 billion, an increase of 14.7%. The House-passed bill would have provided a total of $2.273 billion for General Administration, which would have been 9.9% more than the FY2009-enacted amount, but 4.1% less than the Administration's request. The Senate-passed version of H.R. 2847 would have provided a total of $2.239 billion for General Administration, which would have represented an increase of 8.3% over the FY2009-enacted amount. However, the Senate-passed amount would have been 5.6% less than the Administration's request and 1.5% less than the House-passed amount. The act includes $2.277 billion for the General Administration account, 0.2% more than what was recommended in the House-passed bill and 1.7% more than what was recommended in the Senate-passed bill. The enacted amount for the General Administration account included in the act represents a 10.1% increase over what was appropriated for FY2009, although 4.0% less than was requested for FY2010. Described below are several General Administration subaccounts, such as the Office of the Inspector General. General Administration The General Administration account includes funding for Salaries and Expenses for DOJ administration, as well as for the National Drug Intelligence Center, Justice Information Sharing Technology, and Tactical Law Enforcement Wireless Communications. For DOJ's General Administration, the FY2010 budget request included almost $551.3 million, an increase of almost $180.5 million (or 48.7%) over the FY2009 appropriation of $370.8 million. As part of the FY2010 request, the Administration proposed an additional $60.0 million to fund DOJ activities related to closing Guantánamo Bay detention facility and determining the disposition of detainees currently housed in the facility. According to the Administration, these resources may be needed for the prosecution activities of the U.S. Attorneys and the National Security Division; the U.S. Marshals Service and the Office of the Federal Detention Trustee for safely housing and transporting the detainees, as well as for courthouse safety; and for the Bureau of Prisons (BOP) in the event that detainees that are currently held are convicted and incarcerated in the BOP facilities. The House-passed bill included $453.4 million for General Administration, a 22.3% increase over FY2009 funding but 17.7% less than the Administration's request. The House-passed bill did not include the Administration's request for $60.0 million in additional funding for anticipated DOJ administrative costs related to closing the Guantánamo Bay detention facility. Section 523 of the House-passed bill further prohibited the use of any funds made available under this or any prior appropriations act to be used to release any individual into the United States or the District of Columbia who was detained, as of April 30, 2009, at the Guantánamo Bay detention facility. The Senate-passed bill would have provided a total of $419.6 million for General Administration. The Senate-passed amount would have been 7.5% less than the amount recommended by the House; however, it is important to note that the Senate-passed amount did not include any funding for the National Drug Intelligence Center whereas the House-passed bill included $44.0 million for the National Drug Intelligence Center, the same as the Administration's request. The amount provided for General Administration in the Senate-passed bill would have been 23.9% less than the Administration's request, although 13.2% more than the FY2009 enacted amount of $370.8 million. Like the House, the Senate-passed bill did not include the Administration's request for $60.0 million in additional funding for costs associated with closing the Guantánamo Bay detention facility. However, the Senate-passed bill report differed from the House-passed report in that it was silent with respect to language prohibiting the use of any appropriations for activities related to the closing of the Guantánamo Bay detention facility. The act includes $456.9 million for General Administration, almost 0.8% more than the amount recommended in the House-passed bill and almost 8.9% more than what was recommended in the Senate-passed bill. The amount included in the act represents a 23.2% increase over what was appropriated for General Administration for FY2009 and 17.1% less than the FY2010 requested amount. Similar to the House and Senate-passed bills, the act does not include the Administration's request for additional funding for costs related to closing the detention facility at Guantánamo Bay. Further, Section 532 of the act places restrictions on the use of funds for releasing into the United States, the District of Columbia, or U.S. territories, any individual who was detained, as of June 24, 2009, at the Guantánamo Bay detention facility. Administrative Review and Appeals (ARA) ARA includes the Executive Office of Immigration Review (EOIR) and the Office of the Pardon Attorney (OPA). The Attorney General is responsible for the review and adjudication of immigration cases in coordination with the Department of Homeland Security's (DHS) efforts to secure the nation's borders. The EOIR handles these matters, and the OPA receives and reviews petitions for executive clemency. For FY2009, Congress appropriated $266.0 million for ARA. The Administration requested $296.7 million for ARA funding for FY2010. The requested amount exceeded the FY2009 funding level by nearly $30.7 million, representing an increase of 11.5%. The House and Senate both recommended $296.7 million for ARA, the same amount requested by the Administration. The act provides this requested (and House- and Senate-recommended) $296.7 million for ARA. As discussed above, in response to escalating drug-related violence in Mexico and concerns about the possibility that the violence could spread into the United States, the Administration had requested as a part of the Southwest Border Initiative an increase of $26.3 million for additional immigration enforcement. The funding increase would have (1) provided additional staff to respond to the new DHS Secure Communities initiative, which represents a comprehensive plan to identify and remove criminal aliens; (2) created a single system to store, distribute, and archive all documents filed or created by EOIR, which will enhance EOIR's capacity to maximize the efficiency of case processing in support of priority enforcement and adjudication initiatives; and (3) provided custodians of unaccompanied alien children with legal orientation programs to address the custodian's responsibility for the child's appearance at all immigration proceedings, and to protect the child from mistreatment, exploitation, and trafficking. As part of the Southwest Border Initiative, both the House and Senate-passed bills included $26.3 million for EOIR's increased immigration caseload resulting from border enforcement activities. Similarly, the act fulfills the Administration's request and provides the additional $26.3 million. Office of the Federal Detention Trustee (OFDT) The OFDT provides overall management and oversight for federal detention services relating to federal prisoners in non-federal institutions or otherwise in the custody of the U.S. Marshals Service. The FY2010 budget request included almost $1.439 billion for OFDT. This amount was 6.1% more than the FY2009 appropriation of $1.355 billion. The House and Senate-passed bills both provided $1.439 billion for OFDT, the same as the Administration's request. The act provides the requested (and House- and Senate-recommended) $1.439 billion for OFDT. As discussed above, in response to escalating drug-related violence in Mexico and concerns about the possibility that the violence could spread into the United States, the Administration requested as a part of the Southwest Border Initiative an increase of $44.6 million for OFDT for costs associated with increased housing requirements for criminal aliens apprehended along the Southwest border and prosecuted in U.S. District courts. The Administration also requested an additional $95.8 million for OFDT to cover additional operating costs associated with increased immigration enforcement activity by DHS at the Southwest border and an additional $2.8 million for air transportation increases along the Southwest border. The House and Senate-passed measures, as well as the act, fulfill the Administration's request for OFDT funding, though the reports are silent on the use of funds as part of the Southwest Border Initiative. Office of the Inspector General (OIG) The OIG is responsible for detecting and deterring waste, fraud, and abuse involving DOJ programs and personnel; promoting economy and efficiency in DOJ operations; and investigating allegations of departmental misconduct. The Administration requested nearly $84.4 million for the OIG in its FY2010 budget. This amount is almost $8.7 million greater than the $75.7 million appropriated by Congress for FY2009 and represents an 11.5% increase in funding for FY2010. The House and Senate-passed bills both included $84.4 million for the OIG, the same as the Administration's request. The FY2010 enacted appropriation, like the House and Senate-approved bills, fulfills the Administration's request for $84.4 million for the OIG. U.S. Parole Commission The U.S. Parole Commission adjudicates parole requests for prisoners who are serving felony sentences under federal and District of Columbia code violations. For FY2010, the President's budget request included $12.9 million for the Parole Commission, an increase of nearly $0.3 million (or 2.3%) compared to the FY2009 appropriation of almost $12.6 million. The House and Senate-passed bills recommended $12.9 million for the U.S. Parole Commission, the same amount as what the President requested. The Senate also recommended $12.9 million for the U.S. Parole Commission. The act provides the requested (and House- and Senate-recommended) $12.9 million for the U.S. Parole Commission. Legal Activities The Legal Activities account includes several subaccounts: general legal activities, U.S. Attorneys, and other legal activities. For FY2010, the Administration requested approximately $3.082 billion for Legal Activities, what would have been an increase of 5.6% and nearly $164.3 million more than the FY2009-enacted funding level of $2.918 billion for these activities. The House-passed bill included nearly $3.09 billion for Legal Activities, 5.9% more that FY2009 funding and 0.3% more than the Administration's request. The Senate-passed bill would have provided $3.082 billion for Legal Activities. The amount recommended by the Senate was the same as the Administration's request and 0.3% less than what was recommended by the House. The FY2010 enacted appropriation includes $3.085 billion for Legal Activities. This enacted amount is 0.2% less than the amount recommended in the House-passed bill and 0.1% more than what was recommended in the Senate-passed bill. The amount enacted in the act represents a 5.7% increase over what was appropriated for Legal Activities for FY2009 and 0.1% more than the FY2010 requested amount. General Legal Activities The General Legal Activities account funds the Solicitor General's supervision of the department's conduct in proceedings before the Supreme Court. It also funds several departmental divisions (tax, criminal, civil, environment and natural resources, legal counsel, civil rights, INTERPOL, and dispute resolution). For FY2010, the President requested $875.1 million for General Legal Activities, $69.4 million more than the FY2009-enacted appropriation of $805.7 million, or a proposed 8.6% increase in funding. The House and Senate-passed bills would have provided $875.1 million for General Legal Activities. The FY2010 enacted appropriation includes $875.1 million for General Legal Activities, equal to the amount recommended in both the House and Senate-passed bills and requested by the Administration. As discussed above, the Administration requested as a part of the Southwest Border Initiative an increase of $1.8 million for DOJ's Civil Division to hire additional attorneys to handle the expected increase in immigration-related cases resulting from increased enforcement along the Southwest border. For FY2010, both the House-passed measure and the Senate-passed bill as well as the FY2010 enacted appropriation include the additional funding requested. Office of the U.S. Attorneys The U.S. Attorneys enforce federal laws through prosecution of criminal cases and represent the federal government in civil actions in all of the 94 federal judicial districts. For FY2010, the Administration requested $1.926 billion for the U.S. Attorneys Office, an almost $74.7 million or 4.0% increase over the FY2009-enacted appropriation of $1.851 billion. The House-passed bill included $1.934 billion for the U.S. Attorneys, representing what would have been an increase of 4.5% over FY2009 funding and 0.4% more than the Administration's request. The Senate-passed bill would have provided $1.926 billion for the U.S. Attorneys, the same as the Administration's request and 0.4% less than the House-approved amount. The FY2010 enacted appropriation includes $1.934 billion for the U.S. Attorneys, equal to the amount recommended in the House-passed bill and 0.4% more than what was recommended in the Senate-passed bill. This amount enacted represents a 4.5% increase over what was appropriated for the U.S. Attorneys for FY2009 and 0.4% more than the FY2010 requested amount. As discussed above, in response to escalating drug-related violence in Mexico, the Administration requested additional funding under several DOJ accounts to fund additional agents, attorneys, and other staff to strengthen immigration enforcement and border security along the Southwest border. As part of the FY2010 request, the Administration included an increase of $8.1 million for the U.S. Attorneys to hire additional attorneys to provide additional prosecution resources to address illegal immigration along the country's borders. Under the House and Senate-passed bills, $8.1 million would have been provided for U.S. Attorneys salaries and expenses as part of the Southwest Border Initiative. The FY2010 enacted appropriation also includes an additional $8.1 million for the U.S. Attorneys as a part of the Southwest Border Initiative. Both the Administration and Congress have expressed concern over the adequacy of resources available to combat various forms of financial fraud, including mortgage and corporate fraud. Specifically, the Administration requested $7.5 million in FY2010 funding for the U.S. Attorneys to combat financial fraud, and the House and Senate both recommended this request be fulfilled. The FY2010 enacted appropriation includes this funding. Other Legal Activities Other Legal Activities includes the Antitrust Division, the Vaccine Injury Compensation Trust Fund, the U.S. Trustee System Fund (which is responsible for maintaining the integrity of the U.S. bankruptcy system by, among other things, prosecuting criminal bankruptcy violations), the Foreign Claims Settlement Commission, the Fees and Expenses of Witnesses, the Community Relations Service, and the Assets Forfeiture Fund. For these other legal activities, the Administration requested $281.4 million. This amount reflected an increase in funding of $20.2 million, or a 7.7% increase over the FY2009-enacted level of $261.2 million. The House and Senate-passed bills both included the same amount for other legal activities as the Administration's request ($281.4 million). The act includes $276.1 million for other legal activities, almost 1.9% less than what was recommended in the House and Senate-passed bills as well as what the Administration requested for FY2010. This amount represents a 5.7% increase over what was appropriated for FY2009. U.S. Marshals Service (USMS) The USMS is responsible for the protection of the federal judicial process, including protecting judges, attorneys, witnesses, and jurors. In addition, USMS provides physical security in courthouses, safeguards witnesses, transports prisoners from court proceedings, apprehends fugitives, executes warrants and court orders, and seizes forfeited property. For FY2009, the appropriation for the USMS was $964.0 million. For FY2010, the Administration proposed USMS funding of $1.152 billion, an increase of almost $188.4 million, or 19.5% over the FY2009-enacted level. The House and Senate-passed bills provided $1.152 billion for the USMS, the same as the Administration's request. The act provides the requested (and House- and Senate-approved) $1.152 billion for the USMS. As discussed, as part of the Southwest Border Initiative, the Administration requested an increase of $144.3 million to hire an additional 700 USMS positions to address immigration enforcement both at the Southwest Border and within the country. Under the Southwest Border Initiative, the House-passed measure included $114.3 million for USMS expenses related border security activities. The Senate report accompanying the Senate-passed bill ( S.Rept. 111-34 ) recommended additional funding for the USMS for immigration enforcement, was silent on an amount for immigration enforcement. Similarly, the conference report on the act ( H.Rept. 111-366 ) is silent on the amount for immigration enforcement. National Security Division (NSD) The NSD coordinates DOJ's national security and terrorism missions through law enforcement investigations and prosecutions. The NSD was established in DOJ in response to the recommendations of the Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction (WMD Commission), and authorized by Congress on March 9, 2006, in the USA PATRIOT Improvement and Reauthorization Act of 2005. Under the NSD, the DOJ resources of the Office of Intelligence Policy and Review and the Criminal Division's Counterterrorism and Counterespionage Sections were consolidated to coordinate all intelligence-related resources and ensure that criminal intelligence information is shared, as appropriate. For FY2010, the President requested $87.9 million for the NSD, a proposed increase of nearly 3.2% compared to FY2009 funding ($85.2 million). The House-passed and Senate-passed bills would have funded the NSD at the level requested by the Administration. The act includes $87.9 million for the NSD, an amount equal to the House- and Senate-recommended levels, and to the FY2010 request. Interagency Law Enforcement The Interagency Law Enforcement account reimburses departmental agencies for their participation in the Organized Crime Drug Enforcement Task Force (OCDETF) program. Organized into nine regional task forces, this program combines the expertise of federal agencies with the efforts of state and local law enforcement to disrupt and dismantle major narcotics-trafficking and money-laundering organizations. From DOJ, the federal agencies that participate in OCDETF are the DEA; the FBI; the ATF; the U.S. Marshals Service; the Tax and Criminal Divisions of DOJ; and the U.S. Attorneys. From DHS, Immigration and Customs Enforcement and the U.S. Coast Guard participate in OCDETF. In addition, from the Department of the Treasury, the Internal Revenue Service and Treasury Office of Enforcement also participate in OCDETF. Moreover, state and local law enforcement agencies participate in approximately 90% of all OCDETF investigations. For FY2010, the Administration proposed $537.5 million for OCDETF. The proposed FY2010 funding level would have exceeded the FY2009 OCDETF enacted funding level of $515.0 million by $22.5 million or 4.4%. The House-passed bill included $528.6 million for OCDETF, what would have been a 2.6% increase over FY2009 funding, but 1.7% less than what the Administration requested for this account. The Senate recommended a total of $515.0 million in funding for OCDETF. The amount recommended by the Senate would have been the same as the FY2009 appropriation ($515.0 million), which would have been 4.2% less than the Administration's request and 2.6% less than the House-recommended amount. The act includes $528.6 million for OCDETF, a funding level equal to the amount recommended in the House-passed bill. This enacted amount is 2.6% greater than the amount recommended in the Senate-passed bill as well as the amount enacted in the FY2009 appropriation. The $528.6 million enacted in the FY2010 appropriation is 1.7% less than the amount requested by the Administration. Federal Bureau of Investigation (FBI) The FBI is the lead federal investigative agency charged with defending the country against foreign terrorist and intelligence threats; enforcing federal laws; and providing leadership and criminal justice services to federal, state, municipal, tribal, and territorial law enforcement agencies and partners. Since the September 11, 2001 terrorist attacks, the FBI has reorganized and reprioritized to focus on preventing terrorism and related criminal activities. From FY2000 through FY2009, Congress has more than doubled the direct appropriation for the FBI, from $3.091 billion to $7.336 billion, or a 137.3% increase. The FY2009-enacted amount included $7.065 billion for salaries and expenses, $153 million for construction, and $117.6 million in emergency spending. As Table 4 shows, from FY2003 to FY2009, the lion's share of new resources provided to the FBI have been allocated to national security, including the intelligence and counterterrorism/counterintelligence budget decision units. For those years, the allocations for national security from the salaries and expenses account increased from $2.107 billion (46.0%) to $4.371 billion (61.1%). The FY2010 request included a proposed allocation of $4.783 billion (62.0%) for FY2010 for national security activities. At the same time, the allocations for criminal enterprises and federal crimes (traditional crime) decreased from $2.199 billion (48.0%) to $2.276 billion (31.8%). Some Members of Congress have expressed concern about the diminishing percentage of funding allocated for traditional crime (including drug enforcement, violent crime, and white collar crime investigations). The FY2010 request included a proposed allocation of $2.409 billion (31.2%) for traditional crime. Meanwhile, the allocations for criminal justice services have increased from $275 million (6%) for FY2003 to $418 million (5.8%) for FY2009. The FY2010 request included a proposed allocation of $416.5 million (31.2%) for criminal justice services. It is also notable that the FBI controlled $1.263 billion in FY2009 fee receipts and other reimbursable resources and anticipates receiving similar resources in the amounts of $1.867 billion for FY2009 and $1.903 billion for FY2010. The fingerprint identification user fee is projected to generate $532.4 million in receipts for FY2010 (28% of total fee receipts and reimbursable resources). The President's FY2010 budget request for the FBI included $7.862 billion, or a proposed 7.2% increase over the FY2009 (including emergency funding). The FY2010 request included $7.719 billion for salaries and expenses and $142.8 million for construction. The FY2010 request includes the following budget increases: $61.2 million for a comprehensive national cybersecurity initiative (77.4% over FY2009); $70 million to increase FBI-wide intelligence capabilities (25.4% over FY2009); $48 million to augment national security investigations (9.8% over FY2009); $25.5 million to investigate additional mortgage fraud cases (51.3% over FY2009); $80.6 million to improve weapons of mass destruction (WMD) response capabilities (a 29.8% over FY2009); $9 million to inventory and consolidate files at the Central Records Complex (112.5% over FY2009); $53 million to improve wireless communications tracking and intercept capabilities, as well as other electronic and aerial surveillance programs (13.3% over FY2009); $25.1 million to support the national security training and career path (a 14.1% over FY2009); $101.1 million to support overseas contingency operations; $10 million for a preliminary architecture and engineering study in anticipation of expanding the FBI Academy and training facilities, and; $97.6 million to develop a joint Biometric Technology Center with the Department of Defense (DOD). These amounts total to $581.1 million in requested FY2010 budget enhancements. The House-passed bill would have provided $7.852 billion for the FBI, representing an 7.0% increase over FY2009 funding, but a 0.1% decrease under the Administration's request. The Senate-passed bill would have provided $7.914 billion for the FBI, a 7.9% increase over the FY2009 appropriation, a 0.7% increase over the Administration's request, and an 0.8% increase over the House-passed amount. The act provides $7.899 billion for the FBI, a 7.7% increase over the FY2009 appropriation. This amount includes $7.659 billion for salaries and expenses and $239.9 million for construction. The FY2010 FBI appropriation is a 0.5% increase over the FY2010 request, a 0.6% increase over the House-passed amount, and a 0.2% decrease under the Senate-passed amount. Both Congress and the Administration have been concerned with providing sufficient resources to combat financial crime such as mortgage fraud. As requested by the Administration, both the House and Senate bills included an increase of $25.5 million to investigate mortgage fraud. House report language, however, underscored that the FY2010 request would have placed too great an emphasis on mortgage fraud, and directed the FBI to use this funding increase for other high-priority financial fraud cases (such as fraud related to the Troubled Asset Relief Program). As indicated in conference report language, the act includes $75.2 million for white collar crime, including $25.5 million to fund 50 new agent positions for mortgage fraud and other economic recovery investigations. House report language directed the FBI to dedicate $8 million for intellectual property crime, $25 million to confront gangs and violent crime, and indicated that the bill included an $8 million increase for civil rights enforcement. Conference report language includes the House directives, and notes that the act provides a total of $54.3 million for civil rights enforcement, an amount that includes the $8 million increase included in the House bill. As requested by the Administration, the House bill included $9 million for the Central Records Complex and $100.1 million for overseas contingency operations, as did the Senate-passed bill (described below). Conference report language indicates that the act provides for these amounts. Senate report language indicated that the Senate bill included requested increases for enhanced surveillance, cybersecurity, overseas contingency operations, records management, national security investigations, mortgage fraud, FBI academy expansion, and a biometrics technology center. With regard to surveillance, conference report language notes that the act provides $22 million in addition to the amount requested ($53 million) for such purposes. Conference report language also notes that the act includes $140.3 million for a comprehensive national cybersecurity initiative, including $61.2 million and 260 positions. As described above, the act also includes the requested $25.5 million increase for mortgage fraud. For the FBI academy, the act includes $5 million, instead of the requested $10 million. In addition, it includes the requested $97.6 million to develop a joint Biometric Technology Center with DOD. In addition, Senate report language directed the FBI to dedicate $1.5 million to establish a human rights violations unit (10 agents), $46.3 million for civil rights enforcement, $52.7 million for the Innocent Images National Initiative, and $30 million for the continued construction of a Terrorist Explosive Devices Capabilities Center (TEDAC). Conference report language includes these directives and amounts, except as described above the act provides $54.3 million for civil rights enforcement. Conference report language also indicates that the act provides $5 million for the Innocence Lost Initiative to address child prostitution and sex trafficking in the United States. In addition, conference report language indicates that the act provides funding to augment national security investigations, but is silent about amounts requested to increase FBI-wide intelligence capabilities, improve WMD response capabilities, and support for the national security training and career path. For criminal justice services, the Senate bill included only $285 million for these purposes, rather than the $426.5 million requested by the Administration. To provide for the difference, Senate report language directed the FBI to use $366 million in excess user fees. For the Biometrics Technology Center (BTC), Senate report language also directed the FBI to transfer up to $30 million for salaries and expenses to the construction account for the BTC and to use $23 million in excess user fees to fund technology upgrades. Conference report language includes similar directives. Also related to biometrics, conference report language underscores that the FBI had not finalized program requirements for Next Generation Identification (NGI) and directs the Bureau to report to the House and Senate Appropriations Committees within 120 days of enactment with respect to scope and the maturity of any biometric indicator being considered for inclusion in NGI. Finally, conference report language directs the FBI to improve its efforts to hire additional staff, and includes a requirement that the FBI report immediately, and thenceforth quarterly, to the House and Senate Appropriations Committees on its FY2010 hiring plan, including on-board start of year staffing, anticipated attrition, planned enhancement hiring, planned vacancy hiring, and expected end of year vacancies. Conference report language also directs the FBI to prioritize the filling of 450 existing "hollow" positions prior to seeking additional positions in any future budget requests. Conference report language, furthermore, directs the FBI to notify the Committees prior to taking action that would divert appropriated funding away from the positions for which that funding was provided by Congress. Drug Enforcement Administration (DEA) The DEA is the lead federal agency tasked with reducing the illicit supply and abuse of dangerous narcotics and drugs through drug interdiction and seizures of illicit revenues and assets from drug trafficking organizations. According to DEA, the agency's efforts have contributed to about 900,000 fewer teens using drugs in 2009 than in 2001. For FY2010, one of DEA's goals is to recover $3.0 billion in illegal proceeds annually from international drug trafficking networks operating in the United States. DEA noted that they continue to face evolving challenges in limiting the supply of illicit drugs, such as pharmaceutical drugs available through the Internet, as well as reducing drug trafficking across the Southwest border with Mexico into the United States. For FY2010, the Administration requested almost $2.015 billion in funding for DEA. This amount would have exceeded the enacted FY2009 funding level of $1.959 billion by almost $55.6 million and would have reflected a 2.8% funding increase. The House-passed bill included nearly $2.02 billion for the DEA, which would have been a 3.1% increase over FY2009 funding and 0.2% greater than the Administration's request. The Senate recommended $2.015 billion for DEA, which would have been the same as the Administration's request and 0.2% less than the amount recommended by the House. The act includes total appropriations of $2.02 billion for DEA, an amount that is equal to the recommended level in the House-passed bill, 0.2% greater than what was recommended in the Senate-passed bill, as well as 0.2% more than the FY2010 request and 3.1% more than the amount appropriated for FY2009. As discussed above, the Administration requested additional funding under several DOJ accounts to strengthen immigration enforcement and border security along the Southwest border. Included in the Administration's FY2010 request for the DEA was a proposed increase of $24.1 million to hire additional personnel to enable the DEA to carry out enforcement operations along the Southwest Border and to investigate the trafficking networks of Mexican drug trafficking organizations. The requested funding would also have supported the Special Field Intelligence Programs that focus on Mexican drug trafficking organizations and the escalation of drug-related violence. Both the House-passed measure and the Senate-passed bill would have provided the amount the Administration requested for DEA activities related to the Southwest Border Initiative. Although the FY2010 enacted appropriation for DEA is equal to that recommended by the House, the conference report on the act ( H.Rept. 111-366 ) is silent on the amount provided for activities related to the Southwest Border Initiative. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) The ATF enforces federal criminal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. ATF works both independently and through partnerships with industry groups, international, state and local governments, and other federal agencies to investigate and reduce crime involving firearms and explosives, acts of arson, and illegal trafficking of alcohol and tobacco products. The President's FY2010 budget request included $1.121 billion for ATF, an increase of $52.6 million, or 4.9%, compared to the FY2009-enacted appropriation. This proposed increase included $18 million to support "Project Gunrunner," an initiative focused on stemming illegal firearms trafficking to Mexico from the United States; $25 million for the new National Center for Explosives Training and Research Center (NCETR) for facility outfitting and expanded training; and $23.6 million in base adjustments. The House-passed bill included $1.106 billion for the ATF, a 3.5% increase over FY2009 funding, but 1.3% under the Administration's request. The Senate-passed bill included $1.121 billion for the ATF, the same as requested by the Administration's, and a 1.4% increase over the House amount. The act provides the same amount as the Senate-passed bill and the Administration's request. Conference report language indicates that the act includes the requested $18 million for Project Gunrunner that would have also been provided in the House- and Senate-passed bills. The act also includes $10 million to increase the Violent Crime Impact Team program, $6 million for construction (phase two) of the NCETR, and $1.5 million to complete ATF headquarters construction projects. Federal Prison System (Bureau of Prisons) The Bureau of Prisons (BOP) was established in 1930 to house federal inmates, to professionalize the prison service, and to ensure consistent and centralized administration of the federal prison system. The mission of BOP is to protect society by confining offenders in prisons and community-based facilities that are safe, humane, cost-efficient, and are appropriately secure, and that provide work and other self-improvement opportunities for inmates so that they can become productive citizens after they are released. BOP currently operates 115 correctional facilities across the country. BOP also contracts with Residential Re-entry Centers (RRC) (i.e., halfway houses) to provide assistance to inmates nearing release. RRCs provide inmates with a structured and supervised environment along with employment counseling, job placement services, financial management assistance, and other programs and services. Congress funds BOP's operations through two accounts under the Federal Prison System heading: Salaries and Expenses (S&E) and Buildings and Facilities (B&F). The S&E account (i.e., the operating budget) provides for the custody and care of federal inmates and for the daily maintenance and operations of correctional facilities, regional offices, and BOP's central office in Washington, DC. It also provides funding for the incarceration of federal inmates in state, local, and private facilities. The B&F account (i.e., the capital budget) provides funding for the construction of new facilities and the modernization, repair, and expansion of existing facilities. In addition to appropriations for the S&E and B&F accounts, Congress usually places a cap on the amount of the revenue generated by the Federal Prison Industries (FPI) that can be used for administrative expenses in the annual CJS appropriations bill. Although Congress does not appropriate funding for the administrative expenses of FPI, the administrative expenses cap is scored as enacted budget authority. The FY2010 budget request proposed BOP funding of almost $6.079 billion, of which $5.98 billion would be for the S&E account and $96.7 million for the B&F account. The total proposed amount would have provided $99.7 million less than the total enacted FY2009 appropriations of almost $6.174 billion, reflecting a 1.6% decrease. The FY2009-enacted appropriation included $5.601 billion for the S&E account and $575.8 million for the B&F account. The proposed reduction to BOP's overall funding was the result of a proposed reduction in BOP's B&F account. The Administration requested $96.7 million for the B&F account, $479.1 million less than the $575.8 million Congress appropriated for FY2009. The House-passed bill included $6.177 billion in total funding for BOP, which would have represented less than a 0.1% decrease in funding compared with FY2009, but it would have been 1.6% greater than the Administration's proposed funding level. The House-passed bill included a $476.5 million increase in BOP's S&E account (from $5.601 billion in FY2009 to a proposed $6.077 billion for FY2010), but the House's recommended funding for BOP's B&F account was the same as the Administration's request. The Senate-passed bill would have provided a total of $6.082 billion for BOP, including $5.969 billion for the S&E account and $99.2 million for B&F. The Senate-passed amount for the S&E account would have represented a 6.6% increase over the FY2009 appropriation, but it would have been 0.2% less than the Administration's request and 1.8% less than the House-passed amount. The Senate-passed amount for the B&F account would have been 82.8% less than the FY2009 appropriation, but it was 2.5% more than both the Administration's request and the House-passed amount. The act provides a total of $6.188 billion for BOP, which is 0.1% more than the FY2009 enacted amount, 1.8% more than the Administration's request, 0.2% above the House-passed amount, and 1.7% above the Senate-passed amount. Included in the $6.188 billion for BOP is $6.086 billion for the S&E account and $99.2 million for the B&F account. BOP reports that by the end of FY2008, the federal prison population was more than 201,000 inmates and by the end of FY2009 the federal prison population was more than 208,000. Of the total number of federal inmates at the end of 2008, nearly 166,000 were held in facilities operated by BOP, while the remaining 18% were in contract care at privately operated secure facilities, in residential reentry centers, or serving a sentence of home confinement. BOP reports that its facilities were operating at 36% above capacity at the end of 2008, and it estimates that by the end of 2009 the facilities will be operating at 37% above capacity. BOP reports that one of its challenges it to provide for safe inmate incarceration and care, and to provide for the safety of BOP staff and surrounding communities in light of the increasing prison population. BOP also reports that the inmate-to-staff ratio has increased from 3.6 to 1 in 1997 to 4.9 to 1 in 2008. One issue Congress considered while determining the appropriate level of funding for BOP for FY2010 was whether to increase BOP's funding in order to more effectively manage the growing prison population. Both the House and the Senate Appropriations Committees expressed concern about how inadequate budget requests in the past have forced BOP to rely on correctional officer overtime and the diversion of program staff instead of hiring additional correctional officers, which Congress feels has resulted in BOP's workforce being spread thin and compromising BOP's ability to effectively manage its institutions. The House Appropriations Committee stated that it was concerned about the level of staffing at BOP facilities. The House Appropriations Committee required that no less than $70.6 million of the recommended S&E funding be used for hiring additional correctional officers. In the report to accompany the Senate-passed version of H.R. 2847 , the Senate Appropriations Committee stated that it was concerned the Administration's FY2010 will not allow BOP to manage the basic operational needs of federal prisons. The joint explanatory statement to accompany the act echoed many of the same concerns raised by both the House and Senate Appropriations committees. The joint explanatory statement states that not less than $98.2 million of the funding appropriated for the S&E account is to be used to hire additional correctional officers. Moreover, even though BOP predicts that the federal prison population will continue to grow in the near future, the Administration's requested $96.7 million for the B&F account, which includes $25.4 million for new construction. The House-passed bill would have provided $25.4 million for new construction as a part of the recommended $96.7 million for the B&F account. The Senate recommended $99.2 million for B&F, which includes $25.4 million for new construction. The act includes $99.2 million for B&F, of which $25.4 million is for new construction. Both the House and Senate Appropriations Committees expressed concern about the fact that while BOP is planning on adding approximately 13,000 additional bedspaces to its capacity between 2010 and 2014, BOP has estimated that the prison population will grow by approximately 22,500 inmates during the same time period. Both committees believed that BOP would only be able to meet its goal of adding 13,000 additional bedspaces if it receives a significant increase in new construction appropriations. Office on Violence Against Women (OVW) The OVW was created to administer programs created under the Violence Against Women Act (VAWA) of 1994 and subsequent legislation. These programs provide financial and technical assistance to communities around the country to facilitate the creation of programs, policies, and practices designed to improve criminal justice responses related to domestic violence, dating violence, sexual assault, and stalking. For FY2010, the President proposed a total of $414.0 million for OVW grant programs, a reduction of $1.0 million or a 0.2% decrease in funding compared with FY2009 funding of $415.0 million. The FY2009-enacted funding for OVW does not include the $225.0 million appropriated for this account as a part of the ARRA. The House-passed bill would have provided $406.5 million for OVW. The proposed funding level in the House-passed bill would have been 2.0% less than FY2009-enacted funding and 1.8% less than the President's request. The Senate-passed bill would have provided $435.0 million for OVW. This amount would have represented a 4.8% increase over the FY2009-enacted appropriation, a 5.1% increase over the Administration's request, and 7.0% more than the House allowance. The act includes $418.5 million for OVW, which represents a 0.8% increase over the FY2009 enacted amount, a 1.1% increase over the Administration's request, a 3.0% increase over the House-passed amount, but a 3.8% decrease compared to the Senate-passed amount. Office of Justice Programs (OJP) The OJP manages and coordinates the National Institute of Justice, Bureau of Justice Statistics, Office of Juvenile Justice and Delinquency Prevention, Office of Victims of Crimes, Bureau of Justice Assistance, and related grant programs. For OJP, the Administration requested approximately $2.340 billion, or nearly $472.6 million (16.8%) less than the FY2009 appropriation of $2.812 billion. The House-passed bill would have provided $3.045 billion for OJP, 8.3% more than FY2009-enacted funding and 30.2% more than the Administration's request. The Senate recommended a total of $2.73 billion for OJP, 18.7% more than the Administration's request but 2.9% less than the FY2009 appropriation and 10.4% less than the House recommendation. The act provides a total of $3.289 billion for OJP. This amount is 16.9% greater than the FY2009 enacted amount, 40.6% greater than the Administration's request, 8.0% greater than the House-passed amount, and 20.5% greater than the Senate-passed amount. Justice Assistance The Justice Assistance account, among other things, funds the operations of the Bureau of Justice Statistics and the National Institute of Justice along with providing assistance to missing and exploited children programs. For FY2010, the Administration requested $225.0 million for this account, or 2.3% more than the FY2009 appropriation of $220.0 million. The House-passed bill would have provided $226.0 million for the Justice Assistance account, 2.7% more than FY2009 funding and 0.4% more than the Administration's request. The Senate-passed bill would have provided $215.0 million for Justice Assistance, 2.3% less than FY2009 funding, 4.4% less than the Administration's request, and 4.9% less than the House-recommended amount. The act includes $235.0 million for this account, representing a 6.8% increase over FY2009 appropriations, a 4.4% increase over the Administration's request, a 4.0% increase over the House-passed amount, and a 9.3% increase over the Senate-passed amount. State and Local Law Enforcement Assistance The State and Local Law Enforcement Assistance account includes funding for a variety of grant programs to improve the functioning of state, local, and tribal criminal justice systems. Some examples of programs that have traditionally been funded under this account include the Edward Byrne Memorial Justice Assistance Grant (JAG) program, the Drug Courts program, and the State Criminal Alien Assistance Program (SCAAP). The Administration requested $728.0 million for the State and Local Law Enforcement Assistance account for FY2010. The requested amount is $600.5 million, or 45.2%, less than the $1.329 billion Congress appropriated for this account for FY2009. The FY2009-enacted funding does not include the $2.765 billion Congress appropriated for OJP grant programs as a part of the ARRA. The House-passed bill would have provided a total of $1.413 billion for grants funded under this account. The House-passed bill would have provided 6.3% more funding than FY2009 appropriations, and the recommended funding was 94.0% more than the Administration's request. The Senate recommended a total of $1.159 million for State and Local Law Enforcement Assistance. This amount would have been 59.2% more than the Administration's request, but it would have been 12.8% less than the FY2009 appropriation and 17.9% less than what was provided in the House-passed bill. The act includes a total of $1.535 billion for grant programs funded under this account. This amount is 15.5% more than the FY2009 appropriation, 110.8% more than the Administration's request, 8.7% more than the House-passed amount, and 32.4% more than the Senate-passed amount. As mentioned above, SCAAP has traditionally been funded under the State and Local Law Enforcement Assistance account. One issue facing Congress as it decided on the level of funding for OJP was whether to follow the Administration's proposal to eliminate funding for SCAAP. SCAAP provides funds to states and local governments that incurred correctional officer salary costs for incarcerating undocumented criminal aliens with at least one felony or two misdemeanor convictions for violations of state or local law. For FY2010, the Administration proposed to eliminate funding for SCAAP because "it functions as an unfocused block grant and funds can be used for any correctional-related purpose." According to the Administration, SCAAP funds can be used for extraneous items and services such as bonuses, consultants, and the of purchase vehicles. The House did not accept the President's proposal. The House-passed bill included $400.0 million for SCAAP, the same amount as what was appropriated for the program for FY2009. The Senate-passed bill would have provided $228.0 million for SCAAP, 43.0% less than the FY2009 appropriation and the House-recommended amount. The act includes $330.0 million for SCAAP, 17.5% less than the FY2009 appropriation and the House-passed amount, but 44.7% more than the Senate-passed amount. Weed and Seed Program The Weed and Seed program is designed to provide grants to help communities build stronger, safer neighborhoods by implementing local-level approaches to solve and prevent crimes. The program provides assistance for community-based strategies of "weeding and seeding" activities based on the premise that leaders from neighborhood and community organizations, including faith-based organizations, law enforcement and private enterprise, must be involved in leveraging resources to solve community problems at the local level. Site funding generally provides resources for "weeding" activities, which include joint law enforcement operations and community policing, and "seeding" activities, which range from prevention activities, including physically improving the neighborhood and economic development. The Administration requested $25.0 million for Weed and Seed, the same amount as the FY2009 appropriation for the program. The House-passed bill included $15.0 million for the program, 40.0% less than both FY2009 funding and the Administration's request. The Senate recommended $20.0 million for Weed and Seed, 20.0% less than FY2009 funding and the Administration's request but 33.3% more than what the House recommended for this account. The act provides $20.0 million for Weed and Seed, the same as the Senate-passed amount. Community Oriented Policing Services (COPS) The COPS Office awards grants to state, local and tribal law enforcement agencies throughout the United States so they can hire and train law enforcement officers to participate in community policing, purchase and deploy new crime-fighting technologies, and develop and test new and innovative policing strategies. Some examples of grant programs traditionally funded under this account include the Law Enforcement Technology grant program, the Methamphetamine Hot-spots Initiative, grants to reduce the DNA backlog, and offender re-entry grants. The Administration requested $761.0 million for COPS for FY2010, 38.2% more than the $550.5 million appropriated for the program for FY2009. The $550.0 million appropriated for COPS for FY2009 does not include the $1.0 billion Congress appropriated for COPS hiring programs as a part of the ARRA. The House-passed bill would have provided $807.0 million for COPS. The amount provided in the House-passed bill would have been 46.6% more than the FY2009 appropriation and 6.0% more than the Administration's requested funding. The Senate recommended $685.5 million for COPS, which would have represented an increase of 19.6% compared with FY2009 appropriations, but the recommended amount was 13.5% less than the Administration's request and 18.4% less than what the House recommended. The act provides $791.6 million for COPS, a 43.8% increase in funding compared to FY2009 appropriations. The amount included in the act is 4.0% more than the Administration's request and 20.2% more than what the Senate would have provided, but it is 1.9% less than what the House would have provided. In recent years, Congress has shown a growing interest in issues related to offender re-entry. Statistics about the size of the United States prison population and costs associated with recidivism suggest why Congress has turned its attention to this issue. Over 95% of the prison population today will be released at some point in the future, and each year in the United States almost 650,000 offenders are released from prison. The Bureau of Justice Statistics (BJS) has estimated that two-thirds of all released prisoners will commit new offenses (recidivate) within three years of their release. According to the BJS, the average per-prisoner cost of incarceration in state prison in 2001 was $62 per day, or $22,650 per year; costs for those incarcerated in federal prison was similar. Overall, the states spent $38 billion on their correctional systems in 2001, the most recent year for which data are available. In 2008, Congress passed, and President Bush signed into law, the Second Chance Act of 2001 ( P.L. 110-199 ), which, among other things, authorized $165 million dollars for each of FY2009 and FY2010 for programs to aid offenders as they make their transition back into society. The Administration requested a total of $100.0 million in funding for FY2010 under the COPS account for programs authorized under the Second Chance Act. The Administration's proposal did not specify the programs for which the Administration requested funding. The House-passed bill would have provided a total of $100.0 million for programs authorized by the Second Chance Act. The proposed funding included $37.0 million for adult and juvenile offender re-entry demonstration grants; $10.0 million for re-entry courts; $7.5 million for grants for family-based substance abuse treatment; $2.5 million for grants to improve education at prisons, jails, and juvenile facilities; $5.0 million for technology careers training demonstration grants; $13.0 million for offender re-entry substance abuse and criminal justice collaboration; $15.0 million for offender mentoring and transitional services; and $10.0 million for prisoner re-entry research. The proposed $100.0 million in funding for programs authorized by the Second Chance Act would have been 300.0% greater than the $25.0 million appropriated for these programs for FY2009. However, the proposed $100.0 million in funding was $40.0 million less than the total amount authorized for DOJ grant programs and re-entry research by the Second Chance Act. The Senate recommended a total of $50.0 million under the State and Local Law Enforcement Assistance account for programs authorized by the Second Chance Act. The proposed funding included $25.0 million for adult and juvenile offender re-entry demonstration grants, $15.0 million for offender mentoring and transitional services, and $5.0 million for grants for family-based substance abuse treatment. The amount recommended in the Senate-passed bill was half of what the Administration requested and what the House recommended, but it is double what was appropriated for FY2009. The amount recommended by the Senate Appropriations Committee is $90.0 million less than what is authorized for these programs for FY2010. The amount included in the act for offender re-entry programs is the same as the amount recommended by the House. In the act, funding for offender re-entry programs is included under the State and Local Law Enforcement Assistance account. Juvenile Justice Programs The Juvenile Justice Programs account includes funding for grant programs to reduce juvenile delinquency and help state, local, and tribal governments improve the functioning of their juvenile justice systems. The Administration requested $317.0 million for this account, $57 million, or 15.2%, less than the $374 million appropriated for the Juvenile Justice Programs account for FY2009. The House-passed bill included $385.0 million for Juvenile Justice Programs, which would have been a 2.9% increase over FY2009 funding and 21.5% more than the Administration's request. The Senate recommended $407.0 million for Juvenile Justice Programs. The proposed funding would have been 8.8% more than FY2009 funding, 28.4% more than the President's request, and 5.7% more than the House-recommended amount. The act provides $423.6 million for Juvenile Justice Programs. This amount is 13.3% more than FY2009 appropriations, 33.6% more than the Administration's request, 10.0% more than the House-passed amount, and 4.1% more than the Senate-passed amount. Public Safety Officers Benefits Program (PSOB) The PSOB program provides three different types of benefits to public safety officers or their survivors: death, disability, and education. The PSOB program is intended to assist in the recruitment and retention of law enforcement officers, firefighters, and first responders and to offer peace of mind to men and women who choose careers in public safety. The Administration requested $70.1 million for PSOB for FY2010, which would be 41.1% less than what was appropriated in FY2009 ($119.1 million). The House-passed bill included the same amount for PSOB as the Administration's request. The Senate-passed bill would have provided the same amount as the Administration's request and the House's recommendation. The act provides $70.1 million for PSOB, the same as the Administration's request and the House and Senate-passed amounts. Salaries and Expenses This account provides for the salaries and expenses of OVW, OJP, and COPS. This account was funded for the first time in FY2009. Congress established a Salaries and Expenses account for OVW, OJP, and COPS to " ... achieve greater transparency, efficiency and accountability in the management, administration and oversight of the Justice Department grant programs." The President requested $213.4 million for this account for FY2010, 9.4% more than the $195.0 million appropriated for this account for FY2009. The House-passed bill would have provided $129.6 million for this account. The amount recommended in the House-passed bill would have been 33.5% less than what was appropriated for this account for FY2009 and 39.3% less than the Administration's request. The Senate recommended $200.0 million for OJP's Salaries and Expenses. This amount would have been 6.3% less than the Administration's request, but it would have been 2.6% more than the FY2009-enacted amount and 54.3% more than the House-recommended amount. The act includes $213.4 million for this account, the same as the Administration's request, 64.6% more than the House-passed amount, and 6.7% more than the Senate-passed amount. Science Agencies The science agencies fund and otherwise support research and development (R&D) and related activities across a wide-variety of federal missions, including national competitiveness, climate change, energy and the environment, and fundamental discovery. President Obama's FY2010 budget request included $25.737 billion for science agencies, an increase of $1.459 billion (6.0%) over the enacted FY2009 amount of $24.278 billion (see Table 5 ). The FY2010 request included $423.0 million for the National Science Foundation's (NSF) participation in the National Nanotechnology Initiative (NNI) and $16.6 million for the National Aeronautics and Space Administration's (NASA) nanotechnology research and development (R&D) activities. The House-passed bill included a total of $25.147 billion for the science agencies, a 3.6% increase over FY2009 appropriations for these agencies, but 2.3% less than the FY2010 requested funding. The Senate-passed bill provided a total of $25.609 billion for science agencies, 0.5% less than the Administration's request, but 5.5% more than the FY2009-enacted funding and 1.8% more than the House-recommended amount. The act provides $25,657.8 million to CJS science agencies for FY2010, an increase of 5.7% above the FY2009 level, 0.3 percent less than the President's request, and above both the House-passed and Senate-passed levels. Office of Science and Technology Policy (OSTP)75 Congress established the Office of Science and Technology Policy (OSTP) through the National Science and Technology Policy, Organization, and Priorities Act of 1976 ( P.L. 94-282 ). The act states that "The primary function of the OSTP director is to provide, within the Executive Office of the President, advice on the scientific, engineering, and technological aspects of issues that require attention at the highest level of Government." The OSTP director, often referred to informally as the President's science advisor, also manages the National Science and Technology Council (NSTC), which coordinates science and technology policy across the federal government, and co-chairs the President's Council of Advisors on Science and Technology (PCAST), a council of external advisors that provides advice to the President. OSTP is one of two offices in the Executive Office of the President (EOP) that is funded in the CJS appropriations bill. OSTP's FY2009 budget was $5.3 million. An additional $3.0 million was provided through the National Science Foundation appropriation for the Science and Technology Policy Institute (STPI), a federally-funded research and development center that supports OSTP. For FY2010, the Obama Administration requested $6.2 million, $1.1 million (16.0%) above its FY2009 level. According to OSTP director John Holdren, the request will support four Senate-confirmed associate directors (rather than two in the previous Administration), the President's Open Government Initiative, reinvigoration of PCAST, increasing NSTC activities, and coordinating the nation-wide effort to enhance scientific integrity in the policy-making process. Although the FY2008 explanatory statement directed NSF to transfer funds for STPI to OSTP, FY2010 funding for STPI ($3.0 million, no change from FY2009) was again requested by NSF. The House-passed bill would have provided $7.2 million for the Office of Science and Technology Policy, $1.0 million above the requested amount, "to ensure that OSTP has adequate staff to fulfill key requirements in the upcoming year." The proposed funding would have been 34.9% more than FY2009 funding and 16.2% greater than the FY2010 request. In the report, OSTP was directed to develop a plan for achieving and sustaining global Earth observations in collaboration with other agencies and in consultation with the Earth science community. In addition, the House Committee on Appropriations stated that it anticipated OSTP would need to provide leadership and active coordination on hydrology research and water resources, terrestrial ecosystems and their role in climate change, nanotechnology, and science, technology, engineering, and mathematics (STEM) education. The Senate-passed bill would have provided $6.2 million, $0.9 million (16.0%) above the FY2009-enacted level, equal to the President's budget request, and $1.0 million (-14.0%) less than the House-recommended amount. The act provides $7.0 million for the Office of Science and Technology Policy, $0.8 million above the requested amount. The provided funding is 32.0% higher than FY2009 funding and 13.7% greater than the FY2010 request. The conference report agreed with the direction of the House and directed OSTP to develop a plan for achieving and sustaining global Earth observations in collaboration with other agencies and in consultation with the Earth science community. In addition, the conference report directs the OSTP to conduct a review of the interagency GLOBE program, examining the merits of transitioning responsibility for the program from NASA to NOAA, and report within 60 days. National Aeronautics and Space Administration (NASA)82 The National Aeronautics and Space Administration (NASA) was created by the 1958 National Aeronautics and Space Act (P.L. 85-568) to conduct civilian space and aeronautics activities. The agency is managed from headquarters in Washington, DC. It has nine major field centers around the country, plus the Jet Propulsion Laboratory, which is operated under contract by the California Institute of Technology. The Administration requested $18.686 billion for NASA for FY2010, a 5.1% increase over the FY2009 regular appropriation. The House provided $18.203 billion. The Senate provided the requested amount. The final appropriation was $18.724 billion. See Table 6 for a breakdown of these amounts by appropriations account. For the past several years, budget priorities throughout NASA have been driven by the Vision for Space Exploration, announced by President Bush in January 2004 and endorsed by Congress in the NASA Authorization Act of 2005 ( P.L. 109-155 ) and the NASA Authorization Act of 2008 ( P.L. 110-422 ). The Vision includes returning the space shuttle to flight status (already accomplished) then retiring it by 2010; completing the International Space Station, but discontinuing U.S. use of it after 2015; returning humans to the moon by 2020; and then sending humans to Mars and "worlds beyond." The priorities established by the Vision are now in question. It is doubtful whether the future-year spending plans provided in NASA's FY2010 budget documents can accommodate the goal of returning humans to the moon. An Administration-requested independent review of NASA's human spaceflight activities (known as the Augustine report) estimated that this goal would require an additional $3 billion per year, even with some schedule delays. The Administration requested $4.477 billion for Science in FY2010, a 0.6% decrease. Within this total, increases for Earth Science, Planetary Science, and Heliophysics were offset by a decrease for Astrophysics. In Earth Science, NASA is considering its options following the loss of the Orbital Carbon Observatory (OCO), which was launched in February 2009 but failed to reach orbit. Building a replacement for OCO is one of the options being examined, but the funding that would be required was not included in the request. The House increased Earth Science by $15 million and Astrophysics by $50 million; these increases were partly offset by transfers of administrative and construction costs to other accounts, for a net increase in Science of $19 million above the request. The Senate increased Astrophysics by $49 million and Heliophysics by $42 million; these increases were partly offset by a reallocation of unobligated balances from prior years, for a net increase in Science of $40 million above the request. The final appropriation was $4.469 billion, which was $8 million less than the request. Within this amount, increases of $45 million for Earth Science, $32 million for Heliophysics, and $13 million for Planetary Science were more than offset by transfers of administrative and construction costs to other accounts and an unallocated reduction of $59 million. The increase for Earth Science included $25 million, to be supplemented by another $25 million in prior-year unobligated funds, to initiate a replacement for the OCO. The $3.963 billion requested for Exploration in FY2010 was a 13.1% increase, as the Constellation Systems program ramps up its development of the Orion crew vehicle and Ares I launch vehicle, successors to the space shuttle. According to NASA, the FY2010 request for Constellation Systems and the accompanying funding projections for FY2011 through FY2014 are consistent with achieving an initial operating capability for Orion and Ares I (i.e., a first crewed flight) in March 2015. It is doubtful, however, whether the projected FY2010-FY2014 funding for development of the heavy-lift Ares V launch vehicle, the Altair lunar lander, and lunar surface systems is consistent with returning humans to the moon by 2020. The Augustine report found that 2017 is a more likely date for an initial operating capability and that currently projected budgets would permit a return to the moon no sooner than "well into the 2030s, if ever." The House provided $670 million less than the request for Exploration. The House committee report described this as a deferral without prejudice, in light of the ongoing Augustine review, that "should not be viewed … as a diminution of the Committee's support for NASA's human space flight program." The Senate provided $23 million less than the request, including the full requested amount for Orion and Ares I, an increase of $75 million for Ares V, a reduction for $46 million for Advanced Capabilities, and a reallocation of $52 million in unobligated balances from prior years. The final appropriation was $3.746 billion, a reduction of $217 million from the request. This total included reductions of $39 million for Constellation Systems and $21 million for Advanced Capabilities, transfers of administrative and construction costs to other accounts, and an unallocated reduction of $52 million. The final bill renamed the Constellation Systems funding line as Human Exploration Architecture Development but prohibited NASA from terminating any aspect of the Constellation architecture or initiating any new alternative unless permitted to do so by a subsequent appropriations act. The conference report stated that the Augustine committee's report raises issues requiring thoughtful consideration by the Administration and the Congress, before the Committees on Appropriations of the House and Senate can recommend detailed funding levels.... It is premature for the conferees to advocate or initiate significant changes to the current program absent a bona fide proposal from the Administration and subsequent assessment, consideration and enactment by Congress.... It is the expressed hope of the conferees that the Administration will formulate its formal decision soon, submit its recommendations for congressional review and consideration, and budget the necessary resources.... The FY2010 request of $6.176 billion for Space Operations, which funds the space shuttle, the International Space Station, and the Space and Flight Support program, was a 7.1% increase. With the release of the FY2010 budget, NASA's position on the remaining schedule of shuttle flights shifted slightly. Previously its policy was that the shuttle would not fly after the end of FY2010, but that it expected to be able to complete all remaining flights by then. Now its policy is that it will complete all remaining flights, but that it expects to achieve that by the end of FY2010. In other words, one or more flights in FY2011 are now possible, if needed. The gap in U.S. human access to space between the end of the shuttle program and the first availability of Orion and Ares I remains a concern for policymakers. The House provided $178 million less than the request for Space Operations. The Senate provided $14 million less than the request. The final appropriation was $6.147 billion, a reduction of $29 million from the request. Within this total, an increase of $50 million for the International Space Station was more than offset by an unallocated reduction of $18 million and transfers of administrative and construction costs to other accounts. The House bill established a new appropriations account for Construction of Facilities and Environmental Compliance and Remediation. The House provided $442 million for this account, which consolidates activities currently supported by other accounts (mostly Cross-Agency Support). The Senate bill did not include this new account. The final bill provided $448 million for Construction and Environmental Compliance and Remediation. The House bill made most NASA funds available for only one year, rather than the usual two. Approximately 10% of most of NASA's appropriations accounts would have continued to be available for two years. Funds in the new Construction of Facilities and Environmental Compliance and Remediation account would have been available for six years. The Senate bill made all NASA funds available for two years as usual. The final bill made funds for Construction and Environmental Compliance and Remediation available for six years and all other funds available for two years. National Science Foundation (NSF)88 For FY2010, the President requested $7.045 billion for the NSF, an 8.6% increase ($555.0 million) over the FY2009 estimate of $6.490 billion. Under President Obama's Plan for Science and Innovation, the Administration proposed doubling the federal investment in basic research over a period of 10 years relative to the FY2006 level. The Plan for Science and Innovation is structured to build on the scientific investments made through the ARRA. Under the plan, the largest increases would have occurred in FY2012. The House-passed bill would have provided $6.937 billion for NSF. The proposed funding would have represented a $446.1 million (6.9%) increase over FY2009 appropriations, but $108.5 million (-1.5%) less than the FY2010 request. The Senate-passed bill would have provided $6.917 billion for the NSF. The proposed funding was $426.4 million (6.6% ) more than the FY2009 appropriations, $128.2 million (-1.8%) less than the President's request, and $19.8 million (-0.3%) less than the House-passed bill. Included in the FY2010 request was $5.733 billion for Research and Related Activities (R&RA), a $550.0 million increase (10.6%) above the FY2009 estimate of $5.183 billion. R&RA included Integrative Activities (IA), a cross-disciplinary research and education program that also provides funding for the acquisition and development of research instrumentation at institutions. The FY2010 request would have provided $271.1 million for IA, an increase of $29.8 million (12.3%). The IA funding also supports Partnerships for Innovation, disaster research teams, the Science and Technology Policy Institute, and the Experimental Program to Stimulate Competitive Research (EPSCoR). NSF's FY2010 request for EPSCoR was $147.1 million. Approximately half of the funding for EPSCoR would have been used for a combination of new awards and research infrastructure improvement grants, and half would support grants made in previous years. The Office of Polar Programs (OPP), also funded under the R&RA account, is the primary U.S. source of support for basic research in polar regions. The FY2010 request for addressing the challenges in polar research was $516.0 million, a 9.6% increase over the FY2009 estimate. Priorities of the OPP in FY2010 include support for national energy goals, support for transformative research, and resupply improvements at the research stations. The House-passed bill would have provided $5.642 billion for R&RA; the Senate-passed bill would provide $5.618 billion. The FY2010 request for the Education and Human Resources (EHR) Directorate was $857.8 million, $12.5 million (1.5%) above the FY2009 estimate. The EHR portfolio is focused on, among other things, increasing the technological literacy of all citizens; preparing the next generation of science, engineering, and mathematics professionals; and closing the achievement gap of underrepresented groups in all scientific fields. EHR funding supports a portfolio of programs directed at strengthening and expanding the participation of underrepresented groups and diverse institutions in the scientific and engineering enterprise. Among the targeted programs in the FY2010 request were the Historically Black Colleges and Universities Undergraduate Program ($32.0 million), Louis Stokes Alliances for Minority Participation ($44.8 million), and Increasing the Participation and Advancement of Women in Academic Science and Engineering Careers ($1.5 million). The House-passed bill would have provided $862.9 million for EHR; the Senate-passed bill would have provided $857.8 million. The Major Research Equipment and Facilities Construction (MREFC) account would have received $117.3 million under the FY2010 request, a decrease of $34.7 million (-22.8%) from the FY2009 estimate. The MREFC supports the acquisition and construction of major research facilities and equipment that extend the boundaries of science, engineering, and technology. NSF describes itself as being the primary federal agency providing support for "forefront instrumentation and facilities for the academic research and education communities." To qualify for support, NSF requires MREFC projects to have "the potential to shift the paradigm in scientific understanding and/or infrastructure technology." The FY2010 request reflected NSF's tighter standards and requirements for receiving funding in this account. The FY2010 request included support for five ongoing projects: Advanced Laser Interferometer Gravitational Wave Observatory ($46.3 million), Atacama Large Millimeter Array ($42.8 million), IceCube Neutrino Observatory ($1.0 million), Advanced Technology Solar Telescope ($10.0 million), and the Ocean Observatories Initiative($14.3 million). The act provides a total of $6.927 billion for the NSF, 6.7% above the FY2009 estimate and approximately 1.7% below the President's FY2010 request. Included in the total for NSF is $5.618 billion for R&RA, $872.8 million for EHR, and $177.3 million for MREFC. Related Agencies As shown in Table 7 , the FY2009-enacted level included $872.4 million for related agencies. The Administration's request included a total of $950.9 million for related agencies, a proposed 9.0% increase in funding. The House-passed bill would have provided a total of $956.2 million in funding for the related agencies. This amount would have been 9.6% greater than what was appropriated for FY2009 and it would be 0.6% greater than the Administration's request. The Senate-passed bill would have provided a total of $916.0 million for related agencies. The Senate-passed amount would have been 5.0% greater than the FY2009 appropriations for these agencies, but it would have been 3.7% less than the Administration's requested funding and 4.2% less than the House-recommended amount. The act provides a total of $934.8 million for the related agencies. This amount is 7.4% more than the FY2009 appropriation and 2.1% more than what the Senate recommended, but the FY2010 enacted amount is 1.7% less than the Administration's request and 2.2% less than the House-passed amount. Commission on Civil Rights89 Established by the Civil Rights Act of 1957, the U.S. Commission on Civil Rights (the Commission) investigates allegations of citizens who may have been denied the right to vote based on color, race, religion, or national origin; studies and gathers information on legal developments constituting a denial of the equal protection of the laws; assesses the federal laws and policies in the area of civil rights; and submits reports on its findings to the President and Congress when the Commission or the President deems it appropriate. For FY2010, President Obama has requested $9.4 million for the Commission compared to FY2009 appropriations of $8.8 million, which would have represented a 6.8% increase in funding. The House-passed bill included $9.4 million for the Commission, the same as the Administration's request. The Senate recommended $9.4 million for the Commission, the same as the Administration's request and the House-recommended amount. The act provides $9.4 million for the Commission, the same as the Administration's request and the House- and Senate-passed amounts. Equal Employment Opportunity Commission (EEOC)90 The EEOC enforces laws banning employment discrimination based on race, color, national origin, sex, age, or disability. In recent years, appropriators have been particularly concerned about the agency's implementation of a restructuring plan, initiated in 2005, that included the creation of the National Contact Center (NCC), realignment of field structure and staff, and restructuring of headquarters operations. In response to congressional concerns about call intake practices, the EEOC transitioned to an in-house call center, known as the Intake Information Network, to replace the NCC. The Network handles all calls and starts processing queries immediately through an Electronic Assessment System. The President requested $367.3 million for the EEOC for FY2010, which is $23.4 million more than the FY2009-enacted level of $343.9 million. The House-passed bill included $367.3 million for the EEOC, the same as the President's FY2010 budget request. The Senate-passed bill would have provided the same amount as the Administration's request and the House-passed bill. The act includes $367.3 million for the EEOC, the same amount as the President's request, and what was recommended by both the House and Senate. Congress remains concerned about the backlog of private sector cases filed with the EEOC, which is projected to increase to 102,944 in FY2010—39% higher than the inventory at the end of FY2008 (73,951). Although the FY2010 budget request included funding for hiring 224 full time equivalents—such as investigators, mediators, attorneys, and support staff—the conference committee recommends that the EEOC develop a multiyear plan for further increasing staffing to reduce expected increases in workload. To monitor the adequacy of the commission's personnel resources, the conference committee directed the EEOC to submit quarterly reports on projected and actual staffing levels. The projected increase in the agency's workload partly reflects the transition from a contractor-operated center to an in-house call center, which allows the public to begin the charge process online. In addition, passage of the Lilly Ledbetter Fair Pay Act ( P.L. 111-2 ) in January 2009 could increase charge filings. The EEOC also anticipates that economic factors, such as higher unemployment rates, layoffs, and business closings, could affect the number of charges filed. To increase the efficiency of the hearing process for federal employee cases, the EEOC intends to implement a system that divides cases into fast, regular, or complex discovery tracks. The conference committee, in response, directs the EEOC to submit to Congress an implementation plan within 60 days of enactment that includes background on the need for the tracking system, the plan's implementation schedule, and an analysis of the potential impact on federal employees of getting "a fair hearing" under the tracking system. U.S. International Trade Commission (ITC)93 The ITC is an independent, quasi-judicial agency established by Congress that advises the President and Congress on U.S. foreign economic policies. The mission of ITC can be categorized into three separate functions: (1) administering U.S. trade remedy laws within its mandate in a fair and objective manner; (2) providing the President, the U.S. Trade Representative, and Congress with independent analysis, information, and support on matters of tariffs and international trade and competitiveness; and (3) maintaining the Harmonized Tariff Schedule of the United States. As a matter of policy, its budget request is submitted to Congress by the President without revision. The FY2010 enacted amount for ITC is $81.9 million, $0.8 million (1.0%) less than the Administration's request of $82.7 million and $6.8 million more (9.0%) than the FY2009-enacted appropriation of $75.1 million. The budget request stated that the requested increase for FY2010 was primarily due to the acquisition of additional space to meet workload demands, as well as required increases in salaries and benefits. The House-passed bill would have provided the same level of funding for the ITC as the Administration's request ($82.7 million). The Senate-passed bill would have provided the same amount for ITC as the Administration's request and the House-passed bill. Legal Services Corporation (LSC)95 The LSC is a private, non-profit, federally-funded corporation that provides grants to local offices that, in turn, provide legal assistance to low-income people in civil (non-criminal) cases. The LSC has been controversial since its incorporation in the early 1970s and has been operating without authorizing legislation since 1980. There have been ongoing debates over the adequacy of funding for the agency and the extent to which certain types of activities are appropriate for federally funded legal aid attorneys to undertake. In annual appropriations bills, Congress traditionally has included legislative provisions restricting the activities of LSC-funded grantees, such as prohibiting any lobbying activities or prohibiting representation in certain types of cases. Current LSC funding remains below the LSC's highest funding level of $400 million in FY1994 and FY1995. For the first time in many years, the Administration proposed to increase funding for the LSC. For FY2010, the Obama Administration requested $435.0 million for the LSC. This amount was $45.0 million (11.5%) above the FY2009 appropriation of $390.0 million for the LSC. The House-passed bill would have provided $440.0 million for the LSC, which would have represented a 12.8% increase over FY2009 funding and 1.1% increase over the Administration's request. The Senate recommended $400.0 million for LSC for FY2010. The proposed amount would have been 2.6% more than the FY2009 appropriation, but it was 8.0% less than the Administration's request and 9.1% less than the House-passed amount. The act provides $420.0 million for LSC, which is a 7.7% increase over LSC's FY2009 appropriation. However, the FY2010 appropriation for LSC is 3.4% less than the Administration's request and 4.5% less than the House recommended amount, but it 5.0% than what the Senate recommended for LSC for FY2010. Moreover, since its inception, the legal services program has been controversial. Congress through the LSC Act and various annual appropriation laws has imposed many restrictions on activities of LSC-funded legal services programs. The Obama Administration and certain congressional proposals would eliminate some of these restrictions. The Obama Administration's FY2010 budget proposed that LSC restrictions on class action suits and attorneys' fees be eliminated. A general provision in Title V of the act revises the administrative provision in order to permit LSC grantees to pursue the recovery of attorney's fees when recovery is permitted or required under federal or state law. Marine Mammal Commission (MMC)96 The Marine Mammal Commission is an independent agency of the executive branch, established under Title II of the Marine Mammal Protection Act (MMPA; P.L. 92-522). The Marine Mammal Commission (MMC) and its Committee of Scientific Advisors on Marine Mammals provide oversight and recommend actions on domestic and international topics to advance policies and provisions of the Marine Mammal Protection Act. As funding permits, the Marine Mammal Commission supports research to further the purposes of the MMPA. For FY2010, the Administration proposed $3.0 million for necessary expenses of the Marine Mammal Commission, a decrease of $200,000 (6.3%) from the FY2009 appropriation of $3.2 million for this independent agency. The House-passed bill included $3.3 million for the MMC, 3.1% more than FY2009 appropriations for the commission, and 10.0% greater than the FY2010 request. The Senate-passed bill would have provided approximately $3.3 million for the Marine Mammal Commission for FY2010. The recommended amount would have been 1.6% more than the FY2009 appropriation and 8.3% more than the Administration's request, but it was 1.5% less than the House-recommended amount. The act provides approximately $3.3 million for the MMC, which represents a 1.6% increase compared to the FY2009 appropriation, a 8.3% increased compared to the President's request, a 1.5% decrease compared to the House-passed amount, and it is the same as the Senate-passed amount. Office of the U.S. Trade Representative (USTR)97 The USTR, located in the Executive Office of the President, is responsible for developing and coordinating U.S. international trade and direct investment policies. The USTR is the President's chief negotiator for international trade agreements, including commodity and direct investment negotiations. USTR also conducts U.S. affairs related to the World Trade Organization. The FY2010 enacted amount for USTR is $47.8 million, $0.5 million (1.0%) less than the Administration's request of $48.3 million and $0.5 million (1.2%) more than the FY2009-enacted appropriation of $47.3 million. The House-passed bill would have provided $48.3 million for this account, the same as the Administration's request. The Senate-passed amount was the same as the Administration's request and the House-recommended amount. State Justice Institute (SJI) The SJI is a nonprofit corporation that makes grants to state courts and funds research, technical assistance, and informational projects aimed at improving the quality of judicial administration in state courts across the United States. It is governed by an 11-member board of directors appointed by the President and confirmed by the Senate. Under the terms of its enabling legislation, SJI is authorized to present its budget request directly to Congress, apart from the President's budget. The Administration proposed $5.1 million in funding for SJI for FY2010, 25.1% more than the $4.1 million Congress appropriated for SJI for FY2009. The House-passed bill included $5.1 million for SJI, the same level as the Administration's request. The Senate-passed bill would have provided $5.0 million for SJI, which was 22.0% more than the FY2009 appropriation but 2.6% less than the Administration's request and the House-recommended funding. The act includes $5.1 million for SJI, the same as the Administration's request and the House-passed amount and 2.6% more than the Senate-passed amount.

This report provides an overview of actions taken by Congress to provide FY2010 appropriations for Commerce, Justice, Science, and Related Agencies (CJS). This report uses the House report to accompany H.R. 2847 (H.Rept. 111-149) and the text of the Supplemental Appropriations Act, 2009 (P.L. 111-32), as the source for the FY2009-enacted and the FY2010-requested amounts, and it uses the Senate report to accompany H.R. 2847 (S.Rept. 111-34) as the source for the amounts in the House-passed bill. The Senate-passed version of H.R. 2847 is used as the source for the Senate-passed amounts. The joint explanatory statement to accompany the Consolidated Appropriations Act, 2010 (P.L. 111-117, H.Rept. 111-366), is the source for the FY2010 enacted amounts. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (P.L. 111-5; ARRA). The amounts appropriated by Congress in the ARRA were in addition to the amounts appropriated in the Omnibus Appropriations Act, 2009 (P.L. 111-8). In this act, Congress appropriated $15.922 billion for CJS departments and agencies. For Commerce, the ARRA provided $7.916 billion, for Justice, the ARRA provided $4.002 billion, and for science agencies, the ARRA provided $4.004 billion. The Administration requested a total budget authority of $67.551 billion for CJS departments for FY2010. This amounts to a $6.904 billion, or 11.1%, increase over the $60.79 billion enacted for FY2009. The Administration's proposal included $13.789 billion for Commerce, $27.074 billon for Justice, $25.737 billion for Science, and $950.9 million for related agencies. The House-passed bill recommended a total of $67.695 billion for CJS, 11.4% more than the total appropriated for FY2009 and 0.2% more than the Administration's FY2010 request. The Senate-passed version of H.R. 2847 would have provided a total of $67.953 billion for CJS. The proposed amount would have represented a 11.8% increase over what was appropriated for FY2009. The Senate-passed amount would have been a 0.6% increase over the Administration's request, and it would have been 0.4% more than what was included in the House-passed bill. On December 8, 2009, a conference committee met to resolve differences between the House- and Senate-passed versions of Transportation-Housing and Urban Development (HUD) appropriations bill (H.R. 3288). The version of H.R. 3288 reported by the conference committee—now entitled the Consolidated Appropriations Act, 2010—included six of the seven FY2010 appropriations bills that had not yet been signed into law. On December 16, 2009, President Obama signed the Consolidated Appropriations Act, 2010 (P.L. 111-117) into law. The act includes a total of $68.705 billion for CJS, an amount that is 13.0% more than the FY2009-enacted amount, 1.7% more than the Administration's request, 1.5% more than the House-passed amount, and 1.1% more than the Senate-passed amount. This report will not be updated.

Introduction The struggle against international terrorism places new and difficult demands on the U.S. IntelligenceCommunity. Acquiring information about the composition,location, capabilities, plans, and ambitions of terrorist groups is an enormous challenge for intelligence agencies;meeting this challenge requires different skillsthan were needed to keep informed about the capabilities and intentions of Communist governments. At the sametime, requirements continue for coverage ofgeopolitical developments around the world and other transnational issues such as narcotics smuggling. Observers point to several major challenges that the Intelligence Community will likely encounter in supporting the counter terrorist effort. First is a renewed emphasis on human agents . Signals intelligence and imagery satellites have their uses in the counterterrorism mission,but intelligence to counter terrorism depends more on human intelligence (humint) such as spies and informers. Any renewed emphasis on human intelligencenecessarily will involve a willingness to accept risks of complicated and dangerous missions, and likely ties todisreputable individuals who may be in positions toprovide valuable information. Time and patience will be needed to train analysts in difficult skills and languages. Second, terrorist activities pose significant analytical challenges . In addition toacquiring analysts with esoteric language skills,intelligence agencies must develop expertise in many third world areas that had been of peripheral concern in yearspast. Much of the data available will be inopen, unclassified sources that intelligence agencies have often neglected. Third is the closer relationship between intelligence and law enforcement agencies . In counterterrorism efforts, intelligence agencieswork alongside law enforcement agencies that have far different approaches to gathering evidence, developing leads,and maintaining retrievable databases. Policies and statutes are being modified to facilitate a closer relationship between the two sets of agencies, but closercooperation has raised difficult questionsabout using intelligence agencies in the U.S. and about collecting information regarding U.S. persons. Finally, military operations against terrorists will reenforce requirements for collecting and transmitting precise intelligence to militarycommanders or operators through secure communications systems in real time. The growing reliance ofmilitary operations on the availability of preciseintelligence is well understood, but the availability of collection platforms such as reconnaissance aircraft,unmanned aerial vehicles, and reconnaissance satelliteshas been limited throughout much of the past decade. Such platforms are especially important for counterterroristoperations. In large measure, meeting these challenges will be the responsibility of executive branch officials. The primary role for Congress will be to decide appropriatelevels of budgetary resources and to oversee Intelligence Community efforts to ensure that resources are wellmanaged and that the nation's intelligence needs aremet. Some observers believe that Congress has special responsibilities to provide a clear statutory framework toguide the unprecedented and uncertain evolutionof intelligence-law enforcement relationships. Such a framework is necessary, they suggest, to minimize chancesfor a failure of the campaign against terrorists or,alternatively, serious erosion of the protections of individual liberties that have evolved over many centuries. In the aftermath of September 11, 2001, Congress moved rapidly to provide intelligence agencies with expanded authorities and increased funding to supportcounterterrorism. In the year 2002, congressional intelligence committees investigated the background of theSeptember attacks and recommended legislation toreorganize the U.S. Intelligence Community. Vast intelligence assets were deployed in support of militaryoperations in Iraq, and there are continuingrequirements in Afghanistan. Programs likely will be established to support the long-term struggle against terrorismand necessary budgetary resources identified. Intelligence support to the Department of Homeland Security is a key concern and one that remains under review. In November 2001, one media account suggested that a major reorganization of the Intelligence Community might be under consideration by the executivebranch. (1) Members of the two intelligencecommittees released a number of recommendations in December 2002 to strengthen management of intelligenceactivities. (2) The legislative future of such proposalsis uncertain, however. Whatever the organizational relationships, intelligence for counterterrorism will beaffected by the need for good humint, analysis, close ties to law enforcement agencies, and for capabilities to supportmilitary operations with precise locatingdata. Background During the Cold War, terrorism was not a major intelligence priority and, in many cases, terrorist groups wereperceived as acting on behalf of, or at least withimportant support by, Communist parties. The focus was on the other superpower and not terrorism perse . Nevertheless, the Intelligence Community has longdevoted significant resources towards the terrorist threat. As early as 1986, a Counterterrorism Center (CTC),comprised of officials from various intelligence andlaw enforcement agencies, was established within the Operations Directorate of the Central Intelligence Agency(CIA) to pull together information oninternational terrorism from all sources and devise counterterrorism plans. After the fall of the Soviet Union andthe Warsaw Pact, terrorism was perceived witheven greater concern, especially as U.S. military forces and installations repeatedly were attacked by terrorist groupsas in the 1996 Khobar towers barracks inSaudi Arabia, the August 1998 bombing of U.S. embassies in Kenya and Tanzania, and the attack on the USS Colein October 2000. Public statements by senior intelligence officials affirm that the threat to the United States posed by international terrorism was understood well before September11, 2001. In February 2001, the Director of Central Intelligence (DCI) George Tenet, in prepared testimony beforethe Senate Intelligence Committee, stated: "thethreat from terrorism is real, it is immediate, and it is evolving. State sponsored terrorism appears to have declinedover the past five years, but transnationalgroups -- with decentralized leadership that makes them harder to identify and disrupt -- are emerging." Furthermore, "[Osama] bin Ladin and his globalnetwork of lieutenants and associates remain the most immediate and serious threat." (3) In this testimony, Tenet stated that Al Qaeda and other terrorist groupswill continue to plan to attack this country and its interest and have sought to acquire dangerous chemical agentsand toxins as well as nuclear devices. (4) The creation of CIA's Counterterrorism Center (CTC) was an early effort to bring together disparate data on terrorist activities. The CTC has not been considereda complete success; (5) collection on terrorist groupsdid not become an overriding priority and, although the Federal Bureau of Investigation (FBI) hadrepresentatives in the CTC, the relationship with the law enforcement community did not evolve as fully as had beenhoped. Media accounts indicate that theCTC doubled in size in the month following the attacks. (6) It is difficult to judge how successful the overall counterterrorism effort has been. The September 11, 2001 attacks were successful, but other terrorist plans havebeen thwarted although few details have been revealed. A multi-faceted attack on the Los Angeles airport and otherU.S.-related targets to coincide withmillennium celebrations in January 2000 was foiled as a result of a chance apprehension of an individual with a carloaded with explosives by an alert CustomsService official. (7) Attacks on U.S. embassies andfacilities in Paris, Singapore, and other parts of the world have reportedly been thwarted because of intelligenceleads. Inevitably there has been public discussion of the question of whether September 11 was an "intelligence failure." (8) A joint investigation by the House andSenate intelligence committees was undertaken in 2002 by a Joint Inquiry Staff. The final report will not be publiclyavailable until mid-2003, but a number offindings and recommendations were made public in December 2002 that described inadequacies in the organizationof the Intelligence Community. (9) In theFY2003 Intelligence Authorization Act ( P.L. 107-306 ) Congress also established an independent commission toreview the review the evidence developed bygovernment agencies surrounding the 9/11 attacks. The commission has 18 months to submit its report. Some observers have suggested comparisons to the investigations that were undertaken during and after World War II concerning the Japanese attack on PearlHarbor. (10) Those investigations were viewed bymany observers as politicized -- either seeking or deflecting mistakes by the Roosevelt Administration. By thetime of the conclusion of the congressional investigation in July 1946, almost a year after the end of the war, thepublic was concentrating on other issues and, as aresult, there was little political fall-out. (11) Theinvestigations did, however, indicate the need for better coordination among intelligence agencies and betweenintelligence agencies, policymakers, and military commanders. It is argued that "lessons" of Pearl Harbor, as viewed by senior congressional and executive branch officials, laid the groundwork for the establishment of anational intelligence effort by the National Security Act of 1947. Similarly, the investigation of the events leadingup to the September 11 attacks might lay thegroundwork for a new relationship between intelligence and law enforcement. In the immediate wake of 9/11, Congress passed the USA Patriot Act, a principal purpose of which was to remove perceived restrictions on closer lawenforcement-intelligence cooperation in order to support counterterrorist efforts. (12) Modifications to the Foreign Intelligence Surveillance Act (FISA) for thesame purpose were enacted shortly thereafter as part of the FY2002 Intelligence Authorization Act ( P.L. 107-108 ),and further changes are being considered in2003. The need to integrate intelligence and law enforcement information greatly influenced the deliberations that resulted in the establishment of the Department ofHomeland Security (DHS) in early 2003. This legislation envisioned an analytical directorate in DHS that wouldbe the center of an integrative effort based oninformation from intelligence and law enforcement sources. The executive branch, however, has created a separateTerrorist Threat Integration Center (TTIC),under the direction of the DCI, that began operations in May 2003. At the same time, a number of observers have expressed serious concerns about closer ties between intelligence and law enforcement agencies and, especially,about the use of intelligence gathering techniques against U.S. citizens and resident aliens. The passage of the USAPatriot Act and related legislation in the wakeof 9/11 has been criticized as a fundamental weakening of civil liberties protections. Further legislative initiativesto align law enforcement and intelligenceefforts more closely are likely to result in greater opposition. Aside from the investigation into the background of the September 11 attacks, intelligence agencies will be adapting their efforts to the requirements of thecampaign against terrorism. Renewed emphasis is being placed on human intelligence, on improved analysis, oncooperation with law enforcement agencies, andon ensuring that real-time intelligence about terrorist activities reaches those who can most effectively counter it. Humint Collection Many observers believe that intelligence required for the campaign against terrorism will require significantchanges in the human intelligence (humint) collectioneffort. The CIA's Operations Directorate is responsible for the bulk of humint collection although the DefenseHumint Service within DOD is a smaller entitymore directly focused on military-related issues. Overall budget requirements for humint are dwarfed by the majorinvestment required for satellites and signalsintelligence collection. Humint, however, undoubtedly can be dangerous for those involved and it is, of course, formany in the media and the general public thecore intelligence discipline. (13) Both the emphasis on humint and on the exchange of data between intelligence and law enforcement agencies will influence the evolution of the U.S. IntelligenceCommunity in the coming decade. These two efforts will not in themselves have major budgetary implications --humint is both difficult and dangerous, but notnecessarily expensive and information exchanges between agencies ordinarily involve only information technologycosts. However, placing priorities on thesetwo aspects of the intelligence effort will almost inevitably detract from other missions and disciplines. In the viewof many observers there may be a tendency togive less emphasis to traditional intelligence collection and analysis regarding foreign political, economic, andmilitary developments. Whereas to some extentintelligence analysts experienced in looking at foreign policy, economic, and defense issues can shift from onecountry to another, it may be more difficult for ananalyst to turn from issues of diplomacy, economics, and warfare to the study of obscure terrorist groups that maybe involved in religious indoctrination orvarious criminal fund-raising activities. Although humint is not in itself an expensive discipline, it requires large amounts of support and an awareness by senior officials of possible negativeconsequences. Potential complications, including imprisonment of U.S. agents in foreign countries and loss offriendly lives, have to be given carefulconsideration. Major diplomatic embarrassment to the United States can result from revelations of covert efforts,especially those that go awry; suchembarrassment can jeopardize relationships that have been developed over many years. Collecting humint to support the counterterrorism effort will require significant changes in the work of intelligence agencies. (14) Terrorists do not usuallyappearon the diplomatic cocktail circuit nor in gatherings of local businessmen. In many cases they are also involved invarious types of criminal activities on themargins of society. Terrorist groups may be composed almost wholly of members of one ethnic or religious group. They may routinely engage in criminalactivities or human rights abuses. Developing contacts with such groups is obviously a difficult challenge for U.S.intelligence agencies; it requires long-lead timepreparation and a willingness to do business with unsavory individuals. It cannot in many cases be undertaken byintelligence agents serving under official coveras diplomats or military attaches. It may require an in-depth knowledge of local dialects and customs. Furthermore,the list of groups around the world that mightat some point in the future be involved in terrorist activities is not short; making determinations of where to seekagents whose reporting will only be importantunder future eventualities is a difficult challenge with the risk of needlessly involving the U.S. with corrupt andruthless individuals. Critics of the current U.S. humint collection effort point to these and other institutional problems. One report quotes a former CIA official: The CIA probably doesn't have a single truly qualified Arabic-speaking officer of Middle Eastern background whocan play a believable Muslim fundamentalist who would volunteer to spend years of his life ... in the mountains ofAfghanistan.... (15) Some observers have claimed that CIA personnel in key positions do not know the major languages of the areas for which they are responsible. (16) A former CIAofficial stationed in Tajikistan in the early 1990s recalled that "As the civil war in Afghanistan started to boil, Irepeatedly asked for a speaker of Dari or Pashtun,the two predominant languages in Afghanistan, to debrief the flood of refugees coming across the border intoTajikistan. They were a gold mine of information. We could have even recruited some and sent them back across the border to report on Afghanistan. I was told therewere no Dari or Pashtun speakers anywhere. Iwas also told the CIA no longer collected on Afghanistan, so those languages weren't needed." (17) Although such broad claims are disputed andcannot beevaluated without access to classified information, it is not clear what steps the Intelligence Community has takento realign its humint operations. Developing ahumint collection strategy under these circumstances is a difficult challenge for the Intelligence Community,especially for the CIA's Operations Directorate, theFBI, and the smaller Defense Humint Service. Observers suggest the need for a series of policy decisions involvedin a reorientation of humint collection. A move towards greater reliance on non-official cover (NOC). Non-official cover means that agents are working as employees or owners ofa local business and thus are removed from the support and protections of American embassies that would beavailable if the agent had cover as a U.S.government official of a non-intelligence agency. If the agent must be seen as engaged in business, considerabletime must be devoted to the "cover" occupation. Providing travel, pay, health care, administrative services, etc. is much more difficult. The agent will not havediplomatic immunity and cannot be readilyreturned to the U.S. if apprehended in the host country. He or she may be subject to arrest, imprisonment, or,potentially, execution. There is a potential foragents working in businesses to become entangled in unethical or illegal activities -- to "go into business forthemselves" -- that could embarrass the U.S. anddetract from their official mission. (18) Requirements for U.S. intelligence agents with highly developed skills in foreign languages are difficult to meet. Few graduates of U.S.colleges have such skills and language education is expensive. Recruiting U.S. citizens who have ethnicbackgrounds similar to members of the societies in whichthe terrorist groups operate may subject individuals to difficult pressures especially if the agent has family in thetargeted area. The House Intelligence Committeereported in September 2001 that the Intelligence Community's "most pressing need is for greater numbers of foreignlanguage-capable intelligence personnel, withincreased fluency in specific and multiple languages. The Committee has heard repeatedly from both military andcivilian intelligence producers and consumersthat this is the single greatest limitation in intelligence agency personnel expertise and that it is a deficiencythroughout the IntelligenceCommunity." (19) It is administratively difficult to develop resources throughout the world over a long period of time andcosts are higher than addingintelligence staff to embassies. Few observers could have predicted the intense U.S. concern with Somalia, Kosovo,or Afghanistan that eventually developed. Ten years from now there may be a whole set of challenges from groups that no one today is even awareof. In short, reorienting humint collection to give significantly greater attention to terrorist or potentially terrorist groups would have important administrativeimplications for the Intelligence Community. While budgetary increases would not necessarily be dramatic giventhe size of the existing intelligence budget (evenpaying hundreds of human agents would be far less costly than deploying a satellite), the infrastructure needed totrain and support numerous agents serving undernon-official cover would grow significantly. Extensive redundancy would be required to cover terrorist groups thatmay never pose significant threats to U.S.interests. With such considerations in mind, the Senate Intelligence Committee, in its report accompanying the FY2004 Intelligence Authorization bill ( S. 1025 ), noted interest among some Members in more vigorous humint collection, "especially unilateral -- collection-- under non-official cover and fromnon-traditional HUMINT 'platforms.' " The Committee further noted that some observers have even suggested "theneed for the creation of a small, highlyspecialized semi- or fully-independent HUMINT entity charged with collecting against non-traditional targets androgue states that traditionally have provenhighly resistant to HUMINT penetration involving traditional official-cover operations." The Committee did notendorse this concept but urged "diligent effortand new approaches to HUMINT management within existing agency components." (20) A central issue for Congress is the extent to which it and the public are prepared to accept the inherent risks involved in maintaining many agents with connectionsto terrorist groups. Statutory law (21) requires thatcongressional intelligence committees be kept aware of all intelligence activities; unlike the situation in the earlyCold War years when some intelligence efforts were designed to be "deniable," it will be difficult for the U.S.Government to avoid responsibility for majormistakes or ill-conceived efforts of intelligence agencies. Although there is a very widespread consensus that AlQaeda poses a threat to all Americans and tofundamental American interests, it cannot be assumed that the U.S. public, or Members of Congress, will view othergroups in the same light. Intelligenceprofessionals recall that earlier associations with anti-communist elements in Central America came under sustainedpublic criticism (because some of theanti-communists were guilty of human rights violations and because they were, or appeared to be, propping upreactionary and oppressive regimes). Thesecriticisms came to be shared by many Members of Congress and, as a result, intelligence agencies perceived thatthey were operating under excessive scrutiny anda cloud of suspicion for many years. (22) The directattacks on the U.S. homeland on September 11, 2001 may well have produced a willingness on the part of theAmerican public to accept greater risks, but intelligence professionals will undoubtedly be concerned to ensure thatthe work of their agencies not be jeopardizedby shifts in public opinion. Analysis Terrorist activities present intelligence analysts with major challenges. First, there must be an awareness of thesocial, ideological, and political environment inwhich terrorist movements develop. Such awareness usually requires detailed knowledge of geographic, ethnic,religious, economic, and political situations inobscure regions. There is no ready supply of analysts with command of such skills except perhaps among recentemigrants who may have complex ties to theirhomelands. Moreover, areas of concern are likely to shift over time. As one longtime observer has noted, suchanalysts could "serve their whole careers withoutproducing anything that the U.S. government really needs, and no good analyst wants to be buried in an inactiveaccount with peripheral significance." (23) Much of the information required to analyze terrorist environments derives from extensive study of open source documents -- newspapers, pamphlets, journals,books, religious tracts, etc. Some observers believe that the Intelligence Community overly emphasizessophisticated technical collection systems and lacks acomprehensive strategy for collecting and exploiting such open source information (osint). (24) Although efforts are underway by intelligenceagencies to expandthe use of osint, many observers believe that intelligence agencies should continue to concentrate on the collectionand analysis of secret information. In thisview, the Intelligence Community should not attempt to become a government center for research that can moreeffectively be undertaken by think tanks andacademic institutions. Once a terrorist group hostile to American interests has been identified, the Intelligence Community will be called upon to focus closely upon its membership,plans, and activities. Many collection resources will be targeted at it and much of the information will be classifiedand highly sensitive. The most challengingproblem for analysts at this point is to attempt to discern where the terrorists will strike and through what means. Open societies are inevitably vulnerable toterrorists, especially those persons willing to commit suicide in the process of seeking their goals. The skillsnecessary to anticipate the unpredictable areextremely rare; some suggest a useful approach may be to assemble a "war room" comprised of a number of analyststo sift through all available data. Such aneffort was created to follow Al Qaeda but did not foresee September 11. The bottom line is that anticipating suchattacks is intellectually difficult; hiring morepeople and spending more money do not guarantee success. (25) Others suggest greater reliance on outside consultants or an intelligence reserve corps when terrorist threats become imminent. Such an approach might also allowagencies to acquire temporarily the services of persons with obscure language skills. While there are securityproblems involved in bringing outside experts into ahighly classified environment, this may be one approach that can provide needed personnel without unnecessarilyexpanding the number of government analysts. In regard to analysis, major issues for Congress include holding intelligence agencies responsible for the quality of their work, the effective and efficient use ofopen source information, and the appropriate use of outside consultants. Analytical judgment is not easily mandatedor acquired; leadership is key, along withaccountability and a willingness to accept that even the best analysts cannot foresee all eventualities. Intelligence-Law Enforcement Cooperation In the past, the Intelligence Community focused on threats from the military forces of hostile countries and inlarge measure left terrorism to law enforcementagencies, especially the Federal Bureau of Investigation (FBI). Since the end of the Cold War in the early 1990'ssteps have been taken both by the executivebranch and Congress to encourage closer coordination between the two communities. This effort was significantlyexpanded by P.L. 107-56 , the USA Patriot Act,enacted in the wake of the 2001 attacks. A recurring concern reflected in reports about the activities of those involved in the September 11 attacks has been the perception that information about possibleterrorist involvement of individuals may not be available to immigration and law enforcement officials whoencounter the individuals. There has not been acentralized database containing intelligence information by which individual names could be checked. Althoughthere are many potential concerns about theestablishment of centralized databases, most observers see the need to ensure that law enforcement agencies,including those of states and localities, have betteraccess to information acquired by intelligence agencies about potential terrorist activities. (26) Among some observers a major concern has been the Foreign Intelligence Surveillance Act. FISA was enacted in 1978 to establish a system for authorizingsurveillance to collect information related to national security concerns. The process for obtaining a warrant underFISA differs from that for obtaining a warrantfor criminal activities; there are different procedures and special FISA courts. The fundamental purpose is toprovide judicial branch overview of a process thatcould be abused by zealous investigators. Enactment of FISA resulted from congressional concern about instancesof politically-motivated surveillance effortsdirected at U.S. citizens and residents. Over the years there have been a number of modifications to FISA to extendits procedures to cover physical searches aswell as to cover new communications technologies. (27) FISA procedures, however, have been blamed by some for restraining efforts to track foreign terrorists. (28) They cite, for instance, the inability of the FBIinAugust 2001 to obtain a FISA warrant for one individual, Zacarias Moussaoui, who was reportedly connected toan Algerian terrorist group. (29) After September11, a warrant was obtained and Moussaoui's computer was found to contain information that suggested someinvolvement with terrorist activities. In the aftermathof the September 11 attacks, Congress passed modifications to FISA in the USA Patriot Act ( P.L. 107-56 ) and inthe FY2002 Intelligence Authorization Act ( P.L.107-108 ). Further changes have been proposed in the 108th Congress. (30) These initiatives reflect a determination to adapt FISA to the currentinternationalenvironment in which international terrorists may operate within and outside U.S. borders. The new Department of Homeland Security that began operations in early 2003 has the statutory responsibility of using both intelligence and law enforcementinformation to provide assessments of terrorist activities and threats. The Homeland Security Act ( P.L. 107-206 )established within DHS an intelligence analysisdirectorate designed to integrate intelligence and law enforcement information relating to potential or actual terroristthreat to the United States. Subsequently, theAdministration announced the establishment of a separate Terrorist Threat Integration Center under the directionof the DCI, which is to perform essentially thosefunctions. There are ongoing discussions regarding the respective roles of DHS and TTIC. (31) Placing emphasis on law enforcement by the Intelligence Community will have major implications for U.S. foreign policy. Over the years the U.S. governmenthas maintained good relations, based on shared appreciation of common interests, with many governments whoselegal systems are far different from our own. Insome cases the U.S. has chosen to accept the fact that a foreign government may shield narcotics smugglers ormembers of groups the U.S. considers terrorist andto try to build a relationship of mutual interests with the country in the hope that its involvement with terrorists willeventually abate. Such a policy inevitablyruns counter to the ethos of law enforcement agencies seeking to apprehend suspected criminals and put them ontrial. Reportedly senior FBI officials during theClinton Administration sought better cooperation from Saudi Arabia in prosecuting terrorists responsible for theKhobar Towers attack and resented a lack ofsupport from State Department officials who believed that pressing the Saudis would complicate efforts to workwith Riydah on other important issues. (32) The relationship of intelligence collection to law enforcement in dealing with terrorism poses complex issues for policymakers. Terrorism can, of course, beattacked militarily without concern for domestic law enforcement, but most observers believe that such an approachis appropriate and practical only whenterrorists directly threaten the U.S. homeland. In other cases, law enforcement may be the approach that caneffectively deal with the problem while notundermining support for larger policy interests or leading to significant U.S. casualties. Information used in judicial proceedings is often of a different type than that usually collected by intelligence agencies. (33) It is collected differently, storeddifferently, and must usually be shared to some extent with opposing attorneys. Nevertheless, over the past decadea series of initiatives have been undertaken toenhance the usefulness of information collected by intelligence agencies to law enforcement agencies and viceversa. (34) The barriers to flow of informationbetween the two communities were both administrative and statutory. Both types have been addressed by executivebranch policies (35) and by the passage of theUSA-Patriot Act of 2001 ( P.L. 107-56 ) which specifically lays the groundwork for making information collectedby law enforcement agencies, including grandjury testimony, available to intelligence agencies. Bringing law enforcement and intelligence closer together is not without challenges. First, the two sets of agencies have long-established roles and missions thatare separate and based on constitutional and statutory principles. The danger of using intelligence methods as aroutine law-enforcement tool is matched by thedanger of regularly using law enforcement agencies as instruments of foreign policy. Bureaucratic overlap andconflicting roles and missions are not unknown inmany governmental organizations, but such duplication is viewed with great concern when it affects agencies withpower to arrest and charge individuals or toaffect the security of the country. Congress may explore the ramifications of bringing the two communities closertogether. Most observers believe that, even if statutes and policies encourage closer cooperation between intelligence and law enforcement agencies, there will manybureaucratic obstacles to be overcome. Within the Intelligence Community there has been a tendency to retaininformation within agencies or to establish specialcompartments to restrict dissemination for security reasons. Similar tendencies exist among law enforcementagencies that guard information necessary for theirparticular prosecutions. Some observers suggest that channels for transferring information must be clearlyestablished and that close encouragement and oversightby both the executive branch and congressional committees would be required to ensure a smooth functioning oftransfer arrangements. A key issue is the overall direction of the effort. As has been noted, the only person with responsibility for the direction of both intelligence and law enforcementefforts is the President. The Bush Administration, like its recent predecessors, has instituted arrangements by whichthe Justice Department is included in thedeliberations of the National Security Council (NSC). (36) There are few complaints that such arrangements do not work effectively at present, but there weresituations during the Clinton Administration when it was believed that FBI Director Louis Freeh did not shareimportant information with the NSC and the WhiteHouse. (37) Law enforcement may require that someinformation be closely held and not shared outside the Justice Department, but if law enforcement andintelligence efforts are to work more closely in dealing with international terrorist threats, procedures will have tobe in place to ensure that important informationis shared. Such arrangements would arguably require close monitoring by the President himself, but that couldprove a burden upon his time. A significant issue for Congress is how to budget and conduct oversight of intelligence and law enforcement efforts engaged in counterterrorist efforts. The factthat intelligence and law enforcement agencies are in separate functional categories for budgeting purposes hascontributed, in the view of some observers, todifferent resource environments and indirectly to the acquisition of incompatible information technologies. Ingeneral, they argue that for many years the budgetsof law enforcement agencies have faced significantly tighter constraints than have those of intelligence agencies. In particular, sophisticated informationtechnology (IT) systems have been acquired by intelligence agencies that, while expensive, have absorbed only asmall percentage of annual national defensespending. Acquisition of the similar levels of IT capabilities by the FBI and other law enforcement agencies wasnot feasible since much higher percentages ofadministration of justice spending would have been needed. Hence a seamless system encompassing all echelonsof intelligence and law enforcement agencies forstoring and exchanging information in real time on potential terrorist threats has yet to be developed. Observers believe that any effort to enhance intelligence and law enforcement IT resources across agencies boundaries will require a determination by both theexecutive and legislative branches since the budgeting process is a shared responsibility. The Office of Managementand Budget (OMB) forwards to Congresseach year a proposed budget broken down into functional categories with most intelligence agencies falling into theNational Defense (050) category and the FBIand other law enforcement agencies being in the Administration of Justice (750) category. When Congress passesthe annual budget resolution, funding levels forthe various functional categories are allocated to separate Appropriations sub-committees (in a process known asthe 302(b) allocations). This process can createprocedural hurdles to the shifting of funds from one functional category to another. Therefore, both branches mayreview the need to make a coordinatedinter-agency examination of law enforcement and intelligence spending on counterterrorism. (38) Intelligence agencies are overseen by the two select intelligence committees, the appropriations committees, the armed services committees, and others thatmonitor intelligence efforts of various Cabinet departments. Most observers believe that the IntelligenceCommunity receives reasonably thorough oversight evenif comparatively little is shared with the public. Intelligence committees are widely perceived as taking a bipartisanapproach to oversight. Despite awidely-perceived need for greater centralized coordination of the Community, the fact that most of the nation'sintelligence effort is undertaken in the DefenseDepartment complicates oversight. Law enforcement agencies receive oversight from the two judiciary committeesand the appropriators, but observers point outthat the primary oversight of law enforcement agencies is provided by the courts in which success or failure isultimately judged. Judiciary committees have oftenreflected strong differences over legal issues and nominations. As a result, the nature and extent of congressionaloversight for intelligence and law enforcementagencies are different. Nevertheless, some observers believe that, given the scope of law enforcement involvement in the counterterrorism effort, there may be a need for greatercongressional scrutiny of the overall intelligence-law enforcement relationship. The emphasis on homeland defenseissues may lead some to call for differentforms of congressional oversight. Intelligence Support to Counterterrorist Military Operations The campaign against Afghan-based terrorists and the Iraq war of 2003 (which was characterized as related tothe war on terrorism) graphically demonstrated theimportance of changes in intelligence support to military operations since the end of the Cold War. Beginning withDesert Storm in 1991, U.S. military operationshave increasingly depended on precision guided munitions (PGMs) to hit targets while minimizing losses of civilianlives. Precision attacks in turn depend uponaccurate and precise intelligence. Some of this data is acquired by humint -- especially important in identifyingstructures in which key terrorist leaders may belocated. Much also derives from imagery collected overhead by unmanned aerial vehicles (UAVs), manned aircraft,and satellites. Other information derivesfrom the signals intelligence (sigint) effort. These new operational concepts, part of the larger effort to transformthe nation's defense strategy and force structure,have proven useful in operations conducted against terrorist organizations where the focus is on attacking smallgroups or facilities and avoiding wide-scale strikeson population centers. The growing dependence of U.S. military forces on precise and real-time intelligence support requires a significant investment by the Intelligence Community aswell as new organizational arrangements. Although satellite imagery is undoubtedly useful, especially in locatingfixed installations, much of the tacticalintelligence used in military campaigns against terrorist units is provided by manned aircraft such as the U-2s andUAVs such as the Predator and the long-range,high altitude Global Hawk. The linkage of such platforms to platforms armed with PGMs contributed significantlyto Allied success in the Persian Gulf War of1991 and to Operation Allied Force in Kosovo in 1999. (39) The Iraq War of 2003 and the Afghan campaign of 2001-2002 have once again graphicallydemonstrated their value in operations against terrorist targets. Although the value of such intelligence collection platforms is almost universally recognized, the numbers available to DOD are limited. (40) As recently asmid-2000 DOD was considering decommissioning U-2s in order to make additional funding available for futureGlobal Hawk procurement. (41) Secretary ofDefense Donald Rumsfeld noted in his National Defense University speech on January 31, 2002, "the experiencein Afghanistan showed the effectiveness ofunmanned aircraft -- but it also revealed how few of them we have and what their weaknesses are." He stated thatthe Defense Department plans to add "more ofwhat in the Pentagon are called 'Low Density/High Demand' assets -- a euphemism, in plain English, for 'ourpriorities were wrong and we didn't buy enough ofthe things we now find we need.'" FY2004 defense authorization legislation is expected to include significantlyincreased amounts for UAVs and other platforms. A recurring problem in tying together the sensors with the attack platforms has been the communications links. Major compatibility problems in Desert Stormmeant that some computer printouts had to be sent by air to various commands in the area. Many of the problemswere corrected by the time of Kosovooperations and information flowed freely in the theater and back and forth to U.S. agencies in real-time. Mediareports have not reflected such communicationsproblems in either Afghan operations or the Iraq War. The integration of intelligence analysis directly into military operations requires adjustments to organizational relationships among intelligence agencies. Imageryand sigint usually undergo some degree of analysis before the product can be used. Target identification can requireinput from a variety of intelligence disciplinesand in some cases must be approved by Washington-level agencies. Enabling agencies in Washington andelsewhere to support low-level combat units (on a24-hour basis) involves a high degree of responsiveness and flexibility. Such support may, in addition, come at thecost of other responsibilities. Some observersexpress concern that support to military operations, including counterterrorist operations, may detract fromtraditional, but still important missions of providingcontinuing strategic and geopolitical analyses for national policymaking. Congress has acknowledged the need for better displays of data, tied to geographical reference points, on computer links that would be available to all militaryechelons and civilian policymakers. The displays would incorporate information from all intelligence disciplines,including humint and open source materials andwould be made available in real-time. The issue for Congress is the extent to which the National Imagery andMapping Agency (NIMA), a relatively youngagency, should have the primary responsibility for maintaining a global system intended to be used throughout theDefense Department and IntelligenceCommunity. The U.S. military services are in a period of transformation that will pose many issues for Congress. (42) Requirements for capabilities to ensureinformationdominance and for large numbers of precision weapons will be reviewed alongside programs to replace agingplatforms. Ensuring that data collected from amyriad of sensors is available within essential time constraints will require coordination of programs some of whichare managed by DOD and others by CIA. The programs are overseen by intelligence and armed services committees. The coordinative process has beenimperfect in the past and observers believe that itwill continue to be difficult to ensure that weapons platforms and intelligence systems work together effectively. Ties between intelligence and armed servicescommittees are historically close, but observers may suggest new oversight structures. Conclusion Effective counterterrorism -- political, diplomatic, and military -- requires good intelligence, butcounterterrorism intelligence differs in many ways from theintelligence support that was needed during the Cold War and for which the Intelligence Community remains inlarge measure organized. Significant challengeslie in the area of humint collection where practices that might produce much valuable information could beexpensive and involve the United States in activitiesthat, if revealed, could be highly controversial at home and abroad. Intelligence and law enforcement are becoming increasingly intertwined. Few doubt that valuable insights can derive from close correlation of information fromdiffering intelligence and law enforcement sources. Should the two communities draw too close together, however,there are well-founded concerns that either theU.S. law enforcement effort would become increasingly inclined to incorporate intelligence sources and methodsto the detriment of long-standing legal principlesand constitutional rights or, alternately, that intelligence gathering in this country or abroad would increasingly behamstrung by regulations and proceduralrequirements to the detriment of the national security. Difficult decisions will have to be made (some affectingorganizational responsibilities), and fine lines willhave to drawn. Observers believe that the campaign to counter terrorism will tend to reinforce the perceived need to transform the U.S. defense structure to take full advantage ofinformation technologies and precision munitions. Counterterrorist missions may not dictate the procurement ofplatforms, but they are likely to have animportant influence on the intelligence collection, communications, and information links. At the same time, observers caution that the current war on terrorism which has accentuated the need for law enforcement and intelligence cooperation may not,despite Administration projections, be a decades-long endeavor. They argue that even as Al Qaeda and otherterrorist organizations are being dealt with,traditional geopolitical concerns remain. Given the nature of organizational dynamics, they suggest, it may bedifficult to maintain adequate expertise oninternational military and geopolitical issues that will remain of vital concern in the future. Terrorist threats havebecome a central concern for the U.S.Intelligence Community, but the rest of the world has not disappeared from policymakers' horizons. As Secretaryof Defense Rumsfeld stated in his NationalDefense University speech, "we cannot and must not make the mistake, of assuming that terrorism is the only threat.The next threat we face may indeed beagainst terrorists -- but it could also be a cyber-war, a traditional, state-on-state war... or something entirelydifferent."

For well over a decade international terrorism has been a major concern of the U.S. Intelligence Community. Collection assets of all kinds have long been focusedon Al Qaeda and other terrorist groups. Intensive analytical expertise has been devoted to determining such groups'memberships, locations, and plans. Intelligence agencies had been acutely aware of the danger for years. In February 2001, Director of CentralIntelligence (DCI) George Tenet publicly testified toCongress that "the threat from terrorism is real, it is immediate, and it is evolving." Furthermore, "[Osama] binLadin and his global network of lieutenants andassociates remain the most immediate and serious threat." Nevertheless, the Intelligence Community gave no specific warning of the September 11, 2001 attacks. Although all observers grant that terrorist groups are verydifficult targets and that undetected movements of small numbers of their members in an open society cannotrealistically be prevented, serious questions remain. An extensive investigation by the two intelligence committees of the September 11 attacks was undertaken in 2002. Although the final report is not yet public, thecommittee members found that the Intelligence Community, prior to 9/11, was neither well organized nor equippedto meet the challenge posed by globalterrorists focused on targets within the U.S. A separate independent commission was established in early 2003 totake another look at the events precedingSeptember 11. Counterterrorism is highly dependent upon human intelligence (humint), the use of agents to acquire information (and, in certain circumstances, to carry outcovert actions). Humint is one of the least expensive intelligence disciplines, but it can be the most difficult andis undoubtedly the most dangerous forpractitioners. Mistakes can be fatal, embarrass the whole country, and undermine important policy goals. Congressmakes decisions regarding the extent towhich the importance of humint outweighs the inherent risks. Countering terrorism requires close cooperation between law enforcement and intelligence agencies; some terrorists will need to be brought to justice in courts,but others are dealt with by military forces or covert actions. In recent years, important steps have been taken toencourage closer cooperation between the twocommunities, but some believe terrorist acts may have been facilitated by continuing poor information exchangesbetween intelligence and law enforcementagencies and by blurred lines of organizational responsibility. Congress will oversee the implementation of theevolving relationship that affects importantprinciples of law and administration, and may choose to modify the roles and missions of intelligence and lawenforcement agencies. Military operations to counter terrorism are dependent on the availability of precise, real-time intelligence to support bombing campaigns using precision guidedmunitions. The linkage between sensor and "shooters" will be crucial as will access to global geospatial databases. As defense transformation progresses,Congress will also oversee the development of increased intelligence support to military operations including,especially, counterterrorist missions.

Introduction The Endangered Species Act (ESA) provides for the listing and protection of species that are endangered or threatened with extinction. Listing a species results in limitations on activities that could affect that species and in penalties for the taking (as defined in the ESA) of individuals of a listed species. Federal agencies are also required to use their existing authorities to further the purposes of the act. Under certain circumstances, federal agency actions may be exempted from the act. The exemption process and its history are the subject of this report. Federal agencies are required to consult with either the Fish and Wildlife Service (FWS) or the National Marine Fisheries Service (NMFS) (together, the Services ) to determine whether an agency project might jeopardize the continued existence of listed species or destroy or adversely modify a species' critical habitat. This process is known as consultation . The consultation concludes with the appropriate Service issuing a biological opinion (BiOp) as to the harm the project poses. If a project could jeopardize a species, a jeopardy opinion is released along with any reasonable and prudent alternatives (RPAs) to the agency action that would avoid jeopardy. To excuse any incidental taking of listed species, the Services issue an incidental take statement that includes reasonable and prudent measures (RPMs) to minimize the effects of the project. When a federal action cannot be conducted without jeopardizing species, and the federal agency believes that the RPAs would thwart the project, the federal agency, the governor of the state where the project would occur, or the licensees or permittees involved in the project may seek an exemption. Very rarely, the Service(s) may find that jeopardy would occur and that there is no RPA that would avoid jeopardy. The exemption process is also available for this circumstance. The exemption process offers the opportunity to consider extraordinary economic circumstances in the list of factors used in evaluating federal actions, and provides an opportunity for economic factors to override jeopardy to the species. However, an exemption is for a federal project, license, or action, rather than for a species—a key distinction. In more than four decades since the ESA was enacted, there have been only six instances in which an exemption was sought, and only two in which it was granted. Appendix A , Appendix B , Appendix C , and Appendix D provide discussions and histories of the six attempts to secure exemptions under the ESA. If there are future applications for exemptions, the historical prologue as seen through these past applications may prove useful, because this process is used so rarely. In addition, in the controversy over California water projects, there were proposals in the mid - and late-2000s to seek an exemption from the ESA. Appendix E provides a discussion and history of the California water conflict. Tellico Dam and the Creation of the Exemption Process The controversy over Tellico Dam in Tennessee in the 1970s set the stage for Congress's creation of the exemption process. As originally enacted in 1973, the ESA prohibited all activities detrimental to listed species with very few exceptions. In the 1970s, when the prospective impoundment of water behind the nearly completed Tellico Dam in Tennessee threatened to eradicate the only known population of the snail darter (a small fish related to perch), the Supreme Court concluded that the "plain language" of the ESA mandated that the gates of the dam not be closed. In Tennessee Valley Authority (TVA) v. Hill , the Court stated: One would be hard pressed to find a statutory provision whose terms were any plainer than those in § 7 of the [ESA]. Its very words affirmatively command all federal agencies "to insure that actions authorized , funded , or carried out by them do not jeopardize the continued existence" of an endangered species or "result in the destruction or modification of habitat of such species.... " This language admits of no exception.... Concededly, this view of the Act will produce results requiring the sacrifice of the anticipated benefits of the project and of many millions of dollars in public funds. But examination of the language, history, and structure of the legislation under review here indicates beyond doubt that Congress intended endangered species to be afforded the highest of priorities. After this Supreme Court decision, Congress amended Section 7 of the ESA to include a process by which economic impacts could be weighed and government projects exempted from the restrictions that otherwise would apply. The process they created is shown in Figure 1 . The Tellico Dam controversy also illustrated a common theme in ESA controversies: the protection of threatened and endangered species is rarely the chief issue. A species' need for a particular dwindling habitat and its resources often parallels human desires for the same dwindling resources. The parties to the debate have often struggled for years over the basic allocation of those resources, from Tellico River, to the Edwards Aquifer in Texas, to prairie grasslands, to water allocation in San Francisco Bay. The debate over ESA and species protection typically signals an intensification of an underlying and usually much larger struggle. In broad outline, Congress created a committee of top government officials who could pass judgment on federal projects by balancing the national interest in protecting listed species against the national interest in proceeding with an important federal project. Congress limited the parties who could apply for exemptions, and required that successful parties would be required to pay the costs of mitigating the project's effects. Because projects are exempted, rather than species, the ESA still requires that species affected by the exempted project must be conserved in their remaining habitat. While there have been a few amendments to this process in later years, the basic structure formed after Tellico Dam remains the same, and is described below. Membership of the Committee The Endangered Species Committee (ESC) reviews applications for exemptions, and is responsible for the ultimate decision. It may conduct additional fact-finding. The ESC is composed of the following members: the Secretary of the Interior (who serves as the chair), the Secretary of Agriculture, the Secretary of the Army, the Chairman of the Council of Economic Advisors, the Administrator of the Environmental Protection Agency, the Administrator of the National Oceanic and Atmospheric Administration, and one individual from each affected state. (If multiple states are involved, each state has an appropriate fraction of a vote. ) Applicant Qualifications Application for an exemption is limited to three eligible entities: the federal agency proposing the action, the governor of the state in which the action is proposed, or the permit or license applicant (if any) related to that agency action. The term permit or license applicant is defined in the ESA as a person whose application to a federal agency for a permit or license has been denied primarily because of the application of the prohibitions in Section 7(a), which requires that federal agency actions avoid jeopardy or destruction or adverse modification of critical habitat. These restrictions of the exemption process clarify that the exemption process is used after a Section 7 consultation has been completed, and that the exemption process is not open to just any interested party. (See Figure 1 , Steps 3 and 7.) Contents of Application An exemption application must describe the consultation process already carried out between the federal agency and the Secretary (of Commerce or the Interior, as appropriate) and must include a statement explaining why the action cannot be altered or modified to conform to the requirements of the statute. (See Figure 1 , Step 9.) All applications must be submitted to the Secretary not later than 90 days after completing the consultation (i.e., issuance of a BiOp finding jeopardy to the species or destruction or adverse modification of its designated critical habitat) if the exemption applicant is the federal agency or state, or within 90 days of denial of the permit or license if the exemption applicant is a permit or license applicant. An application must set out the reasons the applicant considers an exemption warranted, include relevant documents such as a biological assessment (BA) and BiOp, and describe any alternatives to the project. Additional application requirements are contained in the relevant regulations. The Secretary may deny the application within 10 days if these initial requirements have not been completed. If the application is complete, the Secretary will publish a notice of receipt of the application in the Federal Register and notify the governor of each affected state (as determined by the Secretary), so that state members can be appointed to the ESC. The Secretary also must notify the State Department, so that its review for potential conflicts with international treaties or agreements can begin. The Secretary determines whether the federal agency and/or the exemption applicant have met three criteria: consulted in good faith and reasonably and responsibly considered modifications or any RPAs; conducted any biological assessment required; and refrained from irreversibly or irretrievably committing resources that would foreclose on the implementation of any reasonable and prudent measures to avoid jeopardy to the species or adverse modification of its critical habitat. The Secretary has 20 days from receipt of the completed application to make a finding that the exemption applicant has met the criteria. A denial for failing to meet the criteria in this stage of the application is deemed a final agency action, meaning that it has reached a stage eligible to be challenged in federal court. The last criterion, whether there has been an irreversible or irretrievable commitment of resources, harkens back to the consultation process. The statute prohibits those initiating consultation from making such a commitment of resources if it would have "the effect of foreclosing the formulation or implementation of any reasonable and prudent alternative measures." This serves to prevent waste of federal resources (such as time and money) on a project that may turn out to violate a federal statute. It also allows a project to be halted before any harm to listed species or their habitats occurs. Because the agency presumably is not carrying out the proposed project while the consultation occurs, it appears that the reference to commitments of resources in the exemption process refers to activities after consultation has concluded. Otherwise, after a jeopardy opinion, an agency that continued to work on a project might seek an exemption, but leave the ESC faced with a fait accompli—the loss of the species in violation of the act. Secretarial Review and Report Within 140 days of determining that the exemption applicant has met the requirements described above, the Secretary, in consultation with the other members of the ESC, must convene a formal hearing on the application and prepare a report. (See Figure 1 , Step 17.) The hearing is to collect evidence regarding the exemption. The formal hearing is conducted by an independent administrative law judge (ALJ), and can include witness testimony, offers of proof, and interveners. The purpose is to develop a full evidentiary record to provide a basis for the Secretary's report. If deemed necessary, the ALJ may subpoena records and testimony for the hearing. Service employees who participated in the consultation may not participate in the hearing (e.g., as advisors), but may be witnesses. By law, the Secretary's report must discuss the following: the availability of reasonable and prudent alternatives; the nature and extent of the benefits of the agency action; the nature and extent of alternative actions consistent with conserving the species or the critical habitat; a summary of whether the action is in the public interest and is nationally or regionally significant; appropriate reasonable mitigation and enhancement measures that should be considered by the ESC; and whether the applicant has made any irreversible or irretrievable commitment of resources. Committee Determination The ESC is required to determine whether to grant an exemption within 30 days of receiving the Secretary's report. (See Figure 1 , Step 18.) If the ESC decides more information is required, it may conduct additional fact-finding, including hosting oral presentations. The ESC has subpoena powers for obtaining information it deems necessary to reach its decision. The ESC meetings, hearings, and records are open to the public, and a notice of the hearings and meetings is published in the Federal Register . The ESC shall grant an exemption if, based on the evidence, it determines that (i) there are no reasonable and prudent alternatives to the agency action; (ii) the benefits of such action clearly outweigh the benefits of alternative courses of action consistent with conserving the species or its critical habitat, and such action is in the public interest; (iii) the action is of regional or national significance; and (iv) neither the Federal agency concerned nor the exemption applicant made any irreversible or irretrievable commitment of resources prohibited in subsection (d) of this section. [See discussion above on commitments of resources.] The second and third items give the ESC the opportunity to weigh economic impacts of an exemption and of any alternative courses of action on a national or regional scale. An exemption requires five affirmative votes (out of seven) on the committee. If it approves the exemption, the ESC is required to specify mitigation and enhancement measures in its written decision. Mitigation: Actions and Funding The mitigation and enhancement measures that are required to be established by the ESC must be reasonable and "necessary and appropriate to minimize the adverse effects" of the approved action on the species or its critical habitat. (See Figure 1 , Step 20.) The measures can include live propagation, transplantation, and habitat acquisition and improvement. The exemption applicant (whether federal agency, governor, or permit or license applicant) is responsible for carrying out and paying for the mitigation, although the applicant may request that the Secretary carry out the mitigation or enhancement measures. If so, the applicant must fund the measures carried out by the Secretary. The cost of mitigation and enhancement measures specified in an approved exemption must be included in the overall costs of continuing the proposed action, and the applicant must report annually to the Council on Environmental Quality on compliance with mitigation and enhancement measures. Mitigation costs could be considerable and may deter applicants from seeking an exemption. Duration and Effects of the Exemption An exemption from the ESC is permanent unless the Secretary later finds, based on the best scientific data available, that the exemption would result in the extinction of a species that was not the subject of consultation nor identified in a biological assessment and the ESC then determines within 60 days of the Secretary's finding that the exemption should not be permanent. In cases where the Secretary does not find that extinction will result, the exemption is permanent even with respect to species not identified in a biological assessment (BA), provided that a BA was prepared during the consultation. The ESA expressly states that the penalties that would normally apply to the taking of an endangered or threatened species do not apply to takings resulting from actions that are exempted. Exemptions apply to the specific federal agency action in the exemption application, not to the species. Consequently, even if an agency action is exempted, FWS or NMFS is still obligated to recover the species. So, for example, if the exempted action causes some portion of the range of a species to become uninhabitable (as happened with the Tellico Dam), any remaining range would become more important because there was less of it. In that remaining habitat, federal actions might receive more intense scrutiny due to the harm to the species caused by the exempted action, and the frequency of jeopardy opinions might increase. Alternatively, if the total habitat area would be unchanged, but quality of the species' habitat would be degraded under the exemption, then more scrutiny might be given to federal actions that affect the habitat (e.g., water temperature, timing, or quantity), as changes might add to the stress on the population and further slow the recovery of the species. Similarly, if the exempted action affects a critical food source, the Services might seek to enhance another food source, and so on. Actions by Secretaries of State or Defense There are limits on the ESC's authority. (See Figure 1 , Steps 10 and 13.) The ESC cannot grant an exemption for an agency action if the Secretary of State, after a hearing and a review of the proposed agency action, certifies in writing that carrying out the action would violate a treaty or other international obligation of the United States. For example, if the species in jeopardy is a migratory bird and the action is prohibited under the Migratory Bird Treaty, then the Secretary of State may find that the action would violate that treaty, and no exemption could be granted. The Secretary of State must make this determination within 60 days "of any application made under this section." (The determination could be difficult, however, because the Interior Secretary's report that would fully describe the agency action would not be due for an additional 80 days, well after the deadline for the Secretary of State.) In contrast, the ESC must grant an exemption if the Secretary of Defense finds that the exemption is necessary for national security. (See Figure 1 , Step 13.) The language of this section does not make clear whether the ESC would still have to meet and vote, even though the result would already have been determined. While there have been a number of controversies over the years in which conflicts between military readiness and the ESA have been alleged, there have been no instances in which the Defense Department (DOD) has availed itself of this provision, even though the ESC result would be a certainty. DOD has claimed that the exemption provision is too cumbersome and time-consuming for its use, given the geographic array of its actions and their frequency. Presidential Exemption If there is a presidentially declared disaster, the ESA provides another option for an exemption under this process. ESA (16 U.S.C. §1536(p)) authorizes the President, after such a disaster, to make the determinations that would have been made by the Secretary and the ESC. The presidential exemption may be granted only to projects to replace or repair public facilities. To grant the exemption, the President must determine that the project is necessary to prevent the recurrence of a natural disaster and that the emergency situation does not allow ordinary procedures to be followed. The ESA provides that the ESC "shall accept the determinations of the President." It is unclear whether this provision means that the ESC must still be convened, even though acceptance of the determination is pre-ordained. This section of the law has not been invoked to date. Interaction with Other Laws If an agency action receives an exemption and avoids the penalties that otherwise would apply under the ESA, other underlying issues related to natural resources may still exist. Such conflicts often involve not only the listed species protected under the ESA but also species protected under other federal laws, state protections, and multiple levels of government, as well as a number of interest groups. As a result, the underlying conflict is rarely centered solely on threatened or endangered species. For example, in a controversy regarding river and dam management in the San Joaquin River basin and the federal Central Valley Project (CVP) in California, multiple lawsuits have been filed over the years based on both federal and state laws. These lawsuits have addressed a host of issues, such as irrigation water supply, fish and wildlife management, recreation, and the environment. The federal court decisions that formed the impetus for the San Joaquin River Restoration Settlement agreement were based not only on the ESA but also on a state law requiring dam owners to provide sufficient water for downstream fish habitat. In this and other CVP-related cases, water-flow restrictions due to ESA requirements are only one piece of the regulatory puzzle. State water quality flow requirements often limit management of pumps before ESA requirements are triggered, particularly during drought. Thus, at certain times of the year and under certain hydrological circumstances, an ESA exemption would not necessarily result in more water being pumped. In general, with respect to the ESA's interaction with state laws, where ESA requirements are stricter than state requirements or otherwise incompatible with them, then the ESA requirements will preempt the state requirements. However, in other instances, such as the aforementioned CVP-related cases, some state requirements are additional to and compatible with those of the ESA and both sets of requirements apply simultaneously. Why the Exemption Process Is Rarely Used As outlined above, the exemption process is a complex affair, and even without extensions, could take 280 days. Because the resulting decision risks causing the extinction of a species, some would argue a rigorous process is appropriate; others still may find it onerous. But even if the process were simple, any potential exemption applicant would face these challenges: The applicant must fund any required mitigation measures; the funding obligation lasts for the life of the action—potentially forever, depending on the nature of the action. Because the exemption applies to the action and not to the species, FWS or NMFS must continue to attempt to recover the species. Consequently, the burden of conservation and recovery may fall more heavily elsewhere. A governor, trying to balance the interests of an entire state, might find this a particularly difficult obstacle. If conservation of a listed species is only one of various statutory obligations under federal or state laws, then an exemption from ESA for the action may not advance the action, because those other statutory obligations may still be required. Many parties to a dispute may be reluctant to appear publicly to side with the extinction of a species, no matter how uncharismatic. Moreover, if the increased risk of extinction provides only modest advancement for the action, the rewards of a successful exemption application may not seem worth the effort. As a practical matter, the consultation process itself offers federal agencies many opportunities to modify their actions to avoid jeopardizing species or adversely modifying their designated critical habitats, yet still proceed with their actions. The well-known implications of an ESA conflict generally prompt agencies to consider ESA consequences at a very early stage in their actions to avoid conflict later, and specifically to avoid the need for an exemption. Prospective applicants, whether a federal agency, a governor, or a license applicant, must balance the costs of the process described above with benefits (and costs) of winning an exemption. Even so, in many cases, some land and water resource users believe ESA protections for species to be onerous. Conclusion The protection of threatened and endangered species is often only one of many complex issues surrounding debates over land use, water allocation, energy extraction, energy corridors, and the like. Parties to such debates have commonly struggled for years or even decades over the basic allocation of these resources, as illustrated by the conflicts over water resource management in California; water use in the Apalachicola-Chattahoochee basin in Alabama, Florida, and Georgia; river basin flooding in Tennessee's Tellico River; and timber harvest in the Pacific Northwest, to name only a few. But because the ESA has strong legal protections for listed species, it tends to force decisions on issues that have long been in conflict. When an exemption is considered, potential applicants may be unaware of the stringency of the process, the fact that the exemptions apply to the action rather than the species, the need for the applicant to fund potentially costly permanent mitigation, and the fact that after an exemption is granted, the burden of conservation may fall more heavily on any other areas that the species inhabits or on other resources that the species requires. These considerations likely have played a strong role in limiting interest in the exemption process. (See Appendix A , Appendix B , Appendix C , and Appendix D .) In addition, perhaps the consultation and negotiation stages provided for in the ESA accomplish the purpose of modifying proposed actions early in the planning and development stages and so avoid harm to listed species. These cautions may help explain why the exemption process has rarely been invoked in any recent case. If those involved in a project decide to proceed with an exemption application, the first step is to decide who can and should apply, and for what action. Then the exemption process described above may begin. The Secretary and then the ESC would have to make all of the required findings on which an exemption rests. Even if all of the required findings were made in favor of the applicant, mitigation determined (and the applicant, whether the action agency, the governor, or any permit applicant has the means to pay for it), and an exemption granted, controversy and legal challenges may continue. Other laws may still be in play and, as a result, conflicts may remain. Appendix A. Exemption Denied for Tellico Dam, Tennessee A dam on the Little Tennessee River was proposed by the Tennessee Valley Authority (TVA), based on arguments that it would aid navigation, power generation, and economic development. Opposition to the project arose early in the planning for the dam, because of concern over fishing, recreation, Native American religious sites, and loss of agricultural land. After discovery of the snail darter, project opponents had to decide whether to abandon their old arguments and pin their hopes on a small fish. According to one observer, "opponents would have preferred a weapon like a bald eagle or a bear or a buffalo. But what they had was [a] fish." Appendix B. Exemption for Grayrocks Dam, Wyoming and Nebraska The Platte River, in its lower reaches in Nebraska, is a major stopover site in the migration of endangered whooping cranes between southern Texas and north central Canada. FWS determined that the federal action agencies involved in permits for construction of the nonfederal Grayrocks Dam and Reservoir in Wyoming, along with existing projects in the Platte River basin, would have jeopardized the downstream habitat of cranes. Specifically, a reduction in instream flow as a consequence of the project as originally designed could have damaged the cranes' resting sites. (The reduction in total flow would also have threatened Nebraska irrigation interests, and caused the state to oppose Wyoming's plans.) The federal action agencies were the U.S. Army Corps of Engineers, because the dam's developers needed to obtain a Corps permit pursuant to the Clean Water Act, and the Rural Electrification Administration, which had guaranteed loans to the dam's developer. Appendix C. Exemption for BLM Timber Sales, Oregon Throughout the 1980s and 1990s, controversy abounded in the Pacific Northwest over timber harvests from federal lands. The various players included hikers, large and small timber companies, commercial fishermen and recreational anglers, Indian tribes, hunters, motorized recreation interests, water users, birders, and others. Key federal laws included the National Environmental Policy Act, the National Forest Management Act, and the Federal Land Policy and Management Act. And though the litigation history under these statutes regarding timber management in the Northwest is rich and complex, not until the listing of the northern spotted owl as threatened on June 26, 1990, was the ESA a major factor in the debate. The conflict arose because this species is heavily dependent in its entire life cycle on old growth forests of the type found in the Cascades in southern British Columbia, Washington, Oregon, and northern California. The same forest characteristics that make an area valuable to this species also make it valuable to the timber industry. The Bureau of Land Management (BLM) manages large tracts of old growth forest in Oregon, where conflicts over resource management had arisen many times; the presence of the threatened spotted owl was a new complication. BLM submitted its proposed FY1991 timber sale program to FWS for Section 7 consultation. The history below contains lawsuits and actions based on the ESA, but omits the many legal actions based on other statutes (e.g., the initial lawsuits against Forest Service timber sales under the National Forest Management Act). Appendix D. Three Attempts at an Exemption In addition to the three completed applications, there were three other instances in which applications were filed, but the applications were withdrawn or abandoned. Pittston Refinery, Eastport, Maine The Pittston Company wished to build an oil refinery at Eastport, ME, in the mouth of the Bay of Fundy, an area with one of the world's greatest tidal fluctuations (over 20 feet). In its BiOp on an EPA permit, FWS held that the refinery would jeopardize bald eagles, and NMFS held that the project would endanger whales. Initially, EPA denied Pittston's application for a permit to discharge effluent. In 1979, the company responded with two actions. First it sought an administrative appeal of the denial. Second, it applied for an exemption under ESA for its discharge permit. The company felt it was forced to take the two actions simultaneously because the ESA required an application to be filed within 90 days of the denial of a permit. In January 1979, the various parties agreed to suspend the exemption process while a compromise was sought. The effort at compromise was not successful. Environmental groups sued, asking an injunction to stop the exemption application. They argued that the case was brought prematurely, before the issue had finished with the administrative appeals process. In effect, they argued that the ESA itself was poorly written, in that it forced the applicant to carry out two procedures (appeal and exemption) simultaneously. The U.S. Justice Department agreed that the law was unclear and that the exemption process should not run concurrently with an appeal. The court eventually agreed that the exemption process could not begin until the appeals process was finished. This confusion, and apparent conflict, was addressed by Congress in the 1982 amendments to ESA. These amendments clarified that the exemption process was to be invoked only after the issuance of a BiOp and after other means of compliance had failed. In the case of a permit or license, the exemption process must also wait until after an agency formally denies the permit or license. The applicant may not simultaneously seek an administrative appeal and an exemption. Docking Area, Mound City, Illinois The Consolidated Grain and Barge Company (CGBC) sought to build a docking area for barges on the Ohio River at Mound City, IL. The area was habitat for the endangered orange-footed pearly mussel, Plethobasus cooperianus . CGBC had sought a permit from the Army Corps of Engineers (Corps) under the Rivers and Harbors Act of 1899 to construct the docking area. FWS issued a jeopardy BiOp to the Corps which denied the permit on that basis. Initially, the owner of the property agreed to provide funds for the exemption application, although CGBC was not willing to commit similar funds. On November 6, 1985, FWS published notice of the exemption application in the Federal Register . On December 6, 1985, FWS published a Federal Register notice of a hearing to be held in St. Louis, MO, on January 28, 1986. The notice indicated that the DOI Secretary agreed that the threshold criteria for beginning the exemption process (see Box 12, Figure 1 ) had been met, and set the details for the next stage of the process, that is, the hearing. The notice also reminded interested parties that the applicant had the burden of proof in the proceedings. At a pre-hearing conference with an administrative law judge on January 8, 1986, CGBC sent no one to represent its interests. A partner in a law firm of the lawyer hired by the landowner was present, but said he had limited information concerning the issue. He had no list of witnesses on which to call. The lawyer asked for a one-week extension of the hearing, but before it was held, the exemption application was withdrawn. Dredging Alligator Pass in Suwanee Sound, Florida On July 30, 1986, the consulting engineer of the Suwanee River Authority (SRA) applied for an exemption for a project to dredge Alligator Pass in Suwanee Sound, FL, an area that provided habitat for the endangered manatee. It is not clear that the consulting engineer had authority from the SRA to apply on its behalf. The project needed a permit from the Corps, which had denied it, primarily on the grounds of the presence of manatees. On August 12, 1986, the board of the SRA refused to ratify the actions of the consulting engineer and asked that the exemption application be withdrawn. In a letter on his own stationery, the engineer asked that the application be continued. After a further exchange of contradictory letters, the withdrawal stood. Appendix E. California Central Valley Project and State Water Project (Delta Pumping) Two existing federal BiOps affect coordinated operation of the federal Central Valley Project (CVP) and the California State Water Project (SWP), two of the largest water resource projects in the country. Of particular concern to many Members of Congress has been the effect of ESA pumping restrictions on water supplies available from these projects to water users in central and southern California. Many water users saw dramatically reduced supplies during a multiyear drought—in some years, receiving no water from the CVP. Whereas some parties have advocated eliminating or otherwise relaxing these pumping restrictions, others have voiced concerns about such efforts on the multiple threatened and endangered species in question, such as the Delta smelt and various salmon and other species. Although other factors, such as state water quality regulations and hydrologic limitations, play a role in how much water can be pumped and made available to water users, much attention has been paid to restrictions on project operations due to implementation of the ESA. In 2009, some parties advocated for petitioning the governor and the President to begin the ESA exemption process in response to reasonable and prudent alternatives (RPAs) developed during the ESA consultation process on the coordinated operation of the CVP and SWP. Since then, most action has been aimed at developing legislation to address the ESA restrictions. In the 114 th Congress, legislative activity focused primarily on H.R. 2898 S. 1894 , and S. 2533 . While all three bills contained provisions pertaining to pumping levels and threatened and endangered fish species, none included provisions seeking or supporting exemptions under the ESA exemption process. Provisions allowing increased pumping beyond the RPA limits under certain conditions were included in S. 612 , the Water Infrastructure Improvements for the Nation (WIIN) Act, which was signed into law on December 16, 2016 ( P.L. 114-322 ). New legislation in the 115 th Congress also could address CVP and SWP operations and implementation of the ESA.

The Endangered Species Act (ESA) is designed to protect species from extinction, but it includes an exemption process for those unusual cases where the public benefit from an action is determined to outweigh the harm to the species. This process was created by a 1978 amendment to the ESA, but it is rarely used. This report will discuss the exemption process for an agency action, with examples from past controversies, and its potential for application to actions that may affect current controversies, such as water supply. The ESA mandates listing and protecting species that are endangered or threatened with extinction. Listing a species limits activities that could affect that species and provides penalties for taking individuals of that species. The ESA also requires federal agencies to consult with the Fish and Wildlife Service or the National Marine Fisheries Service (together, the Services) to determine whether a federal action may jeopardize the continued existence of a species or harm its critical habitat. The consultation process may lead to an opinion by one of the Services that the action will jeopardize listed species or harm their critical habitats unless certain reasonable and prudent alternatives are included in the action. Rarely, the federal action agency may hold that those alternatives are inconsistent with the agency action. In other extremely rare cases, the Services may find that no alternatives are available that would allow the project to proceed and still prevent jeopardy. In either case, the following are the categories of potential applicants that can apply for an exemption for a federal action despite its effects on listed species or their critical habitat: the federal action agency interested in proceeding with the action, an applicant for a federal license or permit whose application was denied primarily because of the prohibitions of ESA requiring that federal agency actions avoid jeopardy to threatened or endangered species or harm to their critical habitats, or the governor of the state where the action was to have occurred. An exemption application is considered by a specially convened committee which may exempt the federal agency's action from the prohibitions of the ESA. The exemption process allows major economic factors to be judged to outweigh the ESA's mandate to recover a species when the federal action is found to be in the public interest and is nationally or regionally significant. The exemption process has been invoked with a dam on the Tellico River (TN), a water project in the Platt River (WY and NE), and timber sales (OR). In three other instances, the process was begun but was aborted before a decision was reached. In addition, there has been interest over the years in invoking the process in light of controversies over management of federal and state water resource projects in California, although no application has ever been filed. When a project achieves such levels of controversy, Congress is sometimes asked to intervene in the outcome, as it did in the case of the Tellico Dam and an endangered fish in the late 1970s.

Introduction Policy makers and analysts have searched for methods to speed the return to work of unemployment compensation (UC) recipients with varying levels of intensity. The most recent recession led to an unprecedented increase in the number of workers unemployed for more than 26 weeks (the long-term unemployed). As a result, congressional interest in policy initiatives to expedite the return to work grew. This report examines the current initiatives as well as previous demonstration projects within the UC system to reduce long-term unemployment and speed the return to work. Overview of Unemployment Insurance Programs Several unemployment insurance (UI) programs provide benefits to eligible workers when they lose their jobs. In most states, the regular UC program provides up to 26 weeks of income support through the payment of regular state benefits. The permanently authorized Extended Benefit (EB) program extends UC benefits if certain economic conditions exist within the state; that program is jointly funded by the federal and state governments. As in previous recessions, in June 2008, Congress created an additional temporary federally financed Emergency Unemployment Compensation (EUC08) program that further extended the maximum duration of benefit receipt; the authorization for this program ends on December 28, 2013 (December 29, 2013, in New York). In addition, several smaller state and federal programs provide benefits for other certain types of eligible unemployed workers. For detailed information on federal programs available to unemployed workers, see CRS Report RL34251, Federal Programs Available to Unemployed Workers . Regular Unemployment Compensation The cornerstone of an unemployed worker's income security is the joint federal-state UC program, which provides income support through the payment of UC benefits. The underlying framework of the UC system is contained in the Social Security Act (the Act). Title III of the Act authorizes grants to states for the administration of state UC laws, Title IX authorizes the various components of the federal Unemployment Trust Fund (UTF), and Title XII authorizes advances or loans to insolvent state programs. UC is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Acts (SUTA). The UC program pays benefits to workers who become involuntarily unemployed for economic reasons and meet state-established eligibility rules. The UC program generally does not provide UC benefits to the self-employed, to those who are unable to work, or to those who do not have a recent earnings history. States usually disqualify claimants who lost their jobs because of inability to work, unavailability for work, who voluntarily quit without good cause, who were discharged for job-related misconduct, or who refused suitable work without good cause. To receive UC benefits, claimants must have enough recent earnings to meet their state's earnings requirements. Additionally, each state requires that the worker be able, available, and actively searching for work. States determine weekly benefit amounts and durations. Maximum weekly benefit amounts in July 2012 ranged from $133 (Puerto Rico) to $653 (Massachusetts) and, in states that provide dependent's allowances, up to $979 (Massachusetts, with 13 dependents). In 2012, the average weekly benefit was just over $300. In most states, regular UC benefits are available for up to 26 weeks. The average regular UC benefit duration in 2012 was just over 17 weeks. In the last week of January 2013, about 2.7 million unemployed workers were receiving regular UC benefits. Extended Benefits and Temporary Programs Extended Benefits The EB program, established by the Federal-State Extended Unemployment Compensation Act of 1970 (P.L. 91-373), may extend UC benefits at the state level if certain economic conditions exist within the state. The EB program is permanently authorized, and is triggered when a state's insured unemployment rate (IUR) or total unemployment rate (TUR) reaches certain levels. The federal government finances 50% of the EB program and states finance the other 50%. Up to 34 states had active EB programs at some point during or after the 2007-2009 recession; by June 10, 2012, 4 states had active EB programs. As of the writing of this report, only Alaska had an active EB program. Emergency Unemployment Compensation On June 30, 2008, the EUC08 program was created by the Supplemental Appropriations Act of 2008 ( P.L. 110-252 ). This was the eighth time Congress created a federal temporary program that extended unemployment compensation during an economic slowdown. State UC agencies administered the EUC08 benefit along with regular UC and EB benefits. Amended 11 times, at the program's peak four tiers of EUC08 benefits were available to unemployed workers in states with high unemployment rates; in states in which all four tiers of EUC08 benefits were available, eligible unemployed workers could receive up to 99 weeks of benefits combined from the regular UC, EB, and EUC08 programs. All tiers of EUC08 benefits will expire on the week ending on or before January 1, 2014. Long-Term Unemployment and Patterns of UC Benefit Exhaustion Duration of Regular UC Benefits From its inception, the UC program has been designed to provide temporary income support for eligible workers who lost their jobs, but has never been intended to last long enough to cover the entire spell of unemployment of every recipient. The Social Security Act of 1935, P.L. 74-271, left it up to each state to determine how long eligible unemployed workers would be allowed to receive benefits, as well as most other terms of the program. Initially, states set the maximum duration between 12 and 20 weeks, with 16 weeks being the most common. By the early 1960s, most states had increased the maximum duration to 26 weeks, where it remained until recently. Each state sets its own rules to determine how long benefits can be collected. Nine states (Connecticut, Hawaii, Illinois, Louisiana, Maryland, New Hampshire, New York, Puerto Rico, and West Virginia) provide uniform durations for all claimants who meet the qualifying-wage requirements. The rest have variable durations in which the state determines the limit on total benefits that a claimant can receive in a benefit year, generally based on the claimant's wages during a base period, and then divides that amount by the claimant's weekly benefit amount. By 2013, eight states that had provided UC benefits for up to 26 weeks acted to decrease their maximum UC benefit durations. Arkansas decreased its state UC maximum duration to 25 weeks, effective March 30, 2011. Florida decreased its maximum duration to a variable maximum duration, depending on the state unemployment rate and ranging from 12 weeks up to 23 weeks, effective January 1, 2012. Georgia decreased its maximum duration to a variable maximum duration that ranges between 14 weeks and 20 weeks, effective May 2, 2012. Illinois decreased its maximum duration to 25 weeks, effective January 1, 2012. Michigan decreased its maximum duration to 20 weeks, effective for individuals filing an initial claim for UC benefits on or after January 15, 2012. Missouri decreased its maximum duration to 20 weeks, effective April 13, 2011. North Carolina decreased the maximum UC duration from 26 weeks to a variable maximum duration, depending on the state unemployment rate and ranging from 12 weeks up to 20 weeks, effective July 1, 2013. South Carolina also decreased its maximum duration to 20 weeks, effective June 14, 2011. Decisions by state and federal lawmakers about how long to provide unemployment benefits to eligible workers reflect difficult tradeoffs among several program goals and constraints. The main goals of the program have been to provide temporary income support to workers who lose their jobs and to help stabilize the overall level of economic activity by providing weekly cash benefits to eligible unemployed workers. But as the potential duration of benefits increases, the costs of the program also rise. Moreover, the availability of UC benefits may lengthen the time that a recipient remains unemployed for at least two reasons. First, some individuals may not have as strong an incentive to quickly return to work while they are receiving UC benefits; the partial replacement of lost earnings enables them to enjoy more leisure. Second, many unemployed workers are liquidity constrained—that is, they do not have access to assets, loans, or other income to help maintain their consumption while they are looking for work. By providing temporary income support, the UC benefits enable those job-seekers to take the time to find a better job than they might have found otherwise. For a more nuanced discussion and summary of the estimated effects of UC on the economy, labor market, and individual behavior, see CRS Report R41676, The Effect of Unemployment Insurance on the Economy and the Labor Market , by [author name scrubbed]. There is no consensus on the magnitude of the impact of lengthening the potential duration of UC benefits on the length of time workers are unemployed. For example, some researchers suggest that a 13-week extension of available benefits would increase the average number of weeks of regular UC benefit receipt by one week while others suggest up to a 2.5 week increase. The magnitude of estimated impact may change by factors such as the general state of the labor market and the economy. If the economy is weak, the impact of additional weeks of benefits on unemployment duration is likely to be smaller since the likelihood of finding is new job is smaller. In a strong economy where job opportunities are more plentiful, the impact on duration may be larger since the likelihood of reemployment is larger. Most of the studies examining the effects of the program have limited the focus to unemployed workers receiving benefits or workers who would be potentially eligible to receive benefits if they were to become unemployed. In addition, the effects of the program could spill over and affect the large number of unemployed workers who are not eligible for benefits (for example, new entrants and reentrants into the labor force). The chances of these UC-ineligible job-seekers finding a job may increase as some UC recipients reduce their effort searching for work. Trends in the Exhaustion Rate and in the Average Duration of Receipt Two measures, the exhaustion rate and the average duration of receipt, are commonly used to characterize the length of time that UC recipients collect benefits. Both provide valuable information about how well the program is performing. Exhaustion Rate The exhaustion rate is an estimate of the percentage of recipients that use up or "exhaust" their entitlement to regular benefits. This is calculated by the U.S. Department of Labor (DOL) by dividing the number of average monthly final payments by the average monthly first payments. To allow for the normal flow of claimants through the program, the denominator lags the numerator by six months. For example, the exhaustion rate for the 12-month period ending in December 2012 is computed by dividing the average monthly exhaustions for the 12 months ending in December 2012 by the average monthly first payments for the 12-month period ending in June 2012. The exhaustion rate is important as an indicator of the adequacy of the regular state UC program in providing income support for unemployed workers while they are seeking new employment. By this measure, there has been a secular decline in the adequacy of the program that was apparent well before the start of the 2007-2009 recession (see Figure 1 ). During periods of low unemployment in the 1970s, about one in four UC recipients exhausted their entitlement to regular benefits (depicted by the solid line). By the late 1990s, the exhaustion rate had risen to one in three, even though the nation's unemployment rate was somewhat lower. In 2006 and 2007, with an unemployment rate of 4.6%, over 35% of UC recipients exhausted their entitlement to regular benefits. Over the three decades leading up to the recent recession, the exhaustion rate had risen by between three and four percentage points per decade. Average Duration of Regular UC Benefits The average duration of receipt of regular UC benefits is the second measure used to characterize the length of time that recipients collect benefits. This is calculated by the DOL as the total number of weeks compensated for the year divided by the number of first payments. The average duration of receipt of benefits is an important component of the cost of the program. All else equal, the longer recipients collect benefits, the higher the cost. As with the exhaustion rate, a secular trend in the average duration was apparent before the recent recession (see Figure 2 ). In the early 1970s, the average duration was about 13 weeks, compared with about 15 weeks immediately before the recent recession. As was the case in previous recessions, the downturn in the economy led to sharp increases in both measures. In 2009 and 2010, over half of UC recipients exhausted their entitlement to regular benefits and the average duration had risen to 19 weeks. Since then, as the labor market began to recover, the exhaustion rate and the average duration have begun to decline. The availability of EUC08 and EB benefits for unemployed workers who exhausted their regular benefits mitigated the adverse economic impact on recipients and on the economies of their communities, but probably added to the number of people counted as unemployed. As the recipients used that income to make purchases, the suppliers of those goods and services would have benefited as well, thereby stimulating demand in their communities. At their peak (in early 2010), the EUC08 and EB programs were providing benefits to about 6 million individuals. Early estimates of the possible impact of the increased availability of benefits on the measured unemployment rate range from an increase of 0.3 percentage points to approximately 1.0 percentage points. Explaining the Trends in Increased Exhaustion Rates and Average Duration of Benefit Receipt The sharp increases in the exhaustion rate and in the average duration of receipt of regular UC benefits between 2007 and 2009 are not surprising in light of the severe weakening of the job market in that period. But cyclical variation cannot account for the long-term trends in the increased exhaustion rate and in the increased average duration that was apparent before that recession began. Changes in Underlying UC Program It is unclear if changes in the UC program itself are responsible. The regular UC program became less generous between 1973 and 2007, thereby reducing the incentive of recipients to remain unemployed: the average weekly benefit fell from 36% of average weekly earnings to 34%. Nonwage compensation such as health insurance became more costly, implying that UC benefits replaced an even smaller percentage of total compensation. Benefits became subject to income taxation in 1979. And, the average potential duration of regular state benefits remained at about 24 weeks throughout the entire period. Balancing the decreased relative generosity of the UC benefit, there has been some broadening of UC coverage of certain types of unemployed workers who would have not otherwise have been eligible for UC. The 2009 stimulus package, P.L. 111-5 , provided incentive monies for states to "modernize" their programs to include a worker's more recent work history and two of four optional provisions relating to (1) part-time job-seekers, (2) voluntary separations for "compelling family reasons," (3) participation in qualifying training programs, or (4) dependents' allowances. The intent of these provisions was to broaden eligibility to cover more types of unemployed workers. Thirty-eight states plus the District of Columbia, Puerto Rico, and the Virgin Islands qualified for modernization incentive payments based on their use of more recent work history; most of those jurisdictions also qualified for additional incentive payments based on having one or more of the other optional provisions in their UC laws. In addition, most older workers who lose their jobs no longer have UC benefits offset by Social Security benefits. As late as 2002, 20 states, the District of Columbia, Puerto Rico and the Virgin Islands offset the UC benefit by at least 50% of social security payments. By 2012, only 4 states and the Virgin Islands offset at least a 50% of social security payments. As a result, older workers who claim UC may have had a higher non-wage income and thus be able to extend duration of unemployment. An additional change in the UC program that may have increased durations is the movement away from in-person filing for benefits in favor of filing by telephone or over the internet. Another reason for doubting that changes in the UC program itself are responsible for the increase in duration of UC receipt is that similar (or even steeper) increases in the duration of unemployment occurred for non-recipients. For example, between 1973 and 2007, the percentage of unemployed teenagers who were unemployed for more than six months more than doubled, even though very few of them would have been eligible for UC benefits. Likewise, substantial increases occurred among voluntary job leavers, reentrants into the labor force, and new entrants—individuals also unlikely to have qualified for benefits. In addition, the variance in potential durations of receiving UC insurance benefits has also had implications for the trends in the exhaustion rate. Research estimates find that states with higher average potential duration of benefits have a lower percentage of exhaustees—after controlling for unemployment levels. Additionally, in a non-recessionary period of the late 1980s, researchers found that 26% of exhaustees had potential UC durations of less than 20 weeks as compared with only 12% of nonexhaustees having such low potential durations. As states cut weeks of available benefits, the exhaustion rate is likely to increase in those states. In states that have broadened eligibility rules to allow some weeks of benefits to individuals who would have otherwise not have been eligible, those individuals may qualify for lower durations (and thus would be more likely to exhaust benefits). Changes in the Labor Market Researchers who have examined trends in the duration of overall unemployment—not necessarily focused on UC recipients—have developed several theories to explain the causes of increased durations of unemployment. However, no consensus has emerged. Increase in Permanent Job Loss On the demand side of the labor market, one development contributing to the increase in the duration of UC receipt has been the increased tendency for employers to permanently terminate workers, rather than to temporarily lay them off with the expectation that they would be recalled. Research by Burtless documented that increase and attributed it to changes in the industrial mix (especially the decline in manufacturing), as well as possible changes in employers' practices. The rise in permanent separations, rather than temporary layoffs, is important because workers who are no longer attached to an employer often take considerably longer to become reemployed. Even in 2011—with a total unemployment rate of almost 9%—only about 7% of unemployed workers on temporary layoff had been unemployed for more than six months; 52% of unemployed workers who had been permanently separated or who had completed temporary jobs had been unemployed that long. Since most people who become eligible for UC benefits are workers who have either been permanently separated or been temporarily laid off, the shift toward permanent separations would directly lead to an increase in the duration of benefit receipt. Demographics and Aging Population On the supply side of the labor market, the aging of the baby boom generation (individuals born between 1946 and 1964) likely contributed to increased durations and may continue to do so. In 1973, the oldest boomer was only 27. They are now mostly in their 50s and 60s. The Bureau of Labor Statistics (BLS) projects that individuals aged 55 and older will account for most of the net growth in the labor force between 2010 and 2020. Although older workers are less likely than younger workers to become unemployed, those who do so tend to have a more difficult time finding jobs. In 2011, for example, data from the Current Population Survey indicate that 55% of unemployed individuals aged 55 and older had been unemployed more than half a year, compared with 42% of younger unemployed persons. Studies suggest that older unemployed workers take longer to find new jobs, are less likely to find a job, and their new jobs replace a smaller fraction of previous earnings. Older workers are much more likely to be dislocated from their jobs. That is, they are more likely to have lost a job where they had long tenure and the separation from the employer is permanent. Dislocated workers have a lower chance of finding new employment. In addition, those who do find employment typically earn substantially less than they did in their previous job. For older workers, a job dislocation has more of an impact on earnings than for younger workers. A significant proportion of their previous high salaries may be attributed to job tenure; thus, wages from new jobs may be substantially lower. Likewise, facing lower levels of replaced earnings, older workers are also less likely to continue to work after job dislocation. Subsequently this increases their chances of early withdrawal from the labor market. A Growing Mismatch Finally, some of the increase in the duration of UC receipt could simply reflect a growing mismatch between the characteristics of job seekers and the characteristics that employers are seeking. This is often referred to as increased structural unemployment. For example, even though the educational attainment of the labor force has been rising, increasing returns to education suggest that the demand for more educated workers had been rising even more. A growing gap between other types of harder-to-quantify skills supplied by job seekers and the skills demanded would also increase durations. For an in-depth summary of research examining changes in structural employment during the most recent recession, see CRS Report R41785, The Increase in Unemployment Since 2007: Is It Cyclical or Structural? , by [author name scrubbed]. Recent research suggests that the increase in structural unemployment may explain between 20% and 35% (or 1.0-1.75 percentage points) of the 5 percentage point increase in the unemployment rate between 2007 and 2010. Outlook Under Current Law Assuming that over the next several years the nation's labor market continues to improve, it is likely that exhaustion rates will continue to fall from their recent record-setting levels, but long spells of unemployment will remain a serious problem for many UC recipients and therefore for the program itself. Full recovery in the labor market is expected to take many years. The Congressional Budget Office (CBO) projects that the annual unemployment rate will stay above 6% until 2017. In 2007—the last full year before the recent recession—the nation's unemployment rate stood at 4.6%. But, even with that relatively low unemployment rate, almost 36% of UC recipients exhausted their entitlement to regular benefits and the average duration of UC receipt was about 15 weeks. In its latest projections, CBO forecasts that in FY2018, with a 5.5 % total unemployment rate, 8.0 million UC first payments will be made. On average, the recipients are forecast to receive $346 per week for 15.0 weeks, resulting in total outlays for regular benefits of more than $41 billion in that year. Although CBO does not publish projections of UC exhaustions, simply extrapolating the trend depicted in Figure 1 suggests that the exhaustion rate will remain at or above 40% through 2018. While it may not be possible to accurately predict how long it will take future UC recipients to find work, there is little, if any, basis for anticipating that the trends in the exhaustion rate and in the average duration of UC receipt that were apparent before the recession will be reversed. The aging of the labor force and the likelihood that new UC recipients will largely consist of workers who have been permanently severed from their employers, rather than temporarily laid off, will continue to make the rapid return to work difficult for many recipients. The reductions in the maximum duration of UC benefits recently enacted in eight states is likely to reduce the average duration of compensated unemployment in those states while increasing the percentage of their recipients who will exhaust their entitlement to benefits. Approaches for Expediting the Return to Work How to quickly and efficiently get UC recipients back to work has long been a subject of interest for researchers and policy makers. The sharp increase in duration accompanying the recent recession has heightened interest. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) and subsequent legislation provided temporary support for several activities. Congress continues to express interest in expediting the return to work and may consider additional measures. This section examines a wide range of approaches that have been tried or proposed for shortening the duration of UC receipt and reducing exhaustions. For each approach, the potential benefits and limitations are discussed. The various approaches can be categorized by the primary mechanism by which, if successful, they would speed the return to work. First, the approach may help assure that UC recipients are pursuing effective job search methods and provide them with assistance in their search. Second, the approach may increase the payoff to recipients for quickly finding new jobs. Third, the approach may provide additional incentives to potential employers to hire and retain them. Fourth, the approach may improve recipients' employability by providing them with additional opportunities for education and retraining. Job Search Requirements and Assistance Enforcement of job search requirements and the provision of various types of job search assistance have been shown to reduce the duration of UC receipt. Although all states have some type of requirements for the unemployed to be able, available, and actively seeking work, federal law did not require states to have such laws until recently. Under the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), states must require that "as a condition of eligibility for regular compensation for any week, a claimant must be able to work, available to work, and actively seeking work." Historically, the enforcement of job search requirements and the provision of job search assistance went hand in hand because the Employment Service (ES) administered the work test and was prepared to assist UC recipients with their job search. The Wagner-Peyser Act of 1933 established the Employment Service as a system jointly operated by the U.S. DOL and state employment security agencies. The central mission of the ES is to facilitate the match between individuals seeking employment and employers seeking workers. Services are open to all without fees. Local ES offices offer an array of services to job seekers and employers, including career counseling, job search workshops, labor market information, job listings, applicant screening, and referral to job openings. States provide ES services through three tiers of service delivery: self-service, facilitated self-help, and staff-assisted. As the names of the tiers imply, progressively more active staff involvement is required as services range from Internet job postings to career counseling. Upon the establishment of the UC program in 1935, ES offices also began to administer the UC work test requirements. These offices monitor UC claimants to ensure that they are able to work, available for work, and actively seeking work. For the recently unemployed, the ES processes UC income support claims and helps the individual find new employment. The relationship between the UC program and the ES, as well as the specific rules for enforcing the work test and providing job-search assistance, has varied over time and across states. For example, it used to be the general practice that UC recipients were required to periodically visit an ES office. But recipients are now much less connected to the ES than in the past and receive less assistance. A study by O'Leary and Eberts just before the recent recession estimated that "3 to 4 percent of ES registrants currently receive employment counseling, compared to 20 percent in the 1960s at the peak of ES funding." Substantial reductions in funding, as well as the expansion of transactions by telephone and computer, contributed to the decline. Federal support for the ES has not kept up with the growth in the labor force, except for a temporary increase during the recent recession. Funding peaked at about $840 million in 1995, falling to about $700 million in 2008. The decline in funding for the ES was temporarily reversed with the enactment of the ARRA in 2009, which supplemented regular funding with about $400 million in funds to be expended by the end of June 2011. A survey of state agencies conducted by the National Association of State Workforce Agencies in 2003 found that in most states UC applications were made by telephone or computer and that the most common method of certifying that recipients had been actively seeking work was by automated telephone response. A subsequent study estimated that only 13% of initial claims for benefits in 2006 were made in person; 15 years earlier, nearly all initial claims were made in person. The effectiveness of stronger enforcement of job search requirements and various methods of providing job-search assistance was demonstrated in a series of experiments conducted in the 1980s and 1990s where UC claimants were randomly assigned to treatment or control groups. For example, in a widely cited experiment conducted for U.S. DOL in 1983 in Charleston, South Carolina, UC claimants in one of the treatment groups were notified that to continue receiving benefits they needed to report to the nearest ES office for placement-related services. About one-quarter of them did not do so initially, although some of them subsequently complied. Some of the recipients voluntarily stopped collecting benefits rather than comply and others were denied further benefits. Consequently, on average the recipients in the treatment group received approximately one-half fewer weeks of benefits than did the control group, resulting in a savings to the UC program. Analysis of the timing of the impact indicates that it was largely the result of the reporting requirement, not any services provided. Evaluations of experiments conducted in Tacoma, Washington (1986-1987) and in Maryland (1994) provided further evidence of the potential for reducing UC expenditures through a strengthened work test. Once again reductions in the duration of UC receipt were achieved largely through UC recipients opting not to report for required services, rather than from the services themselves. A noteworthy feature of the Tacoma experiment was that it also tested the impact of relaxing the work test; doing so substantially increased the average duration of UC receipt. Several methods for improving the enforcement of job search requirements and providing job-search assistance have been enacted or proposed. Some involve strengthening the collaboration between the UC program and the ES. Others involve increased use of Reemployment and Eligibility Assessments, discussed below. Worker Profiling and Reemployment Services Since the beginning of the UC program in 1935, the ES has helped to enforce job-search requirements and provided UC recipients, as well as other job seekers, free job-search assistance. One approach that Congress may consider is to increase the size of grants going to states for ES activities or specifically for activities designed to reduce the duration of UC receipt. A targeted way of enforcing job search requirements and providing employment-related assistance to recipients begins with trying to determine which of the new UC claimants are at greatest risk of exhausting their entitlement to benefits. In 1993, Congress amended federal unemployment tax law and created the new requirement that each state maintain its own Worker Profiling and Reemployment Services (WPRS) program ( P.L. 103-152 ). States must identify UC claimants who are likely to exhaust regular UC benefits. After identifying likely UC benefit exhaustees through statistical profiling models, states must use their WPRS systems to refer workers to reemployment services to the extent that these services may be provided with existing state and federal funding. At the time of the creation of the WPRS program, no new federal funding was made available to states to provide reemployment services to UC claimants. Existing funds allocated for Wagner-Peyser Act programs, including ES, may be used to provide these services to UC claimants. A multi-state evaluation of the WPRS conducted soon after the program was implemented found that it appeared to be quite effective in reducing the duration of UC receipt, but not in increasing the employment and earnings of the recipients. In five of the six states for which the researchers had reliable data, the average duration of UC receipt was reduced by between 0.2 and 1.0 week. Exhaustion rates were significantly reduced in three of the states. Moreover, the researchers found that the impacts on UC receipt were generally larger for the claimants who had relatively high profiling scores; that is, it appears that the profiling system was generally effective in its targeting mechanisms. About a year after the recipients were profiled, their estimated employment and earnings levels were essentially no different from those of the comparison group. The researchers found wide variation across states in the amount of services provided to recipients who were required to participate. In addition, they found that the states that had the largest estimated impacts on UC receipt tended to be the ones that provided the most services. An analysis of Kentucky's program conducted by a different set of researchers estimated much larger effects. In the previously mentioned multi-state evaluation, Kentucky's program was estimated to reduce the average duration of unemployment by 0.2 weeks, whereas in the stand-alone Kentucky analysis, the program was estimated to reduce the average duration in Kentucky by about 2 weeks. Moreover, from the timing of the recipients' withdrawal from the UC program, the researchers concluded that these large impacts were primarily due to the recipients opting to exit UC rather than comply with the participation requirements. The larger estimated impacts may well have been due to differences in sampling methods between the studies. The observation that most of the estimated impacts appear to have resulted from the deterrent effect may be due to the quite modest amount of services provided in Kentucky; three-quarters of the participants who attended the mandatory orientation were referred to activities that typically lasted only four to six hours. Whether more intensive services would have had an impact beyond the initial deterrent effect is not known. Budgetary constraints appear to have limited the extent to which profiled claimants receive services, especially activities that require substantial staff time. For example, among the almost 8 million individuals who received UC benefits in 2007, only 1.2 million were referred to services, even though twice as many subsequently exhausted their entitlement to benefits; of the 900,000 individuals who reported for services, only 400,000 were assessed and 100,000 were referred to education or training programs. For most of its history, few federal resources have been provided to specifically fund the WPRS program. Initially, no specific funding was provided for the program because it was assumed that it could be operated with existing funds for the ES and other sources. In 2001 through 2005, Congress appropriated approximately $35 million per year for Reemployment Services Grants. No further federal funding for the WPRS program was appropriated thereafter. Then, in 2009, $250 million was appropriated for Reemployment Service (RES) Grants as part of the stimulus funding provided by ARRA. These grants were made available to state agencies to spend in 2009 and 2010. Guidance from the Department of Labor to state workforce agencies indicated that the funds were to be used to provide job search and other employment-related assistance services to UC claimants, including counseling, testing, occupational and labor market information, assessment, and referral to employers. State agencies were also encouraged to use these funds for upgrading their information technology; this includes updating the models they use to identify which claimants are most likely to exhaust their UC benefits before finding new jobs. With a grant from the Department of Labor, the National Association of State Workforce Agencies (NASWA) is conducting a major study of the activities undertaken by the states with these RES grants, as well as other ARRA-funded workforce development and UC activities. Their examination of the early implementation of the provisions in states visited between December 2009 and June 2010 found that three-quarters of them indicated that the top priority use of the RES funds was to expand services to claimants identified through their WPRS system. Many of the states did not have an active RES program at the time that the funds from the ARRA became available. The majority of state administrators reported that funds were being used to increase the number or variety of job-search assistance workshops, provide assessment and career counseling services, or refer claimants to training. A major concern, however, was what would happen after the funds ran out. Many of the staff hired by the state agencies for the RES activities were temporary workers. It was not clear how many of them would be retained. Reemployment and Eligibility Assessments A related way of enforcing job search requirements and providing employment-related assistance to recipients is through Reemployment and Eligibility Assessments (REAs). Since 2005, the federal government has provided grants to state workforce agencies to fund REAs. These are in-person interviews with selected UC claimants to assure that they are complying with the eligibility rules, determine if reemployment services are needed for the claimant to secure future employment, refer the individual to reemployment services as necessary, and provide labor market information that addresses the claimant's specific needs. REAs replaced a previous Eligibility Review Program that had been funded by DOL in which UC claimants were interviewed to confirm their eligibility for benefits. In May 2012, DOL awarded $65.5 million in grants to 40 states, the District of Columbia, and Puerto Rico to implement or continue REAs "to help speed job seekers' return to work while maintaining integrity of UI system." This was the eighth year that DOL awarded REA grants. The grants could be used to conduct in-person assessments, including the development of a re-employment plan and the provision of labor market information to the claimants, a complete review of their eligibility for UC benefits, and a referral to reemployment services. The findings from a DOL-funded evaluation, conducted by IMPAQ International, of an REA experiment in Minnesota in 2005 suggest that REAs can save money and reduce the duration of compensated unemployment, although whether the magnitude of the impacts would be similar in other circumstances is not clear. A noteworthy feature of the Minnesota experiment is that the participants and the control group were drawn from the UC claimants who ranked in the middle third of the profiled claimants in the study sites—that is, they were neither the ones who were considered most likely to exhaust (a group that was already being targeted) or those who were least likely to exhaust. The researchers found that UC claimants who were called in for multiple REA interviews received approximately one fewer week of benefits, had a lower rate of benefit exhaustion, as well as an increased likelihood of returning to work within six months of their initial UC claim with no significant effects on their wage rates or hours per week worked. Payments to ineligible claimants were reduced. These positive results, however, must be tempered by the failure to find significant impacts in North Dakota, which also participated in this REA initiative. Researchers suggest that this may have been the result of UC claimants in the control group receiving similar, though less intensive, services as were received by claimants in the treatment group or because of small sample size. (The impacts of the REA initiative in seven other states that had been selected to participate could not be assessed because of difficulties in those states acquiring data or constructing comparison groups.) A subsequent evaluation of REA activities in Florida, Idaho, Illinois, and Nevada in late 2009 estimated reductions in UC exhaustions in three of the four states studied. That evaluation, funded by the DOL and conducted by IMPAQ International, concluded that the savings from reductions in the number of weeks receiving UC and EUC08 benefits greatly exceeded the costs of the REAs in Florida, Idaho, and Nevada. No impact was found for the Illinois REA activities; researchers noted that the Illinois program was inconsistently implemented and was restricted to claimants with high-demand skills and that the sample size for the evaluation was small. The largest estimated savings were in Nevada, where REA claimants received about three fewer weeks of benefits than did claimants in a control group. The DOL commissioned a follow-up study to determine why Nevada's REA program was more effective than the programs in the other states. That study confirmed the substantial savings in UC benefits and found that the program was also effective in helping the claimants to obtain employment earlier than they would have in the absence of the program. The researchers suggest that Nevada's greater success with its program may have resulted from it being the only one of the state programs evaluated that provided both REAs and RES by the same staff. However, the design of the evaluation did not allow a direct test of that hypothesis. The Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) required that all individuals receiving EUC08 be "able, available, and actively seeking" work. An active work search for EUC08 claimants requires individuals (1) to register with reemployment services, as required by the state; (2) to actively search for work that is appropriate for the individual's skill level and labor market availability; (3) to maintain a record of work search activities; and (4) to provide work search activities records to the state when requested. In addition, P.L. 112-96 required states to provide reemployment and eligibility assessments to certain EUC08 claimants. EUC08 claimants must participate in reemployment services, if referred. P.L. 112-96 , as amended, provides $85 in federal funding per EUC08 claimant who receives REAs. Additional Incentives to Recipients Another approach for speeding the return to work of UC recipients is to increase their payoff for taking a new job sooner. The underlying assumption behind this approach is that some recipients would search for work more intensively or would be more willing to accept job offers that they might otherwise have rejected if the rewards were larger. Two options that directly use this approach are reemployment bonuses and wage insurance. A third option—self-employment assistance—encourages UC recipients to take a new job sooner by helping them to develop a new business while they are still receiving benefits. Reemployment Bonuses The first option would provide a bonus to UC recipients for becoming employed in a new job within a given period of time. For example, the plan hypothetically could provide UC recipients with a bonus equal to four times their weekly UC benefits if they began a new job within 10 weeks of when they initially filed for benefits. If successful, such a plan could encourage some recipients to accelerate their job search and find a job sooner. Legislative proposals that would encourage states to offer reemployment bonuses to eligible UC recipients were developed in the Clinton and George W. Bush Administrations, but were not enacted. As part of President Clinton's proposed Reemployment Act of 1994 (introduced by request as H.R. 4040 in the 103 rd Congress), states would have been permitted to use UC funds to provide bonuses to eligible claimants who found full-time employment with a new employer within 12 weeks from the date that they initially claimed UC benefits and retained employment for at least four months. States could offer bonuses that did not exceed four times the weekly benefit amount payable to the recipient under the regular UC program. Eligibility would have been limited to individuals who had been identified as likely to exhaust their entitlement to UC benefits through WRPS as described earlier. As part of President George Bush's 2003 economic stimulus package, Personal Reemployment Accounts (PRAs) could be used by UC recipients for cash bonuses, as well as for purchasing a variety of employment-related services. The purpose of the PRAs was to provide persons likely to exhaust their UC benefits a choice in the type and source of reemployment services and to induce claimants and exhaustees to speed their reemployment by providing a bonus equal to the balance in their PRAs when they obtained new jobs. PRA recipients would have had to use funds within their accounts for some reemployment services that had been available free, such as training, if they chose to use those services. These proposals were motivated, at least in part, by findings from experiments conducted in Illinois, New Jersey, Pennsylvania, and Washington State in the 1980s to evaluate the efficacy of variously designed reemployment bonus programs. The evaluations and subsequent reanalysis generally concluded that offering bonuses to UC recipients shortened their length of benefit receipt, especially when UC recipients also were offered job-search assistance and when the bonus programs were targeted to those UC recipients most likely to exhaust their benefits. The size of the bonuses offered ranged from roughly three times the average weekly UC benefit amount to 10 times the weekly benefit. Depending on the experiment, recipients had between 3 weeks and 13 weeks after being told they were eligible for a bonus to begin a new job. Researchers found that such inducements did result in shorter durations of UC receipt, but not necessarily by enough to offset the cost of the bonuses. The largest estimated impact was in Illinois, which was the site of the first experiment. UC claimants who found a job within 11 weeks of filing for benefits and kept it for four months were eligible for a $500 bonus, which was about four times the average weekly benefit. Claimants offered this bonus had about a one-week shorter duration than claimants in the control group who were not offered the bonus. Estimated impacts in the other experiments were mostly around half that size. One caution about the findings from the experiments is that a portion of the success of the bonus-takers could come at the expense of increasing the duration of unemployment of other job seekers (displacement effect) or of inducing more workers who lose their jobs to file for benefits in order to become eligible for the bonuses (entry effect). Analysis also suggested that targeting eligibility for bonuses toward UC claimants with an above-average likelihood of exhausting their benefits could add to their effectiveness. Using statistical models like the ones used by state offices to profile UC claimants, researchers reanalyzed the results from the reemployment bonus experiments in Pennsylvania and Washington. In each case, the analysts found that restricting the bonus offers to half of the UC claimants—the ones estimated to be more likely to exhaust—would have increased the impact on UC durations. In the bonus design that provided a longer qualification period and a smaller bonus, the estimated savings in UC payments exceeded the cost of the bonuses. The Clinton Administration's proposal ( H.R. 4040 , introduced in the 103 rd Congress) closely followed the design of the Pennsylvania and Washington experiments, except that the proposal restricted eligibility to profiled UC recipients who were likely to exhaust their entitlement to benefits. That restriction was designed to reduce costs and to limit the extent to which the availability of bonuses might have induced some unemployed workers who expected to find new jobs quickly to file for benefits anyway in order to get the bonus. The Bush Administration's proposal, by combining potential bonuses with reemployment services into one account, differed sharply from the design of the original experiments. For example, most of the experiments linked the value of a bonus with the individual's UC benefit, while the size of the bonus that an individual could receive with the PRA would, instead, have been based on the balance remaining after paying for employment services. Wage Insurance Another way of providing an additional incentive to UC recipients to return to work more rapidly would be to offer them "wage insurance." Wage insurance subsidizes a fraction of the difference between the wage a worker earns in a new job and the wage earned in the old job for a limited period of time. Unlike reemployment bonuses, wage insurance would only provide payments to workers who incurred a wage loss. In that way, the subsidies would, in effect, compensate them for a portion of the financial loss they incurred when their old jobs were abolished. As discussed above, many of the workers who lose their jobs, especially ones who have been with the same employer for many years, are unlikely to find new jobs that pay as much as the ones they lost. Even though UC provides workers with temporary income support while they search for new jobs, it does not compensate them for the possibly permanent reduction in their earnings that resulted from the job loss. Particularly for workers who lose jobs that they held for many years, the long-term reduction in earnings could greatly exceed the losses while unemployed. Wage insurance may help to induce those workers to accept lower-paying jobs that they might have been reluctant to take, as well as compensating them for a portion of their loss in earnings. Opponents of wage insurance contend that such plans subsidize downward mobility, encouraging job seekers to accept lower-paying jobs rather than helping them to prepare for better ones. Moreover, because it would only provide a benefit to workers who incur a reduction in their wages, workers who lose low-paying jobs are less likely to qualify. Proposals for wage insurance, at least as an experiment, have been offered for many years, but have only been implemented on a very limited basis. P.L. 100-418 , enacted in 1988, directed the DOL to conduct wage insurance demonstration projects for workers eligible for Trade Adjustment Assistance benefits, but the projects were never carried out because the agency was unable to secure sufficient state interest. Since 2002, wage insurance has been offered to certain workers aged 50 or older who are certified as eligible for Trade Adjustment Assistance (TAA) benefits. If those workers accept a new job that pays less than the one they lost, the federal government will pay them half of the difference in wages for up to two years. Now called Reemployment Trade Adjustment Assistance (RTAA), the program provides eligible workers with a wage supplement that can total up to $10,000 over a two-year period. Earnings in the new job cannot exceed $50,000 a year. In 2011, $40 million was paid to more than 6,100 participants in the RTAA wage insurance program. The President Obama's American Jobs Act (introduced by request as S. 1549 and H.R. 12 in the 112 th Congress) would have established a "Reemployment NOW" program with $4 billion in direct appropriations to fund state-designed activities to assist the reemployment of eligible individuals. One of the allowable activities that states could undertake would have been to provide an income supplement to EUC08 claimants who secure reemployment at a lower wage than their separated employment. The benefit level would be determined by the states, although it could not be more than 50% of the difference between the worker's wage at the time of separation and the worker's reemployment wage. States would also establish a maximum benefit amount that an individual could collect. The duration of wage insurance payments would be limited to two years. Wage insurance under this proposal would also be limited to individuals who (1) are at least 50 years old; (2) earn not more than $50,000 per year from reemployment; (3) are employed on a full-time basis as defined by the state; and (4) are not employed by the employer from which the individual was separated. Very little information is available to gauge the effectiveness of wage insurance in reducing the duration of unemployment or UC exhaustions. As with the reemployment bonuses, wage insurance could shorten the duration of unemployment by increasing the effective wage in the new job. If a fixed-length eligibility period begins while the job seeker is still receiving UC benefits, that feature could reduce UC outlays. A version of wage insurance was tested in five cities in Canada in the mid-1990s. In that experiment, claimants who found a new lower-paying job within six months could receive an earnings supplement of 75% of their earnings loss (up to a cap) for up to two years. Evaluators found that the supplement appeared to have little impact on how quickly participants found new jobs. Its major effect was to partially compensate workers for the wage losses that they incurred. Self-Employment Assistance Another way of providing an additional incentive to UC recipients to return to work more rapidly would be to make it easier for them to start their own businesses while still receiving benefits. Self-employment is one potential pathway to exit a spell of unemployment. The regular UC program requires unemployed workers to be actively seeking work and to be available for work as a condition of eligibility for UC benefits. These requirements constitute a barrier to self-employment for unemployed workers who need income support. The Self-Employment Assistance (SEA) program, created in 1993 ( P.L. 103-182 ) and made permanent in 1998 ( P.L. 105-306 ), helps unemployed individuals establish their own businesses by providing them with temporary income support (in lieu of receiving regular UC) and access to entrepreneurial training and services. SEA waives state UC work search requirements for those individuals who are working full time to establish their own businesses. SEA provides a weekly allowance in the same amount and for the same duration as regular UC benefits. It is available only to individuals who would otherwise be entitled to UC benefits and have been determined likely to exhaust their regular benefits. Most recently, provisions in the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) gave states the authority to expand SEA participation to certain claimants in the EB and EUC08 programs. Unlike reemployment bonuses and wage insurance, self-employment assistance is not primarily designed to reduce the duration of participants' current spell of compensated unemployment; but, if successful, the participants could become reemployed sooner and be less likely to need UC benefits in the future. The current SEA program built on lessons learned from two self-employment demonstration projects conducted in the early 1990s in Massachusetts and Washington. Findings from these pilots were generally positive. In particular, the demonstration evaluation determined that the structure of the Massachusetts program, which became the model for the future SEA program authorization, was a cost-effective approach to promoting reemployment among workers. The researchers concluded that participation in the Massachusetts SEA program significantly reduced participants' receipt of benefits and increased their total earnings over the 2½-year period after selection into the program. Participation in the program by states as well as unemployed workers is limited. Currently, only Delaware, Maine, New Jersey, New York, and Oregon have active SEA programs for UC claimants, and in one of these states—New York—authorization for the program is scheduled to expire December 2013. Total participation in the SEA program has ranged between 1,000 and 2,000 individuals per year since 2003. In part, the small-scale nature of the program is likely due to the authorizing legislation requirement that SEA be budget neutral; that is, a state program may not incur additional costs above what the state would have spent on its regular UC program. The entrepreneurial training that SEA participants are expected to receive must come from other funding sources. Moreover, the number of individuals participating in the program may not exceed 5% of individuals receiving regular UC benefits in a state. State officials report several challenges in operating their SEA programs. For example, the administrator of the UC program in Oregon (which operates one of the largest SEA programs) lists the reliance on a profiling system for identifying eligible participants that might not reflect their ability to start and manage a business as one challenge. Lack of funds for entrepreneurial training, limited capacity, and difficulty in monitoring long-term effectiveness are other barriers. There are many options that might be considered if Congress were to expand the program, such as having the federal government, rather than the states, pay the SEA benefits or providing stronger incentives for the states to use a portion of their funds from the Workforce Investment Act for entrepreneurial training. Even with such actions, though, it is unlikely that self-employment would be an attractive alternative for a large fraction of UC recipients. Additional Incentives to Employers Another approach for speeding the return to work of UC recipients is to increase the payoff to potential employers to hire them. Banning discrimination on the basis of employment status and providing subsidies to employers are two methods that have been considered in recent years. A related option is to provide an incentive to employers to retain workers who otherwise would have been laid off; short-time compensation, discussed below, uses this approach. Prohibition of Discrimination Employers may favor job applicants who are currently working over applicants who are unemployed, particular job seekers who have been unemployed for many months. Employers may, at least informally, rank job applicants by their duration of unemployment and hire from the front of the queue because they consider lengthy unemployment to be a signal of poor worker quality (that is, low productivity). In effect, long-term unemployment can stigmatize workers. Employers may also be reluctant to hire the long-term unemployed because they believe the group's skills have atrophied during their lengthy time away from the workplace. The American Jobs Act as proposed by President Obama in 2011 (introduced by request as S. 1549 and H.R. 12 in the 112 th Congress) would have established the Fair Employment Opportunity Act of 2011, prohibiting employment discrimination against the unemployed. Designed to eliminate the economic burdens imposed by discrimination against the unemployed, the act would prohibit discrimination in job advertising and hiring practices. The act appears to be modeled on Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment on the basis of race, color, national origin, sex, or religion. The Fair Employment Opportunity Act would prohibit employers and employment agencies from discriminating on the basis of employment status. Most public and private employers would be covered, although private employers who have fewer than 15 employees would be exempt. Covered employers and employment agencies would be prohibited from publishing an advertisement or announcement stating that individuals who are unemployed are not qualified for the employment opportunity or that such individuals would not be considered or hired. Other prohibited acts include the failure or refusal to consider or to hire an individual because of that individual's status as unemployed. Enforcing such legislation could be challenging. Identification of discriminatory advertising should be straightforward, but more subtle forms of discrimination may be more difficult to prove. Compared with the victims of post-hiring types of discrimination, it is often harder for rejected job-seekers to establish why they were less favored. They generally have less information on which to base a discrimination complaint than do individuals who are already employed. Nonetheless, patterns of hiring discrimination could be identified, for example, through testing in which pairs of individuals with similar backgrounds, except for their current employment status, apply for the same job opening. Moreover, recent research on the effectiveness of age discrimination legislation in facilitating the reemployment of older workers suggests that such legislation can make a difference. Tax Credits Another method of encouraging employers to hire unemployed workers is to provide them with a subsidy for doing so, thereby reducing their cost. The subsidies could be to public employers, private employers, or both. In recent years, the main legislative focus has been on the use of the tax system to offer incentives to private employers. Tax credits have often been the vehicle for providing eligible employers subsidies either to expand total employment or to encourage employment of members of certain groups of workers such as disadvantaged individuals. But with the exceptions of the now-expired credits provided in the Hiring Incentives to Restore Employment Act (HIRE) of 2010 ( P.L. 111-147 ) and in the unemployed veterans parts of the Work Opportunity Tax Credit (WOTC; P.L. 112-56 ), tax credits have not been specifically designed to promote the employment of unemployed individuals. Congress may consider options for renewing the expired targeted tax credits or creating new ones. Under the provisions of HIRE, employers who hired certain previously unemployed workers after February 3, 2010, and before January 1, 2011, could be exempted from their share of the Social Security taxes paid on behalf of those workers. In addition, if they retained the workers for at least one year, the employers would be eligible for up to a $1,000 tax credit. Although the legislation was characterized as providing an incentive to hire individuals who had been unemployed for at least two months, it did not actually require them to have been actively seeking work during that period. To qualify, employees needed to certify that they had not been employed for more than 40 hours during the 60-day period on the date they started employment. It was not necessary that they had been previously employed before the 60-day period. Thus, new entrants to the labor force, as well as individuals who had been actively seeking work, could qualify. The WOTC is a non-refundable tax credit for employers who hire individuals of certain targeted groups. It replaced the Targeted Jobs Tax Credit (first authorized in 1978 by P.L. 95-600 ) in 1996. Through the end of 2011, for-profit employers were entitled to a credit against their federal income tax liabilities for hiring members of eligible groups, including members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program and other groups thought to experience employment problems regardless of general economic conditions. The credit was calculated as 40% of the first-year wages paid to the qualifying individual, up to a maximum amount of wages. For most qualified individuals, the maximum amount of first-year wages for calculating the WOTC was $6,000. ARRA extended the WOTC to cover unemployed veterans who had been discharged or released from active duty in the Armed Forces within five years of their hiring date and had received UC for not less than four weeks during the one-year period ending on the hiring date. The VOW to Hire Heroes Act of 2011 ( P.L. 112-56 ) expanded the targeted group for qualified unemployed veterans and made the WOTC refundable for certain non-profit employers. Employers hiring a veterans certified as having aggregate periods of unemployment of at least four weeks but less than six months in the year prior to being unemployed and employing them for at least 120 hours could claim a credit of 25% of $6,000 of first-year wages; if employing them for at least 400 hours, a credit of 40% of $6,000 of first-year wages could be claimed. Larger credits could be claimed for hiring veterans who had been unemployed at least six months. The act allowed employers to claim the WOTC for individuals certified as qualified veterans who began work before January 1, 2014. Several bills introduced in the 112 th Congress also would have offered employers tax credits to induce them to hire unemployed workers, especially individuals experiencing longer-term unemployment. President Obama's American Jobs Act of 2011 ( S. 1549 and H.R. 12 ) would have added as a targeted group for purposes of the WOTC individuals who had been unemployed for at least six months during the one-year period prior to being hired. For those long-term unemployed who are hired and remain on a firm's payroll at least 400 hours, an employer would be able to claim a non-refundable income tax credit of 40% of the first $10,000 in wages paid during the worker's first year of employment. They would be eligible for a smaller credit if the worker remained employed for 120 hours to 399 hours. Under certain circumstances, tax-exempt employers could take the credit. Other bills introduced in the 112 th Congress included H.R. 2120 , which would have expanded the definition of a WOTC targeted group to include individuals who had exhausted entitlement to EUC08, and H.R. 1663 , which would have provided a temporary tax credit for certain small businesses that hired unemployed individuals who had received unemployment benefits and resided in a county with an unemployment rate that exceeded 4%. The use of targeted subsidies as a means of increasing the employment opportunities for members of specific groups has had mixed reviews. Analyses of the Targeted Jobs Tax Credit found that the majority of jobs filled by employers who claimed the credit would have been filled without the credit. That is, they were not used to create new jobs. But for a targeted subsidy, the key issue is whether it succeeded in reshuffling the queue in favor of members of the targeted groups. On the one hand, because the cost of employing those individuals is reduced by the subsidy, they become more attractive to potential employers who are familiar with the program. On the other hand, some evidence was found of a stigmatizing effect, whereby some employers may have viewed the government's offer of a subsidy as evidence that there was something wrong with those job seekers. There is little basis to predict the impact of providing a tax credit to employers based on their hiring individuals who had been unemployed for a period or who were UC recipients (or were at risk of long-term unemployment or benefit exhaustion). An experiment in the 1980s in which employers who hired certain UC claimants and retained them for at least four months could receive a subsidy attracted few participants. In addition to the issues concerning cost and windfalls associated with providing a tax credit for hiring individuals who would have been hired without the credit, lawmakers would need to consider potential spillover effects on members of the groups already targeted. The addition of this group could help the others by increasing the subsidy's visibility among potential employers and perhaps diminishing any stigma associated with it. But their inclusion could reduce employment opportunities for others to the extent that employers favor members of the newly eligible group. GeorgiaWorks and Related State Programs Various state-initiated short-term subsidy programs have also been used to encourage employers to hire unemployed workers. Georgia developed a program, GeorgiaWorks, to subsidize the wages of workers for a short period that received considerable attention. During the subsidy period, the newly hired workers would receive on-the-job experience and training. In addition, employers could determine whether they want to retain the new hires after the subsidy ended. That program was singled out by President Obama in his September 2011 address on his proposed jobs plan. The GeorgiaWorks program, begun in 2003, offers employers in that state an opportunity to train and assess UC recipients at no cost, while providing the recipients an opportunity to train with a potential employer. In its current structure, UC recipients can be voluntarily placed with an employer for a maximum of 24 hours per week for up to eight weeks. The Georgia agency pays the participant a training stipend and provides workers compensation coverage. The employer is under no obligation to hire the participant after the subsidy period ends. From 2003 to 2009, the GeorgiaWorks program expanded rapidly, growing from about 400 participants in its first year to 3,000 participants in 2009. In September 2010, participation increased several fold with the expansion of eligibility to include unemployed workers who were not receiving UC benefits. But in 2011, with a change in the administration of the Georgia Department of Labor, the program was sharply reduced in size and scope. Eligibility was again restricted to UC recipients and the stipend was reduced from $600 to $240. The new labor commissioner said that spending had gotten out of control and that too few of the participants were trained and hired by the employers with whom they had been placed. The potential benefits and limitations of short-term subsidy programs are illustrated by the data and debates about the merits of the GeorgiaWorks program. Data provided by the state's Department of Labor indicate that about 40% of the participants were placed in clerical occupations and that about 35% of the 7,500 participants who completed the program between 2003 and 2009 were hired by the employer with whom they had been placed. Opponents argue that the jobs in which the participants are often placed are the kinds of low-paying jobs temp agencies help firms fill without any training and point to the low percentage of the participants retained after the subsidy ends. Supporters contend that the program provides UC recipients with an opportunity to gain new skills and enhance their resume, even if they are not hired by the same employer. Other states also launched short-term subsidy programs. For example, in 2010, Texas began its Texas Back-to-Work Initiative (TBTW). That program provides a subsidy of up to $2,000 to employers for hiring eligible first-time UC claimants previously earning less than $15 per hour. To qualify for the $2,000 TBTW subsidy, an employer is required to provide the claimant with at least 30 hours of work per week and is required to retain the claimant for at least 120 days. Smaller subsidies are available to employers for claimants who were retained for between 30 and 119 days. In April 2012, the executive director of the Texas Workforce Commission testified that more than 25,000 individuals had been placed in jobs through this program and that these placements had reduced the average duration of participants' unemployment receipt by nine weeks. Also in 2010, New Hampshire began its Return to Work Initiative. It is a voluntary program in which employers can take on eligible UC claimants for up to six weeks of structured supervised training of no more than 24 hours per week. The participants continue to receive UC benefits and must continue to search for work during non-training time unless otherwise exempted. Participants can remain in the program if they exhaust UC benefits prior to the end of the six-week period, but their UC benefits are discontinued. Claimants with a definite recall date within six weeks and those who do not register for employment services are not eligible. In 2011, a workforce development board in Connecticut, The WorkPlace, launched a pilot program called Platform to Employment (P2E) to increase employment opportunities for long-term unemployed in southwestern Connecticut. Eligible individuals are offered a five-week preparatory program, including resume writing, interview preparation, self-marketing, and other skills. This is followed by placement with employers for an eight-week trial period. With support from several foundations, the program is scheduled to expand to 10 cities around the country in 2013, beginning with Chicago, Cincinnati, Dallas, and San Diego. Projects in the new sites will focus on long-term unemployed individuals over the age of 50 or who are military veterans. In 2012, Utah began its Small Business Bridge Program, providing a subsidy to small businesses (up to 100 employees) that hire workers by June 30, 2013, and retain them for at least one year. Firms can receive a subsidy of between $3,000 and $4,000 per job created, with the amount based on the wages paid. In addition, a $500 bonus will be paid for each individual hired who was receiving UC at that time. Also in 2012, Wisconsin initiated its Wisconsin Workers Win (W3) pilot program, modeled on the GeorgiaWorks program. UC recipients in their first 20 weeks of collecting benefits can be voluntarily placed with an employer for up to six weeks working 20 to 24 hours per week. The recipients continue to receive UC as well as an additional $75 weekly stipend. The employers must state their willingness to provide training and supervision. They are required to carry workers' compensation coverage, but not to pay wages or benefits, and are not obligated to retain the participants after the six-week period. Up to 500 UC recipients are expected to participate in the program during its first year. The 112 th Congress did incorporate some of these ideas into P.L. 112-96 , which provides further encouragement to states to try out short-term wage subsidies to help UC recipients return to work. It allows up to 10 states to create and conduct demonstration projects to improve and accelerate the reemployment of UC claimants. These state reemployment demonstration projects could use UC funds to provide subsidies for employer-provided training, such as wage subsidies, or provide direct reimbursement to employers who hire individuals receiving UC to pay part of the cost of wages that exceed the individual's prior benefit level. The reimbursement may not exceed the weekly benefit amount of an individual. Subsidies for employer-provided training could include on-the-job training or other work-based training programs. The approved demonstration projects must last between one and three years, be completed by the end of 2015, and include an evaluation of its impact on participants' skill levels, earnings, and employment retention. As of the publication date of this report, no state demonstration project has been approved. Short-time Compensation Short-time compensation (STC), sometimes called work sharing, is a program that provides pro-rated unemployment benefits to workers whose hours have been reduced in lieu of a layoff. STC may be helpful to a firm and its workers during an economic downturn or other periods when employers determine that a temporary reduction in work hours is necessary. In the states that operate STC plans, workers whose hours are reduced under a formal work sharing plan may be compensated with STC. Unlike the other options described in this report, the purpose of STC is to give employers an incentive to retain workers, thereby reducing the number of individuals who might otherwise become unemployed. STC programs can provide macroeconomic benefits by preserving jobs during cyclical downturns and maintaining consumption. Participating employers can use it as a means of avoiding the costs associated with hiring and training new workers when business picks up; workers can benefit from reduced layoffs. In a typical STC plan, a firm that must temporarily reduce the total number of hours worked by its 100-person workforce by 20% could accomplish this by reducing the work hours of its entire workforce by 20%—from five days to four days a week—in lieu of laying off 20 workers. Workers whose hours are reduced would receive 80% of their regular weekly earnings plus 20% of the UC benefit they would have been entitled to had they been laid off. As UC generally replaces almost half of an average worker's wages (up to a cap and with considerable variation among states), STC benefits would in this example amount to about 10% of the worker's full-time earnings. Employees would therefore receive a combined income of about 90% of their full-time wages as compensation for four days of work. STC plans have never reached many workers in the United States, though they have been much more frequently used in several other developed countries. A recent study of the use of STC in the United States concluded that, "with the possible exception of Rhode Island, the overall scale of the STC program operating in the 17 states was too small to have substantially mitigated the aggregate job losses these states experienced in the recent recession. Expansion of the program within STC states as well as to states without the program is necessary for STC to be an effective counter-cyclical tool in the future." Many states have not enacted STC legislation and, within the states that have, few firms and workers have participated. At its peak usage during the recent recession, about 1.5% of UC recipients were STC participants. Those STC participants accounted for less than 0.1% of the U.S. labor force. In comparison, over 5% of the labor force in Belgium, almost 2% of the German labor force, and over 1% of the labor force in several other European nations and Japan were in STC programs at around that time. Some of the higher usage in other countries may reflect institutional and cultural differences; for example, higher fractions of workers in Belgium and Germany are represented by trade unions and there is more of a tradition of unions, management, and government jointly determining working arrangements. In addition, differences in who ultimately bears the cost of the plans may also be important, as discussed below. An assessment of the impact of STC programs in 16 Organisation for Economic Co-operation and Development (OECD) countries during the recent recession concluded that they "played an important role in preventing many workers from unnecessarily facing unemployment during the 2008-09 crisis in a number of countries." However, the authors noted that some of the support provided by these programs could have funded jobs that employers would have maintained without that support. They also cautioned that, as the economies in those countries emerge from the recession, the STC programs could impede economic restructuring. Employers who are planning to lay off workers and are aware of the STC program may decide that it is not worthwhile for them to participate. For example, production technologies may make it expensive or impossible to shorten the work week. One obstacle that generally does not occur elsewhere is that the STC payments made to their employees may be treated like regular UC benefits for the purpose of determining a firm's unemployment tax rate. Because those tax rates are experience-rated, the employer may ultimately pay the full cost of the STC payments, just as it would if the workers had been laid off. Likewise (and, again, unlike elsewhere) workers may be reticent because the STC payments are treated as regular UC benefits for the purpose of determining their remaining entitlement to benefits if they are subsequently laid off. Because firms facing slack demand might first reduce hours and then lay off workers, their employees might want to preserve their eligibility for the maximum number of weeks. In addition, lack of awareness on the part of employers appears to have been a major barrier to participation among the states that have STC legislation. The director of the Rhode Island Department of Labor and Training, whose state has had one of the highest percentage of UC claimants participating in its STC program, attributes much of their relative success to their very active promotion of the program. In addition to dedicating several agency employees specifically to the program, they trained all of their UC claim-takers to monitor layoff patterns to identify employers that might benefit from using STC. Many states have either not opted to enact STC plans or, if they have such plans, have not aggressively marketed them. The administrative costs of STC programs have been a concern for state workforce agencies. In many states, STC is still paper-based and states approve employers' plans on a case-by-case basis. In addition, STC may increase processing costs for the state agency relative to layoffs because, for a given firm, work sharing affects a larger number of workers than if the firm were to lay off workers to achieve a comparable reduction in hours. In an effort to expand the use of STC in lieu of layoffs, P.L. 112-96 included provisions intended to clarify the definition of STC and to provide incentives to states to adopt and modify STC programs. That legislation provides federal financing for 100% of STC benefits for up to three years in states whose program meets the definition of an STC program specified in the law. (A transition period is provided for states with existing STC programs that do not meet the new definition.) Under the new legislation, employers would voluntarily submit written STC plans for approval by the relevant state agency. Eligible workers would receive UC on a prorated basis and would be able to participate in state-approved training. Employees would meet the availability for work and work search requirements while collecting STC by being available for their workweek as required by the state agency. Employers who provide health and retirement benefits would be required to certify that these benefits would continue to be provided under the same terms and conditions as though employees' workweeks had not been reduced or to the same extent as other employees not participating in the STC program. On August 13, 2012, U.S. DOL announced the availability of nearly $100 million in grants for states to implement or improve existing STC programs. Retraining Some workers who have lost their jobs may need to acquire new skills before they can return to work. Those displaced from jobs held for many years in an occupation or industry that is declining are especially at risk of exhausting their benefits before they have found new jobs. Their skills may have become obsolete and not readily transferable to other sectors. Long spells of unemployment resulting from structural changes could be used as opportunities to develop new skills. Training-related issues that the may be of congressional interest include the rules governing eligibility for receipt of UC while in training and the reauthorization and funding for retraining displaced workers through Title I of the Workforce Investment Act. Retraining While Receiving Unemployment Compensation Each state sets its own rules concerning the payment of UC benefits to individuals who are participating in a training program, subject to the federal requirement that a state cannot deny benefits to an individual for failure to be available for work during a week if the individual is in training with the approval of the state agency. But federal law does not specify the criteria that the states must use to approve training. In general, states limit approval to vocational or basic education training, thereby excluding regularly enrolled students from collecting UC benefits under this provision. In 2009, Congress encouraged states to expand their support of training for UC recipients through the previously noted unemployment modernization incentive provisions in ARRA (the 2009 stimulus package; P.L. 111-5 ). One way states could qualify for an incentive payment was to amend their UC legislation to provide extended compensation to recipients in qualifying training programs. The provision could not be subject to discontinuation. To qualify, the state's UC legislation had to enable unemployed workers who had exhausted their entitlement to regular UC benefits to continue receiving benefits for at least 26 weeks if they were enrolled and making satisfactory progress in a state-approved training program or in a Workforce Investment Act training program that was preparing them for entry into a high-demand occupation. The final date for receiving incentive payments was September 2011. State legislators had to decide whether the one-time financial incentive was a sufficient inducement to make this change in their UC legislation. Ultimately, 15 states and the District of Columbia took up the option. The effects of this provision have not yet been evaluated. Lawmakers may want to consider whether to offer states additional incentives to provide retraining opportunities to UC recipients and whether to require states to modify their existing programs. For example, the Expanding Training Opportunities Act of 2012 ( S. 2095 ) that was introduced would have expanded the types of training that may be considered approved training while an individual is receiving UC to specifically include any coursework necessary to attain a recognized postsecondary credential if that individual is likely to exhaust his or her regular UC, and the credential can be attained within a certain time. The proposal defined "recognized postsecondary credential" as a credential consisting of an industry-recognized certificate, a certificate of completion of an apprenticeship, or an associate or baccalaureate degree. Workforce Investment Act96 For many years, the federal government has funded training and education programs that can help unemployed workers acquire new skills, thereby increasing their employment opportunities and earnings. These programs include training authorized by the Workforce Investment Act (WIA), as well as educational assistance through Pell grants and subsidized loans. Although training and education funded by these programs can reduce the likelihood that their participants will incur future spells of long-term unemployment, this is usually not their immediate purpose. Indeed, participation in a training or education program (at least on a full-time basis) likely will delay their reemployment. It is an investment intended to pay off by putting the participants on a higher-earning career trajectory than they otherwise would have. WIA is currently the primary federal program that supports workforce development activities, including job search assistance, career development, and job training. WIA establishes the One-Stop delivery system as a way to co-locate and coordinate the activities of multiple employment programs for adults, youth, and various targeted subpopulations. The delivery of these services occurs primarily through more than 3,000 One-stop career centers nationwide. The authorization for appropriations for most programs under the WIA expired at the end of FY2003. Since that time, WIA programs have been funded through the annual appropriations process. About $1.2 billion was appropriated for dislocated worker activities under Title I of WIA for FY2012. Unemployed individuals are generally eligible for dislocated worker activities if they have been terminated, laid off, or notified that they will be terminated or laid off; sufficiently attached to the workforce, for example by being eligible for UC benefits; and are unlikely to return to their previous industry or occupation. WIA implements a "work first" approach to workforce development, with placement in employment being the first goal of the services provided. Unemployed workers who participate in the WIA program generally receive at least "core" services, including the provision of workforce information. Some then receive more intensive assistance, such as the development of individual employment plans while others receive retraining support, generally in the form of vouchers that can be used to pay eligible education and training providers, such as community colleges and vocational schools. Retraining (whether provided in a community college or elsewhere) is generally much more costly than the other employment-related services and involves much more of a commitment by the participants themselves. Generally, the offer of retraining support through WIA is only supposed to be made after the program staff determine that the core and intensive services are not sufficient to enable a participant to obtain employment and that the participant has the background and ability to benefit. Mixed results from two evaluations of WIA suggest that selective use of retraining can be effective but that care needs to be taken that the retraining is appropriate for the participant's interests and ability and likely to lead to reemployment. An evaluation of the WIA program by Heinrich and others was based on administrative data collected for about 60,000 displaced workers in 12 states who entered various WIA activities between mid-2003 and mid-2005. About 20,000 of those participants received retraining assistance. The rest only received counseling and related job search services. Administrative data were used to track the employment and earnings of these participants for up to four years after they entered the program. Researchers estimated that the participants in their sample increased their earnings by being in WIA, but with considerable variation across states and types of services provided. Particularly relevant is their conclusion that their study shows "little evidence that training produces substantial benefits." Eighteen months after most of the participants had ended their training, their employment and earnings were not much higher than those of the WIA program participants who had only received non-training services. The researchers emphasized, however, that methodological issues make it difficult to be as confident in the estimates as one would like. An earlier evaluation by Hollenbeck and others estimated the impacts of WIA activities on participants in seven states who left the program between mid-2000 and mid-2002 using similar methodology, but found larger impacts. Administrative data were used to track the employment and earnings of about 90,000 participants in WIA displaced worker activities and a comparison group through the end of 2003. Researchers estimated significant gains for the displaced workers who participated in any WIA activities. The estimated gains for the displaced workers in WIA training activities (about 50,000 of the participants) were also significant and persisted for at least two years after leaving the program. But these gains were smaller than those of the displaced workers who had only received non-training services. As with the more recent evaluation, caution should be used in interpreting these estimates because it is possible that subtle differences between the groups being compared could affect the results. Acknowledgement Ralph E. Smith, Consultant in Economics, wrote this report. Readers with questions about the UC program and expediting the return to work may contact [author name scrubbed].

The most recent recession led to an unprecedented increase in the number of those unemployed for more than 26 weeks (the long-term unemployed). As a result, congressional interest in policy initiatives to expedite the return to work grew. This report examines a variety of initiatives and measures within the Unemployment Compensation (UC) program that might reduce long-term unemployment for beneficiaries. Even before the recent recession began, large numbers of UC recipients exhausted their entitlement to regular state benefits before returning to work. In 2007, one in three recipients exhausted their benefits. In the depths of the recession, more than half of the recipients exhausted their regular benefits, with most of them continuing to receive unemployment insurance benefits through federally financed extended unemployment benefits. Based on current forecasts of a slow recovery and on trends that were apparent before the recession, it appears likely that the exhaustion rate will remain well above its pre-recession level for many years to come. The adverse consequences of not being able to find new work and of exhausting benefits can be severe for the recipients themselves, as well as for government budgets in terms of lost revenue and higher expenditures, and for the economy in lost output. During and immediately following the recession, Congress provided incentives for states to adopt innovative ways of helping unemployed individuals return to work and enacted legislation that temporarily increased funding for various reemployment and training services. As the labor market continues to recover and the temporary funding ends, Congress may again consider policy initiatives that go beyond income replacement. These may include strategies that would speed up the reemployment of recipients who will not be returning to their previous employers. After a brief description of the federal-state unemployment insurance system, this report examines trends in the duration of unemployment benefits and then reviews a wide range of approaches for speeding the return to work. The report emphasizes measures that have recently been considered by lawmakers or have been tried on an experimental basis, particularly if evaluations of their impacts on duration of UC benefit receipt are available.

Background on the Eurozone and the IMF What is the Eurozone? The Eurozone refers to the group of European Union (EU) countries that use the euro (€) as their national currency. The euro was introduced in 1999 as an accounting currency and in 2002 as physical currency in circulation. The Eurozone originally included 11 countries and has since expanded to 16 countries. Greece joined the Eurozone in 2000. Currently, the countries in the Eurozone include Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The EU has 27 member states. Denmark, Sweden, and the United Kingdom are members of the EU that have opted out of joining the Eurozone. All recent entrants to the EU, including Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Romania, are required to adopt the euro as their national currency as soon as possible, but must meet certain economic policy targets before they are eligible. Budgetary discipline is one of the criteria for joining the euro. Under the Treaty on European Union, commonly referred to as the Maastricht Treaty, EU member states are required to stay below a government budget deficit ceiling of 3% of GDP and external debt ceiling of 60% of GDP. Enforcement by EU authorities has been weak, however, and many governments have exceeded these ceilings. When the euro was introduced, some raised concerns about the viability of an economic union that has a common monetary policy but diverse national fiscal policies. What is the IMF? The International Monetary Fund (IMF) is an international financial institution that was created after World War II to promote exchange rate and monetary stability. The founders aimed to avoid the beggar-thy-neighbor exchange rate policies and banking instability that deepened the Depression during the 1930s and the lack of any international mechanism for setting standards or coordinating policy. The IMF has changed over time as the world financial system has evolved. It now provides more technical assistance to member countries on banking and finance issues. However, its principal function is still one of lending money and encouraging reform to help countries deal with balance-of-payments and financial crises. The main concern is the possible contagion effects that might bring down other countries if a crisis in a specific country is not addressed. The IMF is owned by its member countries, whose votes are proportional to the amount of money they have subscribed to help fund its operations. The IMF funds its own internal budget from income earned through its lending program. The disbursements for IMF loans are generally conditional on the borrower country implementing reforms. Loans are generally disbursed in phases ("tranches") in order to encourage compliance with loan conditions. If conditions are not met, funds are not disbursed. The IMF charges its borrowers a rate of interest roughly equivalent to the price that major governments around the world pay to borrow funds, and it pays its member countries interest when it uses their quota resources to fund its loans. Disbursements for its regular loans, called Stand-By Arrangements (SBA), are repayable in five to eight years. Repayments for some of the IMF's more specialized programs may occur over a longer period of time. Until the mid-1970s, developed countries were frequent borrowers from the IMF. Since then, developing countries (particularly emerging markets) have been the principal borrowers. However, during the recent financial crisis, the IMF lent substantially to several of the newer members of the European Union (EU), and it has also assisted countries with advanced economies from time to time. Eurozone/IMF Financial Assistance Package for Greece Why did Greece turn to the other Eurozone member states and the IMF for financial assistance? Over the past decade, Greece borrowed heavily in international capital markets to fund government budget and trade deficits. High government spending, weak revenue collection, structural rigidities, and loss of competitiveness are typically cited as major factors behind Greece's accumulation of debt. Access to capital at low interest rates after adopting the euro and weak enforcement of EU rules concerning debt and deficit ceilings may also have played a role. Reliance on financing from international capital markets left Greece highly vulnerable to shifts in investor confidence. Investors became increasingly nervous in October 2009, when the newly elected Greek government nearly doubled the government 2009 budget deficit estimate. Over the next months, the government announced several austerity packages and had successful rounds of bond sales on international capital markets to raise needed funds. In late April 2010, when the European Union's (EU's) statistical agency, Eurostat, further revised the estimate of Greece's 2009 deficit upwards, Greek bond spreads spiked and two major credit rating agencies downgraded Greek bonds. Greece's debt crisis threatened to spread to other European countries, including Ireland, Italy, Portugal, and Spain, that may face fiscal challenges similar to Greece. The Greek government formally requested financial assistance from the 16 countries that use the euro as their national currency (the Eurozone) and the IMF on April 23, 2010. It was hoped that the financial assistance, combined with austerity measures, would prevent the Greek government from restructuring or defaulting on its debt or, more dramatically, from abandoning the euro in favor of a national currency. What financial assistance is being provided to Greece? On May 2, 2010, the Eurozone member states and the IMF announced a three-year, €110 billion (about $145 billion) financial assistance package for Greece. This package takes the form of loans made at market-based interest rates. Figure 1 shows the sources of funds for the financial assistance package for Greece. Eurozone countries are to contribute €80 billion (about $105 billion) in bilateral loans. Each of the Eurozone countries (besides Greece) has pledged a bilateral loan, with the largest bilateral loans pledged by Germany and France (about $29.3 billion and $22 billion, respectively). The IMF is to contribute a €30 billion (about $40 billion) loan. Of the total, the IMF would draw half from IMF quota resources (the financial commitment countries make to the IMF upon joining) and half from bilateral lines of credit pledged by some member countries. It is worth noting that it is not clear how much of the €110 billion (about $145 billion) committed by the IMF and the Eurozone member states will be used by Greece. The money is disbursed in phases as Greece meets IMF loan conditions. If IMF officials say that Greece does not meet these conditions, IMF disbursements will not be made. Alternatively, if creditor confidence in Greece is restored and Greece can resume selling bonds on international capital markets at reasonable interest rates, the Greek government may not need to rely on Eurozone and IMF financial commitments. On the other hand, some economists have predicted that the financial package for Greece may not be sufficient to prevent Greece from restructuring its debt and/or exiting the Eurozone. What is the U.S. contribution to the IMF loan to Greece? The IMF loan to Greece is to be financed by two different sources of money. Half of the IMF loan to Greece (about $20 billion) will be financed by IMF quota resources. IMF quotas are the financial commitments that IMF members make upon joining the IMF and are broadly based on the IMF member's relative size in the world economy. The U.S. contribution to IMF quota resources is 17%. However, we cannot infer that 17% of the IMF loan financed by IMF quota resources (about $20 billion) is from the United States. Once the IMF Executive Board approves a specific loan, there is an administrative decision made by the IMF as to which countries' quotas will be tapped to fund that particular loan. The IMF does not disclose parties on individual transactions, but over time aims to provide a balanced position for all members. The other half (about $20 billion) of the IMF loan to Greece is expected to be financed by bilateral loans. These bilateral loans will become part of the IMF's supplemental fund, the New Arrangements to Borrow (NAB), when it becomes operational. They are available now, however, before the expanded NAB goes into effect. In 2009, the United States enacted legislation to extend a line of credit worth $100 billion as part of expanding the NAB. However, because the expanded NAB is not yet operational, this $100 billion line of credit from the United States cannot be tapped for Greece's package. The United States has never lost money on its commitment to the IMF. All U.S. financial interactions with the IMF are off-budget and, because of accounting factors, do not result in any net outlays or have any impact on the U.S. federal budget deficit. What is the IMF's creditor status in its loan to Greece? The IMF, like the other international financial institutions, enjoys a de facto preferred creditor status; member governments grant priority to repayment of their obligations to the IMF over other creditors. In the case of the Greece loan, IMF loans would be repaid prior to all other creditors. Financing from European countries will be junior to the IMF's loan and will have the same status as existing Greek debt. Who bears the risk of the IMF's loan to Greece? The IMF's membership as a whole bears any risk from lending to Greece, but, in its entire history, no member of the IMF has experienced a loss from providing resources to the IMF, either by lending to the IMF or through the payment of quota subscriptions. Furthermore, member countries whose quota resources are chosen for a specific IMF loan have a claim on the IMF's balance sheet as a whole. Thus, even if U.S. quota is drawn for the Greece loan, which may be likely, any associated risk to the IMF's balance sheet due to the IMF loan to Greece would be shared by all IMF members. The IMF has preferred creditor status, which means that the IMF, along with other international financial institutions, is first in line to get repaid by the member country, ahead of other creditors. Occasionally countries fall into arrears with the IMF, but no member country has lost money as a result. What reforms are part of Greece's package with the IMF? The IMF does not disburse the full amount of its loans to governments at once. Instead, the IMF will divide the loan into tranches (French for "slice") and will only disburse the next tranche after verifying that the specified economic policy reforms have been met. Urging policy reforms in this way ensures that the loans will be repaid to the IMF, and that the required economic reforms are implemented. The IMF program for Greece calls for substantial reductions in government spending as well as revenue increases. Overall, the package aims to reduce Greece's government budget deficit from 13.6% of GDP in 2009 to below 3% of GDP by 2014. The IMF has referred to this program as unprecedented in terms of the adjustment effort required by the government. Some of the key reforms included in Greece's program with the IMF are listed below. In the end, IMF involvement was reportedly a key condition of German Chancellor Merkel's willingness to provide financial assistance to Greece. Some argue that the policy reforms (conditionality) attached to an IMF loan would lend additional impetus to reform and provide both the Greek government and the EU with an outside scapegoat for pushing through politically unpopular reforms. The EU would also make policy reforms a condition of loans, but the IMF is seen as more independent than the EU and has more experience in resolving debt crises than the EU. Some have also argued that IMF participation also reportedly enabled Eurozone countries to agree more easily on the terms and conditions of the loan program than might have been the case had they had to arrange it separately. What is unusual about the Greece package with the IMF? On the one hand, the IMF loan to Greece is a standard IMF program. The IMF lends to countries facing balance-of-payment difficulties, and it is widely agreed that Greece was facing substantial balance-of-payments problems. Greece, as a member of the IMF, is entitled to draw on IMF resources, pending approval by the IMF management. The procedure by which Greece obtained its loan from the IMF was standard, as was the specific IMF loan instrument to Greece (a three-year Stand-By Arrangement [SBA]). On the other hand, Greece's program with the IMF is unusual for two reasons. First, since the late 1970s, the IMF has not generally lent to developed countries and has never lent to a Eurozone member state since the euro was created. That said, the IMF has had programs with countries in Europe before but, with the exception of Iceland's IMF program in 2008, IMF involvement in Europe has not been recent. For example, in the 1970s, the IMF had programs with the United Kingdom, Spain, and Italy. In the early 1980s, the IMF also had a program with Portugal. Second, Greece's program with the IMF is unusual for its relative magnitude. The IMF has general limits on the amount it will lend to a country either through an SBA or Extended Fund Facility (EFF), which is similar to an SBA but for countries facing longer-term balance-of-payments problems. The IMF's guidelines for limits on the size of loans for SBAs and EFFs are 200% of a member's quota annually and 600% of a member's quota cumulatively. IMF quotas are the financial commitments that IMF members make upon joining the IMF and are broadly based on the IMF member's relative size in the world economy. In "exceptional" situations, the IMF reserves the right to lend in excess of these limits, and has done so in the past. The IMF's loan to Greece is indeed exceptional access at 3,200% of Greece's IMF quota and is the largest access of IMF quota resources granted to an IMF member country. Previously, the largest access had been granted to South Korea during the Asian financial crisis in the 1990s, at nearly 2,000% of Korea's quota resources. What other policy options did Greece have? Greece is addressing its sovereign debt crisis through a mix of fiscal austerity measures and structural reforms to improve the competitiveness of its industries. Many believe that the measures being implemented by the Greek government will lead to low levels of economic growth and increase unemployment. Financial assistance from the other Eurozone member states and the IMF is allowing the adjustment to take place over a longer period of time. Greece could have addressed its sovereign debt crisis by restructuring its debt or by leaving the Eurozone. Some economists believe that Greece may still be forced to pursue one or both of these policy options. Debt restructuring, for example by negotiating with its bond holders to extend the maturity of Greek bonds or to take a cut in debt repayments, would alleviate immediate pressure on the Greek government's debt payments. However, debt restructuring could accelerate the contagion of the crisis to other Eurozone countries, as well as hinder Greece's ability to regain access to capital markets in the future. Greece could also have addressed its sovereign debt crisis by leaving the Eurozone. This would require abandoning the euro, issuing a new national currency, and allowing the new national currency to depreciate against the euro. The Greek government would also probably have to put restrictions on bank withdrawals to prevent a run on the banks during the transition from the euro to a national currency. It is thought by some that a new national currency depreciated against the euro would spur export-led growth in Greece and offset the contractionary effects of fiscal austerity. Since Greece's debt is denominated in euros, however, leaving the Eurozone in favor of a depreciated national currency would raise the value of Greece's debt in terms of national currency and put pressure on other vulnerable European countries. Additionally, some argue that a Greek departure from the Eurozone would be economically catastrophic, lead to contagion to other European countries facing similar circumstances, and have serious ramifications for political relations among the European states and future European integration. Eurozone/IMF Financial Assistance Package for other Eurozone Countries Why did the Eurozone leaders pledge support to other Eurozone countries? Despite the enactment of the Eurozone/IMF assistance package for Greece, investor concerns about the sustainability of Eurozone debt deepened during the first week of May 2010. Driven down by such fears, global stock markets plunged sharply on May 6, 2010, and the euro fell to a 15-month low against the dollar. Seeking to head off the possibility of contagion to countries such as Portugal and Spain, EU finance ministers agreed on May 9, 2010, to a broader €500 billion (about $636 billion) financial assistance package available to vulnerable Eurozone governments. Some analysts assert that such a bold, large-scale move had become an urgent imperative for the EU in order to break the momentum of a gathering European financial crisis. Investors initially reacted positively to the announcement of the new agreement, with global stock markets rebounding on May 10, 2010, to regain the sharp losses of the week before. What financial assistance has been pledged by the EU and the IMF? The bulk of assistance is to be provided through a new European Financial Stability Facility (EFSF). The facility, which expires after three years, raises funds by selling bonds and other debt instruments, backed by guarantees of Eurozone member states, on international capital markets. The EFSF can provide up to €440 billion (about $560 billion) in loans to Eurozone member states. EU leaders also announced the creation of a new supranational EU balance of payments loan facility available to any EU member country facing financial difficulties. This facility, called the European Financial Stability Mechanism (EFSM) raises funds on international capital markets using the EU budget as collateral. The EFSM can provide up to €60 billion (about $76 billion) in loans to EU members. The EFSM is similar in design to an existing €50 billion EU balance of payments facility that can only be drawn on by non-Eurozone EU member nations, including Latvia, Hungary, and Romania. No country to date has drawn on the EFSF or the EFSM. EU leaders also suggested the IMF could contribute up to an additional €220 billion to €250 billion (about $280 billion to about $318 billion). This is in line with the Greece package, where the Eurozone states contributed roughly two-thirds and the IMF one-third of the total. IMF Deputy Managing Director John Lipsky reportedly later clarified the news reports about the IMF contribution to broader Eurozone stabilization efforts, saying that these pledges were "illustrative" of the support that the IMF could provide. Reportedly, Lipsky reiterated that the IMF only provides loans to countries that have requested IMF assistance and that Greece is the only Eurozone country to date that has requested IMF assistance. Finally, the European Central Bank (ECB) also announced it would buy member state bonds in order to increase market confidence. This is an activity in which it had not previously engaged, and some view this action as a compromise to the central bank's independence. As of July 20, 2010, the ECB held around €60 billion of European government bonds. What is the role of the U.S. Federal Reserve?9 On May 9, 2010, the Federal Reserve (Fed) announced the re-establishment of temporary reciprocal currency agreements, known as swap lines, with the European Central Bank, Bank of Canada, the Bank of England, Bank of Japan, and the Swiss National Bank. These arrangements have been authorized through January 2011. Under these agreements the Fed swaps dollars for foreign currencies for a fixed period of time with interest being paid to the Fed on the dollar amounts involved. The swaps are repaid at the exchange rate at the time of the original swap, meaning that these repayment amounts are not affected by changes in exchange rates while the swap is outstanding. Thus, there is no exchange rate risk and, except in the unlikely event that the borrowing country's currency becomes unconvertible in foreign exchange markets, there is also no credit risk involved for the Fed. The highest recent outstanding amount was approximately $583 billion in December 2008. The swap lines are intended to provide liquidity to banks in non-domestic denominations. For example, many European banks have borrowed in dollars to finance dollar-denominated transactions, such as the purchase of U.S. assets. Normally, foreign banks could finance their dollar-denominated borrowing through the private inter-bank lending market. Such private lending markets, however, have greatly diminished, if not disappeared, in periods of crisis over the past few years. Thus, central banks at home and abroad have taken a much larger role in directly providing liquidity to banks. The swap lines with the Federal Reserve provide foreign central banks with a source of dollar liquidity should such liquidity be needed. IMF Resources and Congress's Role How much money does the IMF have to lend? In April 2009, the G-20 Leaders and the International Monetary and Financial Committee agreed to increase the resources available to the IMF through immediate bilateral financing from members and to subsequently expand the NAB and make it more flexible. Resources from new bilateral contributions are available and being drawn on for current IMF programs. The expanded NAB is not yet operational. As of July 15, 2010, the IMF has about $225.5 billion dollars immediately available to lend. This figure is the IMF's one-year forward commitment capacity (FCC), which measures the IMF's ability to make new non-concessional resources available to members over the next 12 months. This includes, among other sources, unused quota resources, currently active bilateral loans to the IMF from several advanced economies, and note purchase agreements with three large emerging-market countries. What is the expanded New Arrangements to Borrow (NAB)? Created in the late 1990s, the New Arrangements to Borrow (NAB) is a supplemental fund that the IMF can use to finance loans under exceptional circumstances that pose a threat to the international monetary system. The G-20 proposed in April 2009 that the existing NAB be expanded and made more flexible in light of increased demand for IMF assistance. Following a year of negotiations on the design and operations of the expanded NAB, the IMF Executive Board adopted a proposal on April 12, 2010, by which the NAB would be expanded to about $550 billion, with the addition of 13 new participating countries. The U.S. commitment to the expanded NAB is $100 billion and the necessary authorizations and appropriations were enacted in FY2009. Despite U.S. approval of its contribution to the expanded NAB in FY2009, the expanded NAB is not yet operational and U.S. resources pledged to it cannot be activated until a sufficient number of current and new participants provide formal consent. Participating in the expanded NAB involves domestic approval procedures in many countries, including legislative approval before they can consent or adhere to the expanded NAB. The IMF has not published the status of NAB approvals. Once the expanded NAB becomes operational, the bilateral loan and note purchase agreements would be folded into the NAB. If and when the expanded NAB becomes operational, the process for approving use of NAB resources will change. Under the current NAB, NAB resources can be used if approval is secured from: (1) NAB participants representing 80% of total NAB credit arrangements; and (2) members of the IMF Executive Board representing 50% of the voting share. Use of NAB resources is currently considered on a loan-by-loan basis. Under the current NAB, the United States does not have sufficient voting power to unilaterally veto use of NAB resources. Under the expanded NAB, the NAB would be activated for a period of time (up to six months). During this "activation period," calls can be made on the NAB without additional consent by the NAB participants or the IMF Executive Board. To activate the expanded NAB, it will be necessary to secure approval from: (1) NAB participants representing 85% of total NAB credit arrangements eligible to vote; and (2) members of the IMF Executive Board representing 50% of the voting share. Under the expanded and modified NAB, the United States will be able to unilaterally veto activating the NAB. If the expanded and modified NAB is activated, however, the United States will not be able to dictate or vote on which loans approved by the IMF Executive Board can be financed with NAB resources during the activation period. How does the United States provide money to the IMF? Since 1945, the United States has subscribed about $55 billion as its quota in the IMF. The Bretton Woods Agreements Act provides that, unless Congress agrees by law, the United States cannot provide money or subscribe resources to the IMF. Over the years, Congress has passed several laws authorizing the Secretary of the Treasury to agree that the United States will participate in IMF funding agreements and authorizing and appropriating the necessary funds. Congress has used a variety of budgetary arrangements to provide this money. A country's quota in the IMF is a line of credit, which is available to the IMF upon request when it needs money to fund a loan to one of its borrower countries. When the IMF wishes to draw against the U.S. quota, it asks the New York Federal Reserve Bank to transfer money from the Treasury Department's account to its account so it will have the resources necessary for that loan. The IMF usually draws on the resources of several countries to fund its loans. U.S. financial relations with the IMF are off-budget. For accounting reasons, payments to the IMF from U.S. quota resources have no outlay effect and no impact on the federal budget deficit. As loans are repaid to the IMF, it transfers the borrowed funds back to the United States. The IMF pays the United States and other countries interest on the outstanding balance whenever it uses their quota resources. What is the role of Congress? Once Congress has approved U.S. participation and provided appropriated funds to back an additional U.S. subscription, it has no further role in the IMF lending process. Neither individual loans nor the IMF's ability to draw against U.S. quota resources must be approved in advance by Congress. At the time the United States subscribes to new quota resources, it may not put restrictions on the ways the IMF may use those funds, as this would violate the terms of the IMF funding agreements. Congress may enact legislation requiring the U.S. executive director at the IMF to oppose loans to specific countries or for specific purposes. However, with 16.8% of the total vote, the United States cannot by itself block approval of loans by the IMF Executive Board. Implications of the Eurozone Debt Crisis for the United States How strong are the economic ties between the United States and the EU? The United States and the European Union (EU) economic relationship is the largest in the world—and it is growing. The modern U.S.-European economic relationship has evolved since World War II, broadening as the six-member European Community expanded into the present 27-member European Union. The ties have also become more complex and interdependent, covering a growing number and type of trade, investment, and financial activities. In 2009, $1,252.0 billion flowed between the United States and the EU on the current account, the most comprehensive measure of U.S. trade flows. The EU as a unit is the largest merchandise trading partner of the United States. In 2009, the EU accounted for $220.6 billion of total U.S. exports (or 20.8%) and for $281.8 billion of total U.S. imports (or 18.1%) for a U.S. trade deficit of $73.2 billion. The EU is also the largest U.S. trade partner when trade in services is added to trade in merchandise, accounting for $173.5 billion (or 34.5% of the total in U.S. services exports) and $134.8billion (or 36.4% of total U.S. services imports) in 2009. In addition, in 2009, a net $114.1 billion flowed from U.S. residents to EU countries into direct investments, while a net $82.7 billion flowed from EU residents to direct investments in the United States. What is the exposure of U.S. banks to vulnerable European countries? This table shows only direct bank lending. What is generally not known is the exposure of U.S. financial institutions through issuance of credit default swaps based on Greek sovereign debt. The effect of credit default swaps could be to lower U.S. bank exposure to sovereign debt by offsetting U.S. bank liabilities or to raise U.S. bank exposure to sovereign debt if U.S. banks sold credit protection. How has financial instability in the Eurozone affected the value of the dollar? As investors lost confidence in the future of the Eurozone, and the size of the adjustment required for the Eurozone as a whole became apparent, the value of the euro began to weaken. The euro depreciated against the U.S. dollar by 21% between December 12, 2009 and June 8, 2010 (from 1.51 $/€ to 1.22 $/€; see Figure 2 ). A weaker euro likely lowers U.S. exports to the Eurozone and increases U.S. imports from the Eurozone, widening the U.S. trade deficit. On the other hand, it makes purchases and U.S. investments in Eurozone countries cheaper in dollar terms. Beginning in June, the value of the euro relative to the U.S. dollar has begun to rise but has not reached its pre-crisis levels (1.30 $/€ on July 27, 2010). Since the Chinese renminbi has been tied to the value of the dollar, when the dollar appreciates against the euro, the renminbi also does so. This raises the price of Chinese exports to the Eurozone and lowers the price of European exports to China. This exchange rate effect not only affects China's trade with Europe, but it could make the United States a more attractive market for products from China. How has the Eurozone instability affected U.S. interest rates? Since U.S. Treasury securities are considered to be a safe haven for investors during times of economic turmoil, the immediate effect of the Greek crisis was for investors to reduce their exposure to euro-denominated investments, particularly those issued by Greece, and invest some of those funds in U.S. Treasuries. This caused a greater inflow of funds into the United States and caused the yield on 10-year Treasury notes to fall about one-half of a percentage point (see Figure 3 ). This combined with further pessimism to bring the rate from 4% in April 2010 to about 3% in mid-July. If these lower interest rates persist, U.S. borrowers, including the U.S. Treasury and those seeking mortgages, will benefit. In June 2010, some long-term mortgage interest rates had fallen to as low as 4.25%. For those who rely on interest bearing assets for income, however, lower interest rates reduce the yields they receive on bonds and other securities. In the future, though, if other Eurozone member states default on loans to leveraged banks, global credit markets may shrink by a multiple of the losses as banks deleverage. If this occurs, global interest rates, including those in the United States, could rise. How will U.S. economic growth be affected? The Eurozone instability is affecting the U.S. economy through several economic and financial linkages. The first is in capital flows into the "safe haven" of U.S. Treasury securities and causing lower interest rates as addressed above. The second is in international trade flows. Slower growth in the Eurozone likely will lead to lower U.S. exports there, while the fall in the value of the euro may further reduce the quantity of U.S. exports to the Eurozone but may increase U.S. imports from Europe and travel expenditures there. Slower growth in the Eurozone also is reducing demand for petroleum and lowering the price of oil and other commodities. This will tend to reduce the U.S. import bill for petroleum and tend to increase consumer confidence in the United States. The Eurozone instability, however, also has increased the risk level with respect to sovereign and other debt and has increased volatility in stock markets. While such volatility in the short-term may not affect the overall level of consumption and investment in the United States, a large drop in equity values may reduce consumption through the wealth effect as stockholders see their wealth levels shrink and attempt to save more. Corporations also may find that raising funds for investments through new offerings of stock becomes more difficult. Figure 4 shows the amount that real U.S. gross domestic product (GDP) has changed between first quarter 2009 to first quarter 2010. During this time, real GDP increased by $313.2 billion. This consisted of an increase in consumption of $149.8 billion, an increase in investment of $124.7 billion, an increase in net exports of $13.6 billion, and an increase in government expenditures of $37.6 billion. How will a drop in interest rates and price for petroleum combined with increased risk and a weaker euro affect household consumption, the largest component in GDP? The higher level of risk has decreased consumer confidence, but lower interest rates are expected to provide a boost to pent-up demand for consumer durables, the purchase of which tended to be postponed during the recession. Consumption is expected to increase in line with GDP. Investment, both by businesses in new plant and equipment and households in residential structures, is a key to U.S. recovery. As can be seen in Figure 4 , the increase in U.S. investment over the past year has been in inventory accumulation as businesses restocked shelves in anticipation of rising sales. Growth in investments in plant and equipment and in housing has been negative. Lower interest rates provide a positive boost to investments in general, but business expectations of less export demand from Europe and increased risk of another global slowdown in growth may work to curtail new investments in production capacity. Also, the first-time homebuyer tax credit (part of the Housing and Economic Recovery Act of 2008, P.L. 110-289 ) expired in mid-2010, and was expected to have moved some housing demand forward. As for international trade, the drop in the value of the euro and weakened demand in the Eurozone are likely to increase the U.S. trade deficit beyond that expected as U.S. consumption of imports rises. With the exception of lower interest rates on borrowing, government spending, particularly at the state and local level, does not appear to be significantly affected by the Eurozone instability. The combined effect of these positive and negative forces on U.S. growth is difficult to ascertain, but assuming that the crisis is contained, the net effect arguably will be mildly negative. IHS Global Insight stated that it thinks "the fallout from the Greek crisis for the United States is likely to be relatively small, mostly in the form of loss of competitiveness for U.S. exporters relative to a euro that should remain weak for the foreseeable future." It expects that the Eurozone crisis "will dent the U.S. recovery, but not derail it" and expects the growth rate of U.S. GDP to fall from 3.7% in first quarter 2010 and 2.4% (preliminary estimate) in second quarter of 2010 to the 2.2% to 2.6% range during the second half of 2010. In June 2010, IHS Global Insight expected the annual growth rate to reach 3.1%, but the preliminary second quarter estimate, a full percentage point below expectations, indicates that the economy's growth rate may be slowing to about 2.5% for 2010 (The U.S. GDP contracted by 2.4% in 2009.) The Economist Intelligence Unit expects U.S. growth to be 2.7% in 2010, down from the 3.3% expected in June 2010. All of this reduced expectation in growth, however, cannot be attributed solely to the Eurozone crisis. Other factors are affecting growth in the United States (e.g., the winding down of the stimulus package). How do U.S. government budget deficit and external debt levels compare to those in vulnerable European countries? Some are concerned that Greece's debt crisis foreshadows the United States' future. It is important to note that the sustainability of a government's debt depends on a host of different factors, such as the flexibility of the exchange rate, the currency in which the government has borrowed, and when the debt is falling due, among others. What may be sustainable for a particular government in a particular time may not be true for other governments. Some have suggested, for example, that although the U.S. budget deficit situation is similar to those in vulnerable European countries, the U.S. fiscal position may be stronger than these other countries because, for example, the United States has a floating exchange rate, the dollar is an international reserve currency, the U.S. overall level of debt (as a percentage of GDP) is lower, and economic growth is (albeit slowly) returning in the United States. The United States is also considered a safe haven for investments, making U.S. bonds attractive on private international capital markets and making it easier for the U.S. government to rollover its debt. Legislative Developments Enacted Legislation P.L. 111-203 On May 17, 2010, the Senate adopted (94-0) an amendment ( S.Amdt. 3986 ), introduced by Senator John Cornyn, to S. 3217 , the Restoring Financial Stability Act of 2010. The Senate passed its version of the financial regulatory reform bill ( H.R. 4173 ), which included S.Amdt. 3986 on May 20, 2010. The Dodd–Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ) was signed by the President on July 21, 2010. The original version of the amendment, titled "Restrictions on Use of Federal Funds to Finance Bailouts of Foreign Governments," directed the U.S. Executive Director (USED) at the IMF to: evaluate any IMF loan to a country where the public debt exceeds GDP; determine and certify to Congress whether the loan "will be" repaid; and use the voice and vote of the United States to oppose any loans where such certification could not be made. As written, the impact of the amendment was unclear. Large IMF packages to advanced economies appeared to be the Amendment's main concern. However, its provision would apply to all such heavily-indebted countries. Thus, it might require the United States to oppose IMF loans to low-income countries with substantial debts. As of 2009, nine countries had public debt burdens greater than their GDP. Several low income countries are near that level and might exceed it if their GDP levels shrank during the midst of a financial crisis that prompted them to seek IMF aid. The House-Senate conference on the financial reform bill made changes in the original language of this amendment. Section 1500 of the new law specifies that U.S. representatives at the IMF must oppose loans to such heavily indebted countries if it is "not likely" that they will be repaid. Prospective IMF loans to low-income countries (those eligible at the World Bank only for loans from its concessional aid facility, the International Development Association) are exempted from this requirement. Lastly, instead of requiring a Treasury certification, the new law requires the Treasury Department to report regularly to Congress about conditions in any such heavily indebted country that received an IMF loan despite U.S. opposition. These reports would discuss the debt status of the borrower country, economic conditions affecting its vulnerability and its ability to repay, and its debt management status. Pending Legislation FY2011 State, Foreign Operations Bill The House appears to be considering legislation based on the language of the original Cornyn amendment in the FY2011 State, Foreign Operations Bill. The House State-Foreign Operations Appropriations Subcommittee approved a draft FY2011 bill on June 30, 2010. Congressional Quarterly reports that the draft bill includes an amendment proposed by Representative Granger that would require the Treasury Department to review every IMF loan to countries where the public debt level is greater than 60% the size of the GDP. If Treasury determines that the loan cannot be repaid, the United States must oppose the loan. H.R. 5299 and S. 3383 On May 13, 2010, Representative Mike Pence introduced H.R. 5299 , a bill titled the "European Bailout Protection Act." Senator Jim DeMint introduced a companion bill, S. 3383 , on May 18, 2010. Sec. 2 would require the Secretary of the Treasury to oppose any activation of the expanded New Arrangements to Borrow (NAB) facility that would fund directly or indirectly an IMF loan to a member country of the European Union if it or any other member of the EU has a public debt-to-GDP ratio greater than 60%. Sec. 3 would direct the Secretary to instruct the USED at the IMF to oppose any assistance directly or indirectly to an EU member if any other EU member had a debt-to-GDP ratio above that level. The bills state in their heading that the provisions are temporary, but no time limitation is provided. Because of the size of its share, the United States can block activation of the expanded NAB facility by withholding support, if and when the expanded NAB comes into effect. This legislation would require the United States to oppose use of the NAB facility for any loans to European countries that have substantial public debts. Some suggest, however, that the legislation might also have unintended effects. For example, if this legislation had been in effect last year, the United States would have had to oppose all IMF loans to post-communist countries of Central and Eastern Europe that are members of the EU, even though most analysts agree that excessive levels of public indebtedness were not the source of their difficulties. The bills seem to presume that the expanded NAB resources will be activated on a country-by-country basis and therefore loans to European countries can be blocked while loans to other countries may be approved. IMF member countries agreed in April 2010, however, that the expanded NAB will be activated for a set period of time (up to 6 months) and would be used to finance any applicable loans during that period. The United States has the power to prevent the NAB from being activated but it cannot veto specific borrowers. Under this legislation, the Secretary of the Treasury would need to keep the NAB shut indefinitely or risk the possibility that an EU country might unexpectedly seek to borrow during a period when the NAB has been activated. This legislation might also prevent the existing bilateral lines of credit provided by some countries from being folded into the expanded NAB, since this would be done by reimbursing countries from the NAB for money the IMF had previously drawn from their bilateral credits. Bilateral credits were used to help fund the recent loan to Greece. Thus, if this legislation were in effect, the United States might have to oppose activation of the NAB for the purpose of reimbursing bilateral creditors for their share in the Greek loan. Congress has taken no action on this legislation. However, the Granger amendment to the pending fiscal 2011 Senate-Foreign Operations Appropriations bill uses the 60% threshold. It might also be interpreted as requiring U.S. opposition to many proposed IMF loans, though the effect would not be limited solely to loans for European Union countries. H.Con.Res. 279 On May 18, 2010, Representative McMorris Rodgers introduced House Concurrent Resolution 279 ( H.Con.Res. 279 ), a measure that would disapprove U.S. participation in any IMF funding package for the EU, unless each EU member country complies with the EU rules on deficit spending and each had a public debt-to-GDP ratio at or below 60%. The legislation seeks to discourage or prevent U.S. resources being used to help fund the European financial stability plan announced on May 9, 2010. The legislation has been referred to the House Committee on Financial Services and no further action has been taken.

On May 2, 2010, the Eurozone member states and the International Monetary Fund (IMF) announced an unprecedented €110 billion (about $145 billion) financial assistance package for Greece. The following week, on May 9, 2010, EU leaders announced that they would make an additional €500 billion (about $636 billion) in financial assistance available to vulnerable European countries, and suggested that the IMF could contribute up to an additional €220 billion to €250 billion (about $280 billion to $318 billion). This report answers frequently asked questions about IMF involvement in the Eurozone debt crisis. For more information on the Greek debt crisis, see CRS Report R41167, Greece's Debt Crisis: Overview, Policy Responses, and Implications, coordinated by [author name scrubbed].

Introduction The National Oceanic and Atmospheric Administration (NOAA), part of the Department of Commerce, conducts scientific research in areas such as marine and coastal ecosystems, climate, and weather; supplies information on the oceans and atmosphere; and provides stewardship of coastal and marine species and environments. NOAA was created in 1970 by President Nixon's Reorganization Plan No. 4. The reorganization plan was designed to unify the nation's environmental activities and to provide a systematic approach for monitoring, analyzing, and protecting the environment. NOAA's administrative structure has evolved into five line offices that reflect its diverse mission, including the National Ocean Service (NOS), the National Marine Fisheries Service (NMFS), the National Environmental Satellite, Data, and Information Service (NESDIS), the National Weather Service (NWS), and the Office of Oceanic and Atmospheric Research (OAR). In addition to NOAA's five line offices, Program Support (PS), a cross-cutting budget activity, supports the NOAA Education Program, Corporate Services, Facilities, and the Office of Marine and Aviation Services. President Obama's FY2010 Budget The FY2010 NOAA budget request of $4.474 billion accounted for nearly 33% of the Department of Commerce's total request of $13.779 billion. The request was $108.6 million (2.5%) more than the FY2009-enacted NOAA budget of $4.365 billion. The FY2010 budget included $3.091 billion for the Operations, Research, and Facilities (ORF) account, $1.391 billion for the Procurement, Acquisition, and Construction (PAC) account, and a net total of -$8.0 million for NOAA's Other Accounts. Table 1 provides FY2009 enacted, FY2010 Administration request, FY2010 House-passed, FY2010 Senate-passed, and FY2010 enacted funding levels for NOAA. In most years, ORF and PAC accounts provide more than 98% of NOAA's budget request. Except for NESDIS, ORF provides the bulk of funding for NOAA line offices. NOAA's Other Accounts usually include an internal transfer from the Coastal Zone Management Fund to ORF, the Fisheries Finance Program, and the Pacific Coastal Salmon Recovery Fund. The Administration did not request funding for the Pacific Coastal Salmon Recovery Fund, but instead requested $60 million to establish a species recovery grant program that would include Pacific salmon. NOAA FY2010 Funding Proposal Among the priorities of the FY2010 budget, NOAA Administrator Jane Lubchenco stressed the general goal of supporting NOAA's core mission of environmental prediction and stewardship. General program areas addressed in her congressional testimony included satellite operations, fisheries management, climate change, coastal management, weather forecasting, and program support. Table 2 provides ORF and PAC funding of NOAA line offices. National Ocean Service. The Administration's NOS budget request for ORF and PAC totaled $487.1 million, a decrease of $56.1 million from the FY2009 level of $543.2 million. ORF funding is cut by $34.3 million with decreases in Ocean Resources Conservation and Assessment ($15.8 million), Navigation Services ($11.2 million), and Ocean and Coastal Management ($7.2 million). NOS PAC construction funding also would decrease by $21.8 million. Highlights of requested NOS program funding increases included: $6.0 million for implementation of the ocean research priorities plan; $4.0 million for the national vertical datum to improve elevation and height information; $3.1 million to support the Coastal Zone Management Act; $2.7 million to improve forecasts of harmful algal blooms; and $1.4 million for response and restoration, $1.9 million for energy licensing, $1.0 million for Gulf of Mexico alliance, and $1.2 million to address the hydrographic survey backlog. National Marine Fisheries Service. NMFS is the lead federal agency responsible for stewardship of offshore living marine resources and their habitat. The Administration's NMFS total request was $890.6 million, an increase of $132.5 million from FY2009 appropriations. Highlights of requested NMFS program funding included: $98.3 million, an increase of $56.5 million, to support the new requirements of the Magnuson-Stevens Fishery Conservation and Management Act related to overfishing, stock assessments, enforcement, recreational data collection, and cooperative research programs; $40.9 million, an increase of $16.5 million, to fulfill the conservation and fair harvesting-sharing provisions of the Pacific Salmon Treaty; $39.9 million, an increase of $5.6 million, to support Endangered Species Act consultations; $47.4 million, an increase of $5.3 million, to conduct conservation and recovery actions and to reduce interactions between marine mammals and commercial fisheries; and increases of $2.0 million for aquaculture development and research and of $2.7 million to support research of climate regimes and ecosystem productivity. Oceanic and Atmospheric Research. The Administration request for OAR of $404.6 million decreased its budget by $3.7 million from the FY2009 level of $408.3 million. Highlights of requested OAR program funding increases included: $12.9 million, an increase of $4.6 million for the National Integrated Drought Information System; $4.0 million to implement long-term monitoring of ocean acidification; and increases of $2.6 million for severe weather forecast improvements, $2.6 million for decadal climate predictions, $2.5 million for the national climate model portal, $2.0 million for weather research and forecasting, $1.3 million for the U.S. climate reference network, and $1.0 million for multi-function phased array radar. National Weather Service. The Administration request for NWS of $963.9 million provided a net increase of $5.0 million to the FY2009 omnibus funding level of $958.9 million. Highlights of requested NWS funding included: $17.0 million, an increase of $13.0 million, for hurricane forecast system improvements; $7.0 million for weather radar coverage of western Washington to improve analysis and prediction of winter storm systems; $24.4 million, an increase of $5.3 million for the Advanced Weather Interactive Processing System to reduce the time required to generate and disseminate warnings; $11.4 million, an increase of $6.1 million, for the next generation air transportation system; and increases of $2.7 million for space weather forecast improvement, $2.2 million for the NOAA profiler network, and $1.3 million for weather radio improvement. National Environmental Satellite, Data, and Information Service. Satellite operations were identified by the NOAA Administrator as one of the greatest challenges that the agency faces, and most of the overall agency funding increase would support NESDIS satellite programs. NESDIS acquires and manages environmental satellites and provides access to global environmental data. These data are used for weather forecasts, warnings of major weather events, environmental monitoring, climate investigations such as drought, climate change studies, and search and rescue. The Administration's NESDIS request for ORF and PAC totaled $1,428.6 million, an increase of $250.6 million. Highlights of requested NESDIS program funding included: $873.2 million, an increase of $256.3 million from the FY2009 funding level, to continue the procurement of spacecraft, instruments, launch services, and ground systems equipment for Geostationary Operational Environmental Satellites (GOES); $382.2 million, an increase of $94.2 million from the FY2009 funding level, to support instrument and spacecraft development of the National Polar-orbiting Operational Environmental Satellite System (NPOESS); $20 million to fund NOAA's portion of the Jason-3 satellite mission that will provide continuity of sea surface height measurements for studies of ocean climatology and weather; and increases of $7.0 million for climate data records, $0.9 million for ice satellite imagery for navigation safety, and $2.0 million for NPOESS data exploration. Program Support. The Administration request for PS of $424.7 million decreased funding by $108.0 million from the FY2009 PS budget of $532.7 million. PS funding decreased because of completion of construction and repair projects and cuts in the NOAA education program. Highlights of requested PS funding included: $120.9 million, an increase of $6.1 million, for Corporate Services to support facilities and IT security compliance and to support acquisition and grants services; $30.3 million, an increase of $8.8 million, for facilities management and modernization to address facility deficiencies and repairs and to comply with legal requirements associated with property leases; $2.2 million to increase NOAA Corps from 299 to a total of 321 officers; and $3.0 million for the design of a shallow-draft fisheries survey vessel. Congressional Action on Appropriations for NOAA The House recommended funding of $4.603 billion for NOAA. This provided an increase of 5.5% compared with the FY2009-enacted funding level and a 2.9% increase over the Administration's request. Of the $4.603 billion recommended by the House, $3.202 billion was for ORF, $1.409 billion for PAC, and a net total of -$8.0 million for NOAA's Other Accounts. The House-passed version of H.R. 2847 added $500,000 to the Appropriations Committee's recommendation to support special fishery demonstration projects in the western Pacific. The Senate recommended funding of $4.773 billion for NOAA. This represented an increase of 9.3% compared with the FY2009-enacted level and an increase of 6.7% over the Administration's request. Of the $4.773 billion passed by the Senate, $3.304 billion funded ORF, $1.398 billion funded PAC, and a net total of $71.0 million funded NOAA's Other Accounts. On December 16, 2009, the President signed the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ), which provides NOAA with $4.737 billion for FY2010. This represents an increase of 8.5% compared to the FY2009 enacted level and an increase of 5.9% over the Administration's request. Comparison of FY2010 Funding Provisions The Consolidated Appropriations Act, 2010 ( P.L. 111-117 ) increased funding for all five of NOAA's line offices, but decreased funding for PS. The greatest increases in the enacted bill were provided for NESDIS and NMFS. The Administration requested $1.429 billion for NESDIS, a 21.3% increase over the FY2009 appropriation of $1.178 billion. The House-passed version included $1.468 billion, while the Senate included $1.408 billion for NESDIS. The FY2010 enacted funding level for NESDIS is $1.399 billion, an increase of $220.5 million (18.7%) over the FY2009 enacted level. Most of the increases support satellite engineering development and production activities for the next generation geostationary satellite (GOES-R), and contribute to developing sensors and spacecraft for the tri-agency polar-orbiting satellite system (NPOESS). However, both the Senate and House Appropriations Committees expressed concerns with NPOESS management structure, projected cost growth, and schedule slippage The Administration requested $890.6 million for NMFS, a 17.5 % increase over the FY2009 appropriation of $758.1 million. The House-passed version included $915.9 million, while the Senate included $872.4 million for NMFS. The FY2010 enacted funding level for NMFS is $904.5 million, an increase of $146.4 million (19.3%) over the FY2009 enacted level. Most of the increases were for support of fisheries management and endangered species recovery. The Pacific Coastal Salmon Recovery Fund (PCSRF), one of several funds in NOAA's Other Accounts category, was not funded in the President's budget. On May 21, 2009, the Obama Administration sent a budget amendment to Congress to clarify that Pacific salmon recovery was funded in the Administration request at $50 million under the new Species Recovery Grant Program in the NMFS Protected Species Office. The Senate Appropriations Committee recommended restoring funding for the PCSRF under Other Accounts at the FY2009 funding level of $80 million while reducing the Species Recovery Grant Program by $50 million from the President's request of $61 million. The 2010 enacted funding level for PCSRF is $80 million. NOAA Research and Development NOAA's R&D efforts focus on three areas: climate; weather and air quality; and ocean, coastal and Great Lakes resources. For FY2010, President Obama requested $568 million in R&D funding for NOAA. This was a 7% decrease from the FY2009 appropriation level of $611 million. R&D was nearly 13% of NOAA's total discretionary budget request of $4.474 billion. The R&D request consisted of approximately 93% research funding and 7% development funding. About 73% of the R&D request would fund intramural programs and 27% would fund extramural programs. The OAR request of $305.9 million was nearly the same as the FY2009 OAR appropriation of $307.1 million and 53.9% of the total NOAA FY2010 R&D request. The President's budget also included $60.4 million for NOS R&D, a decrease of $2.1 million (3.4%) from the FY2009 level. NESDIS R&D decreased by $0.8 million (2.8%) to $27.6 million. NWS R&D funding decreased by $9.4 million (39.6%) to $14.3 million and OMAO funding fell to $104.0 million, a decrease of $35.0 million (25.1%). The Administration request expanded R&D funding for NMFS, proposing $55.4 million, an increase of $4.9 million (9.7%). The NOAA FY2010 budget summary also broke down R&D funding according to ecosystems (32%) climate (31%), weather and water (14%), commerce and transportation (1%), and mission support (22%). R&D accomplishments highlighted by NOAA include upgrading the NOAA operation prediction system, developing fishery bycatch reduction devices, predicting harmful algal blooms in the Great Lakes, integrating radar data to enhance weather forecasts and warnings, and implementing the soil moisture observational network. FY2009 Stimulus Bill On February 13, 2009, the 111 th Congress passed the American Recovery and Reinvestment Act (ARRA) of 2009 ( P.L. 111-5 ), also referred to as the stimulus package. ARRA provided $830 million to NOAA that will be used during FY2009 and FY2010. Only $500,000 of this funding (provided to NWS) was classified as R&D. The ORF account was funded at $230.0 million. Proposed ORF activities include reducing the hydrographic survey backlog, restoring marine and coastal habitat, and repairing and maintaining NOAA research vessels. The PAC account was funded at $600.0 million. Proposed PAC activities include constructing and maintaining facilities, ships, and equipment; improving weather forecasts; developing and deploying satellites; and enhancing climate models.

On May 11, 2009, President Obama requested $4.474 billion for the National Oceanic and Atmospheric Administration's (NOAA's) FY2010 budget. This amount was $109 million (2.5%) more than the FY2009 enacted appropriation of $4.365 billion. Administration priorities for the NOAA budget included satellite programs, climate research, endangered species recovery, and fisheries management. On June 18, 2009, the House passed H.R. 2847 to fund the Departments of Commerce and Justice, Science, and Related Agencies (CJS) for FY2010. The House included $4.603 billion for NOAA, which was $238 million (5.5%) more than the FY2009 appropriation and $129 million (2.9%) more than the FY2010 request. On June 25, 2009, the Senate passed the CJS appropriations bill for FY2010 (H.R. 2847) and recommended $4.773 billion for NOAA. This represented an increase of $408 million (9.3%) over the FY2009 enacted funding level, an increase of $299 million (6.7%) over the amount requested by the Administration, and an increase of $170 million (3.7%) over the amount passed by the House. On December 16, 2009, the President signed the Consolidated Appropriations Act (P.L. 111-117), which provides NOAA with $4.737 billion for FY2010. This represents an increase of 8.5% compared to the FY2009 enacted level and an increase of 5.9% over the Administration's request. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5). The amounts appropriated by Congress in the ARRA are in addition to the funding appropriated in the Omnibus Appropriations Act, 2009 (P.L. 111-8). ARRA provided NOAA with $830 million for a variety of activities such as restoring habitat, constructing and maintaining facilities, constructing a research vessel, supporting the National Polar-Orbiting Operational Environmental Satellite System, and other projects. The ARRA funding is not included in comparing FY2010 requested, passed, and recommended levels with FY2009 enacted appropriations because ARRA funds are available in both FY2009 and FY2010.

Introduction The mental health of veterans—and particularly veterans of Operations Enduring Freedom and Iraqi Freedom (OEF/OIF) —has been a topic of ongoing concern to Members of Congress and their constituents, as evidenced by hearings and legislation. Knowing the number of veterans affected by various mental disorders and actions the Department of Veterans Affairs (VA) is taking to address mental disorders can help Congress determine where to focus attention and resources. Using data from the VA, this brief report addresses the number of veterans with (1) depression or bipolar disorder , (2) posttraumatic stress disorder (PTSD), and (3) substance use disorders; Appendix A discusses important data limitations. For each topic, this report also briefly describes what the VA is doing in terms of screening and treatment; Appendix B lists reports evaluating the VA's efforts. OEF/OIF Veterans Using VA Health Care Veterans generally must enroll in the VA health care system to receive medical care; for information about enrollment, health benefits, and cost-sharing, see CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions , by [author name scrubbed] and [author name scrubbed]. From FY2002 through FY2012, 1.6 million OEF/OIF veterans (including members of the Reserve and National Guard) left active duty and became eligible for VA health care; by the end of FY2012, 56% of them had enrolled and obtained VA health care. The VA publishes the cumulative prevalence of selected mental disorders among OEF/OIF veterans using VA health care, based on information in the VA's electronic health records. Systematic information regarding veterans who do not use VA health care is not available. Data about OEF/OIF veterans using VA health care should not be extrapolated to the rest of the OEF/OIF veteran population, or to the broader veteran population. Limitations of the VA's data are discussed in Appendix A . Depression or Bipolar Disorder Depression and bipolar disorder are both mood disorders; bipolar disorder includes episodes of both depressed mood (which characterizes depression) and mania (elevated mood or irritability) or hypomania (a milder form of mania). Prevalence Among OEF/OIF Veterans Using VA Health Care The VA does not present separate prevalence figures for depression and bipolar disorder, nor does it provide the prevalence of depression and bipolar disorder combined; instead, the VA presents the prevalence of affective psychoses , a range of diagnoses including major depressive disorder and bipolar disorder, among others (14%); and depressive disorder not elsewhere classified (NEC) , a diagnosis assigned when a patient reports depressive symptoms that do not meet criteria for other depressive disorders (e.g., major depressive disorder) (22%). The percentages are presented in Figure 1 and Figure 2 .Neither of these categories includes dysthymic disorder (a form of depression), which falls in a category of neurotic disorders (a broad category that also includes panic disorder and generalized anxiety disorder, among others). It is possible that a patient with a diagnosis of one mood disorder reflected in the electronic health record might also have a diagnosis of another mood disorder in the electronic health record; for this reason, the prevalence of affective psychoses (14%) and the prevalence of depressive disorder NEC (22%) should not be summed. These percentages are subject to other important data limitations discussed in Appendix A . Treatment in the VA Health Care System Department policy requires an annual depression screening for veterans using VA health care . Depression and bipolar disorder may be treated with medication, psychosocial interventions, or both. The VA's suicide prevention efforts, which are relevant to patients with mood disorders (as well as other veterans), are described in CRS Report R42340, Suicide Prevention Efforts of the Veterans Health Administration , by [author name scrubbed]. All veterans, regardless of enrollment, may use the department's Veterans Crisis Line (1-800-273-8255, option 1), an online chat service ( www.VeteransCrisisLine.net/chat ), and an online suicide prevention resource center ( www.suicideoutreach.org ) maintained jointly with the Department of Defense (DOD). Several reports that have evaluated the department's mental health programs (including treatment for mood disorders and suicide prevention) and offered recommendations are listed in Appendix B . Posttraumatic Stress Disorder (PTSD) Posttraumatic stress disorder (PTSD)—one of the "signature injuries" of OEF/OIF —is a psychological response to a traumatic event; however, a history of trauma is not enough to establish a diagnosis of PTSD. The diagnosis requires a minimum number of symptoms in each of three categories: reexperiencing (e.g., recurring nightmares about the traumatic event); avoidance (e.g., avoiding conversations about the traumatic event); and arousal (e.g., difficulty sleeping). Symptoms must persist for at least one month and must result in clinically significant distress or impairment in functioning. Prevalence Among OEF/OIF Veterans Using VA Health Care As illustrated in Figure 3 , the VA reports the prevalence of PTSD among OEF/OIF veterans receiving VA health care in FY2002–FY2012 to be 29%. This percentage is subject to important data limitations discussed in Appendix A . Given the attention on PTSD, it is worth noting that prevalence estimates from other sources (generally not limited to users of VA health care) vary widely. A 2010 RAND analysis of 29 relevant studies found prevalence estimates for PTSD ranging from around 1% to 60% among OEF/OIF servicemembers; variation was attributed in part to the use of different samples and different methods of identifying PTSD. A 2012 report by the Institute of Medicine indicates that recent estimates of PTSD prevalence among OEF/OIF servicemembers and veterans range from 13% to 20%. Treatment in the VA Health Care System Department policy requires that veterans new to VA health care receive a PTSD screening, which is repeated every year for the first five years and every five years thereafter, unless there is a clinical need to screen earlier. Department policy also requires that new patients requesting or referred for mental health services receive an initial assessment within 24 hours and a full evaluation within 14 days. Congressional testimony has raised questions about the extent to which these policies are implemented in practice. PTSD treatment provided by the VA includes both medication and cognitive-behavioral therapy (a category of talk therapy). Every VA Medical Center has specialists in PTSD treatment. Some facilities offer specialized PTSD treatment programs of varying intensity and duration, including (among others) PTSD day hospitals (four to eight hours per day, several days per week); evaluation and brief treatment PTSD units (14-28 days); specialized inpatient PTSD units (28-90 days); and PTSD residential rehabilitation programs (28-90 days living in a supportive environment while receiving treatment). Veterans may also receive PTSD treatment at VA community-based outpatient clinics (CBOCs) or at Vet Centers (which are subject to different policies than VA health care facilities). Several reports that have evaluated the VA's PTSD screening and treatment efforts and offered recommendations are listed in Appendix B . Substance Use Disorders Substance use disorders include dependence on and abuse of drugs, alcohol, or other substances (e.g., nicotine). A diagnosis of dependence requires at least three symptoms (e.g., tolerance or withdrawal); substance use that does not meet criteria for dependence, but leads to clinically significant distress or impairment, is called abuse. Each diagnosis is specific to the substance, so an individual may have multiple diagnoses of abuse or dependence—one for each substance (e.g., marijuana dependence and cocaine abuse). Prevalence Among OEF/OIF Veterans Using VA Health Care Figure 4 and Figure 5 show the prevalence of drug dependence and abuse (respectively) among OEF/OIF veterans using VA health care during FY2002–FY2012. Alcohol dependence (6%) is more common than either drug dependence (3%) or abuse (5%); the prevalence of alcohol abuse was not provided. These percentages are subject to important data limitations discussed in Appendix A . Treatment in the VA Health Care System Given the comparatively low rates of drug abuse and dependence (relative to other disorders presented in this report), VA policy does not require routine drug use screening. Department policy does require an annual alcohol screening, which is waived for veterans who drank no alcohol in the prior year. The VA offers medication and psychosocial interventions for substance use disorders, as well as acute detoxification care when necessary. Medication may be used to reduce cravings or to substitute for the drug of abuse (e.g., methadone for heroin users). Psychosocial interventions include (among others) brief counseling to enhance motivation to change; intensive outpatient treatment; residential care (i.e., living in a supportive environment while receiving treatment); long-term relapse prevention; and referral to outside programs such as Alcoholics Anonymous. Several reports that have evaluated the department's alcohol screening and substance use disorder treatment efforts and offered recommendations are listed in Appendix B . Appendix A. Data Limitations In order to understand the limitations of the data presented in this report, it is helpful to understand their sources. The VA identifies PTSD and substance use disorders by searching VA administrative data for diagnosis codes associated with specific conditions (e.g., 309.81 for PTSD). These codes are entered into veterans' electronic medical records by clinicians, in the normal course of evaluation and treatment. The data provided by the VA should be interpreted in light of at least three limitations, each of which is discussed below. First, some conditions may be overstated, because veterans with diagnosis codes for a condition might not have the condition, as a result of provisional diagnoses or noncurrent diagnoses. A provisional diagnosis code may be entered into a veteran's electronic medical record when further evaluation is required to confirm the diagnosis. A diagnosis may be noncurrent when a veteran who had a condition in the past no longer has it. In either case, the code remains in the veteran's electronic medical record. Second, some conditions may be understated, because veterans who have a condition might not be diagnosed (and therefore might not have the diagnosis code in their records), if they choose not to disclose their symptoms. Veterans might not want to disclose information that would lead to a diagnosis of mental illness. Veterans have reported not wanting to disclose trauma for fear that that they will not be believed, that others will think less of them, that they will be institutionalized or stigmatized, or that their careers will be jeopardized, among other reasons. Also, veterans using VA health care services may receive additional services outside the VA, without the knowledge of the department. Third, the numbers provided by the VA should not be extrapolated to all OEF/OIF veterans, or to the broader veteran population, because OEF/OIF veterans using VA health care are not representative of all OEF/OIF veterans or the broader veteran population. Veterans who use VA health care may differ from those who do not, in ways that are not known. Potential differences include (among other characteristics) disability status, employment status, and distance from a VA medical facility. Appendix B. Selected Evaluations of VA Services Table B-1 lists selected reports published since 2008 that evaluate the VA's efforts to address veterans' mental health:

The mental health of veterans—and particularly veterans of Operations Enduring Freedom and Iraqi Freedom (OEF/OIF)—has been a topic of ongoing concern to Members of Congress and their constituents, as evidenced by hearings and legislation. Knowing the number of veterans affected by various mental disorders and actions the Department of Veterans Affairs (VA) is taking to address mental disorders can help Congress determine where to focus attention and resources. Using data from the VA, this brief report addresses the number of veterans with (1) depression or bipolar disorder, (2) posttraumatic stress disorder (PTSD), and (3) substance use disorders. For each topic, this report also briefly describes what the VA is doing in terms of screening and treatment. From FY2002 through FY2012, 1.6 million OEF/OIF veterans (including members of the Reserve and National Guard) left active duty and became eligible for VA health care; by the end of FY2012, 56% of them had enrolled and obtained VA health care. The VA publishes the cumulative prevalence of selected mental disorders among OEF/OIF veterans using VA health care, based on information in the VA's electronic health records. Systematic information regarding veterans who do not use VA health care is not available. Data about OEF/OIF veterans using VA health care should not be extrapolated to the rest of the OEF/OIF veteran population, or to the broader veteran population. Limitations of the VA's data are discussed in Appendix A. Reports that have evaluated VA's efforts and offered recommendations are listed in Appendix B.

Introduction A Multi-Dimensional Conflict1 Hezbollah's July 12, 2006, attack in northern Israel, in which two Israeli soldiers were kidnapped, elicited an Israeli military response that again embroiled the region in a multi-dimensional conflict. The month-long war touched upon an array of critical U.S. foreign policy issues in the Middle East, ranging from the continued instability arising from the lack of a comprehensive settlement to the Arab-Israeli peace process, to the preservation of Lebanon's sovereignty and independence which remains hampered by the inability to disarm Hezbollah. Though the primary combatants were part of a triangular dynamic in which Israel was (and still is) at war with Hezbollah in Lebanon and with Palestinian militants, including Hamas, in the Gaza Strip, there were secondary players who added additional layers of complexity to the conflict, namely Iran and Syria. Both countries have played significant roles in arming, training, and financing Hezbollah (and to a lesser extent Hamas) and have used the Lebanese Shiite organization as a proxy to further their own goals in the region. Iran may have aspirations to become the dominant power in the Middle East, and many in the international community are closely focused on its potential weapons of mass destruction capability. In this light, the fighting in southern Lebanon was viewed by some as a contest between two of the Middle East's most bitter rivals and most powerful actors, Israel and Iran (via Hezbollah by proxy), and it could be a harbinger of future indirect confrontations between two possibly nuclear-armed nations. The "Root Causes" of the Conflict Hezbollah's July 2006 attack inside Israeli territory and repeated Israeli-Palestinian clashes in the Gaza Strip and West Bank illustrated not only the risk posed by terrorist groups operating along Israel's borders, but more importantly, the risk to regional security in the absence of comprehensive peace agreements between Israel and the Palestinians, Lebanon, and Syria. Particularly along Israel's northern front, achieving peace between the major parties has been an elusive goal. The task has grown even more complex with the rising influence of non-state political movements/terrorist organizations, such as Hezbollah and Hamas, on Lebanon's southern border. Neither organization recognizes Israel's right to exist as a nation-state. The 2006 war in Lebanon is the latest manifestation of conflict along the Israeli-Lebanese-Syrian border, the final demarcation of which has long been in dispute and is exacerbated by the technical/formal state of war (not active) that exists between Israel and its two northern neighbors. On the Lebanese side of the border, historically weak, usually Christian/Sunni-led governments paid scant attention to the southern portion of the country, a predominately Shiite area. Without much of an economy or government military presence in the south, the region was prone to penetration by outside groups (mainly Palestinian) opposed to Israel until the Shiites residing there formed their own militias. Since the earliest days of Jewish settlement in what was then the British-controlled Palestine-Mandate, militants could operate with impunity over a porous border. Before Hezbollah came on the scene, the Palestinian Liberation Organization (PLO) used Lebanon as a base to wage a guerrilla war against Israel. Repeated PLO-Israeli clashes in Lebanon helped ignite the 15-year long Lebanese civil war. To eliminate the PLO threat from its border, Israel occupied a buffer zone in southern Lebanon for 18 years, a policy which many observers believe accelerated the politicization of Lebanese Shiites there and, with significant assistance from Iran, led to the creation of Hezbollah. Today, with the PLO long expelled from Lebanon and the Syrian armed forces no longer in Lebanon and at a major technological disadvantage vis-à-vis Israel's conventional forces, it is Hezbollah that has stepped in to fill the power vacuum in southern Lebanon and continue to threaten Israel with the full support of its foreign patrons - Syria and Iran. Syria seeks the return of the Golan Height which it lost to Israel in the June 1967 Six Day War and finds non-state groups like Hezbollah and other Palestinian terrorist organizations based in Damascus as useful proxies. Most analysts believe the Israeli-Lebanese-Syrian tri-border area will remain a tinderbox that could spark future conflicts so long as territorial disputes remain unresolved. While Syria and Israel have at times come close to an agreement, most recently in 1999, significant differences between the two sides remain, notably control over the shores of the Sea of Galilee, a critical source of fresh water with symbolic importance as well for both countries. The Cease-Fire U.N. Security Council Resolution 17015 After more than four weeks of fighting between Israel and the Lebanese Shiite Muslim militia Hezbollah, on August 11, 2006 the U.N. Security Council unanimously adopted Resolution 1701, calling for a "full cessation of hostilities based upon, in particular, the immediate cessation by Hezbollah of all attacks and the immediate cessation by Israel of all offensive military operations." The resolution provides: expansion of the existing U.N. Interim Force in Lebanon (UNIFIL) from 2,000 to a maximum of 15,000; deployment of UNIFIL plus a Lebanese Army force to southern Lebanon to monitor the cease-fire; withdrawal of Israeli forces in southern Lebanon "in parallel" with the deployment of U.N. and Lebanese forces to the south; a ban on delivery of weapons to "any entity or individual" in Lebanon, except the Lebanese Army. The resolution requested the U.N. Secretary General to develop proposals within 30 days for delineation of Lebanon's international borders, including the disputed Shib'a Farms enclave located near the Lebanese-Syrian-Israeli tri-border area. The resolution's preamble also emphasizes the need to address the issue of prisoners on both sides The resolution also calls upon the international community to extend financial and humanitarian assistance to the Lebanese people, including facilitating safe return of displaced persons. The agreement entered into force on August 14. Factors critical to the effectiveness of the peacekeeping measures adopted by Resolution 1701 and the likelihood of a sustainable cease-fire include acceptance of the arrangements by Israel, Hezbollah, and the Lebanese population; training and motivation of peacekeeping forces; rules of engagement that allow for a military response to challenges; and cooperation among the various organizations involved in peacekeeping under Resolution 1701. An Expanded UNIFIL The U.N. Interim Force in Lebanon (UNIFIL), created in 1978 initially to monitor an earlier Israeli withdrawal, has fluctuated in size over the years, comprising approximately 2,000 military personnel as of mid-2006. As noted above, Resolution 1701 envisions increasing UNIFIL to a maximum of 15,000, of which approximately 7,000 would come from Italy, France, Spain, and other European countries. Turkey and Qatar have agreed to participate, thus providing Arab/Muslim representation and Indonesia has been approached as well. U.N. planners are hopeful that more Arab or at least other Muslim forces may participate as well to broaden support for UNIFIL. There has been talk of deploying the the expanded UNIFIL not only in southern Lebanon but also along the Syrian-Lebanese border. Syria objects to this proposal as a hostile act. (See below.) Lebanese Armed Forces Resolution 1701 also welcomes a decision by the Lebanese Government to deploy 15,000 personnel from the Lebanese Armed Forces to southern Lebanon as the Israeli forces withdraw. There are questions, however, about the likely effectiveness of Lebanese troops in maintaining stability. The 70,000-member Lebanese Armed Forces have limited capabilities and largely obsolescent equipment. Moreover, they are divided along religious sectarian lines, although Lebanon's leaders have tried in recent years to build a professional and more integrated force. Although the government does not release figures on the sectarian composition of the Lebanese Armed Forces, according to former Lebanese army general Elias Hanna, the army's officer corps is predominantly Christian and Sunni Muslim while the rank and file is about 70% Shiite. Deployment of Lebanese military contingents could help break the deadlock over monitoring the Lebanese-Syrian border, however, since the various parties have not objected to the presence of Lebanese troops. Unresolved Issues The Difficulty of Disarming Hezbollah Some analysts believe that Resolution 1701, while it may succeed in creating a temporary calm and end to the fighting, will probably fail to change the fundamental political and military dynamics on the ground that started the war in the first place—the presence of a well-armed Hezbollah militia on Israel's borders. Although Resolution 1701 calls for an expanded UNIFIL, it will not be operating in accordance with Chapter VII of the UN Charter, which allows the Security Council to "take such action by air, sea, or land forces as may be necessary to maintain or restore international peace and security." According to U.S. Secretary of State Condoleezza Rice, "I don't think there is an expectation that this [UN] force is going to physically disarm Hezbollah.... I think it's a little bit of a misreading about how you disarm a militia. You have to have a plan, first of all, for the disarmament of the militia, and then the hope is that some people lay down their arms voluntarily." While Israel has demanded that peacekeepers be deployed along the Lebanese-Syrian border to prevent Hezbollah's re-armament by Syria and Iran, Lebanese Prime Minister Fouad Siniora stated on August 28, 2006 that the Lebanese Armed Forces have already been deployed along the border and that there is no need for an international presence there. Syria's President Bashar al-Asad had threatened earlier to close the border should peacekeepers take up positions close to Syria. In an interview with Dubai television, Asad stated that a possible peacekeeping force along the border "is an infringement on Lebanese sovereignty and a hostile position." Most analysts believe that the Lebanese army can do little to prevent the smuggling of arms to Hezbollah. Release of Prisoners8 International mediators have been working through diplomatic channels to free the Israeli corporal kidnapped by the Hamas military wing and two other groups on June 25 almost from that date. The kidnappers and their supporters have insisted that the Israeli soldier be exchanged for some of the thousands of Palestinian prisoners being held by Israel. Although the kidnappers initially and specifically demanded the release of women and minors in Israeli custody, their subsequent demands have been less precise. The mediators' efforts have been hampered by Hamas's demand (specifically Damascus-based Hamas Political Bureau Chief Khalid al-Mish'al's demand) for a simultaneous prisoner swap and by Israel's reluctance to agree to any actions that would appear to be an exchange or a concession to the "blackmail" of kidnapings. Egyptian officials are said to be mediating and there are unconfirmed reports that a prisoner exchange is in the works. According to these reports, the soldier would be released and, subsequently, Palestinian prisoners would be released in three groups, totaling about 800. The Egyptians' interlocutor is not known. Neither Palestinian President Mahmud Abbas nor Prime Minister Ismail Haniyah of Hamas is in control of the kidnapped Israeli soldier. The Hamas military wing may answer to Mish'al, who in turn may need the approval of his Syrian hosts or Iranian supporters for any deal. U.N. Secretary General Kofi Annan announced on September 5 that Israel and Hezbollah had agreed to have him mediate an exchange of prisoners for the release of the two Israeli soldiers kidnapped on the northern border of Israel by Hezbollah on July 12 and that he would appoint an envoy to conduct "secret" negotiations. Israeli officials immediately reacted by saying that they would not negotiate a prisoner release, but they have taken actions which contradict their statements and indicate that they expect an exchange. In addition to holding several Lebanese prisoners, one of whom has been in jail as a convicted murderer since 1979, Israeli forces reportedly captured about a dozen Hezbollah fighters and brought the corpses of others to Israel during the recent war specifically in order to exchange them for the captured soldiers after the war. Israel has exchanged many Hezbollah prisoners for a few Israeli captives and corpses via third party mediators on past occasions. While the current Israeli government would prefer not to follow that precedent and apparently launched the recent war partly to end it, the captives' families and much of the Israeli public demand the return of the abductees, which appears to require an exchange. Continued Fighting in Gaza11 While fighting continues in the Gaza Strip, it has abated somewhat in Lebanon since August as rockets have been launched less frequently. The Israeli Defense Forces have taken over some former settlements in Gaza and deployed just beyond the Gaza border in order to make sporadic incursions into Palestinian areas to attack terrorists, rocket launching sites, and tunnels used to smuggle arms into Gaza. However, their use of air and artillery strikes appears to have been curtailed somewhat. This may have been due to a shifting of regular Israeli forces and resources to the northern front against Lebanon and their replacement by reservists. It is not yet clear if hostilities will re-escalate in Gaza with the cessation of hostilities in Lebanon. Some 200 Palestinians have been killed since these operations began after the June 25 kidnaping of an Israeli soldier. A prisoner exchange might continue to constrain the fighting. Much of the fighting in Gaza is intramural, i.e., between supporters and opponents of the Hamas-led government. The well-armed Palestinian security forces, manned largely by Fatah opponents of the government, have repeatedly confronted the Hamas military wing and other armed groups loyal to government. Crime rates also reportedly have risen. Violence also may be attributed to the dire economic straits into which Gaza has fallen since the international community and Israel cut the transfer of funds to the Palestinian Authority (PA) after Hamas assumed leadership of the PA government in March. Palestinian security forces and other government employees hold the Hamas-led government responsible for the resulting non-payment of salaries. Israel also has sealed off the Gaza Strip, only allowing in sufficient humanitarian aid shipments to stave off a disaster. Thus, the domestic climate is considered chaotic and highly combustible. As a result, pressure was exerted on Hamas to accept President Mahmud Abbas to form a national unity government in order to allow foreign aid to flow again. Hamas was reluctant to concede the premiership and insisted that ministries be distributed in proportion to a party's strength in parliament, ensuring continued Hamas domination in the cabinet. It has also firmly resisted the idea of a government of technocrats. Moreover, Hamas will not accede to the January 2006 demand of the "Quartet" (United States, United Nations, European Union, and Russia) that it accept principles of non-violence, recognize Israel, and prior agreements and obligations, including the Road Map to a two-state solution to the Israeli-Palestinian conflict. If Hamas is not in a position to compromise, the conditions which produced the international pressure will not change and violence will likely continue. Shib'a (Shebaa) Farms13 A small 10-square-mile enclave near the Lebanon-Syria-Israel tri-border area known as the Shib'a Farms continues to exacerbate tensions in southern Lebanon and complicate implementation of cease-fire terms. Earlier, the withdrawal of Israeli forces from southern Lebanon in May 2000 left several small but sensitive border issues unresolved, including the Shib'a Farms. Israel did not evacuate this enclave, arguing that it is not Lebanese territory but rather is part of the Syrian Golan Heights, which Israel occupied in 1967. Lebanon, supported by Syria, asserted that this territory is part of Lebanon and should have been evacuated by Israel when the latter abandoned its self-declared security zone in southern Lebanon in 2000. On June 16, 2000, the U.N. Secretary General informed the Security Council that the requirement for Israel to withdraw from southern Lebanon had been met, thereby implying that the Shib'a Farms are not part of Lebanon. The Secretary General did point out, however, that the U.N. determination does not prejudice the rights of Syria and Lebanon to agree on an international boundary in the future. Leaders of Hezbollah immediately seized upon the Shib'a Farms issue as justifying Hezbollah's refusal to relinquish its weapons, arguing that the weapons were needed to confront Israel while the latter continued to occupy the Shib'a Farms. Hizbollah also argued that it was justified in continuing to launch periodic rocket attacks on Israeli military units in or near the Shib'a Farms area to counter alleged threats posed by Israeli forces in the area. For the next half-decade, this area remained a focal point for violence and border violations. Among the more serious incidents was the seizure by Hezbollah guerrillas in October 2000 of three Israeli soldiers, whose bodies were handed over to Israel in return for the release of a group of Hezbollah prisoners in January 2004. This incident, which anticipated the July 2006 kidnaping that triggered the recent Israeli-Hezbollah fighting, was followed by further unrest, including border violations, Hezbollah attacks by fire (e.g., rocket and mortar attacks), occasional Israeli air strikes, and frequent Israeli overflights of Lebanon. The situation is made more complex by the fact that Syria and Lebanon have never demarcated a common border nor established formal diplomatic relations. The two countries, which were twin protectorates under a French "mandate" (trusteeship) between World Wars I and II, never established diplomatic structures or agreed boundaries upon graining independence in 1943. This was due in part to the influence of some factions in both Syria and Lebanon who regarded the two as properly constituting a single country. Advocates of a "Greater Syria" in particular were reluctant to establish diplomatic relations and boundaries, fearing that such steps would imply formal recognition of the separate status of the two states. The Shib'a Farms emerged into the limelight once again after political upheavals in Lebanon in 2005 and the fighting that erupted in July 2006. As government leaders and diplomats sought to find ways to end the fighting and pursue more lasting peace efforts, it became obvious that the status of the Shib'a Farms territory would likely arise. At an inconclusive international conference on Lebanon held in Rome on July 26, Lebanese Prime Minister Fouad Siniora presented a seven-point proposal which called, among other things, for placing the Shib'a Farms and some adjacent areas under U.N. jurisdiction "until border delineation and Lebanese sovereignty over them are fully settled." The proposal also provided that the Shib'a Farms would be open to property owners during the period of U.N. custody. U.N. Security Council Resolution 1701 of August 11, 2006, which brought about a cessation of active hostilities, did not specifically endorse the seven-point plan and its proposals for dealing with the Shib'a Farms question. However, in preambular language, the resolution referred to "the proposals made in the seven point plan regarding the Shebaa (variant spelling) farms area." Later on, in paragraph 10, the resolution requested the U.N. Secretary-General to develop proposals to implement terms of various agreements including, "delineation of the international borders of Lebanon, especially in those areas where the border is disputed or uncertain, including by dealing with the Shebaa farms area [emphasis added], and to present to the Security Council those proposals within thirty days." On September 1, 2006, during a follow-on trip to the region, Secretary-General Annan said Syrian President Bashar al-Asad informed him that "Syria is prepared to go ahead with the delineation of its border with Lebanon." According to the press article that reported the meeting, the process of delineation could include the Shib'a Farms area. At the same time, President Asad ruled out formal demarcation (as distinguished from delineation ) of the Shib'a Farms' boundaries pending Israeli withdrawal from the area. The status of the Shib'a Farms could be an important factor, not only in the stability of Lebanon but also in any future agreements involving Israel, Lebanon, and Syria. If the Shib'a Farms area forms part of Lebanese territory occupied by Israel in 1982, it would come under the provisions of U.N. Resolutions 425 and 426, which addressed Israeli withdrawal from Lebanon. If it forms a part of the Syrian Golan Heights territory occupied by Israel in 1967, it would come under the provisions of other U.N. resolutions (242 and 338), which address the Golan territory and other broader aspects of the Arab-Israeli conflict. In the latter case, the issue would be moot as long as Israel remains in occupation of the Golan Heights. For more background information on the Shib'a Farms issue, see CRS Report RL31078, The Shib ' a Farms Dispute and Its Implications , by [author name scrubbed] (pdf). The War's Aftermath Assessing Hezbollah17 The relative success of Hezbollah in the recent conflict can be credited to a variety of factors. In the six years since the Israeli withdrawal from southern Lebanon, Hezbollah devoted considerable efforts to constructing an extensive defensive infrastructure, providing substantial training to its personnel, establishing distributed stockpiles of supplies throughout the area, and preparing operational plans. All of these activities are reported to have received a very high level of support from Iran in the form of funds, equipment, and personnel. Perhaps the most significant factor in Hezbollah's ability to withstand the Israeli Defense Forces (IDF) is an the extensive network of fortified sites and underground facilities. These provided protection for both personnel and equipment against repeated Israeli air attacks, forcing the IDF to move to ground operations. Fighting from prepared positions and very well equipped with a range of modern weaponry that included antitank and anti-ship missiles, night vision equipment, and computer assisted targeting, relatively small Hezbollah units were able to maintain stiffer resistance than expected. Hezbollah's stockpiled supplies and local support significantly mitigated the Israeli interdiction efforts. Though isolated by the IDF air and ground offensive, Hezbollah units were often sufficiently provisioned to continue fighting without immediate need for re-supply. Close familiarity with their area of operations, widespread support among the population, and effective communication networks enhanced Hezbollah's ability to slow Israeli advances, often conducting ambushes and rapidly withdrawing in classic guerrilla style warfare. Though Hezbollah units did attempt limited incursions into Israeli territory, they were all successfully repulsed. Nevertheless, throughout the conflict Hezbollah was able to maintain its campaign of rocket attacks on Israeli territory. An estimated 4,000-5,000 rockets were fired; however, this represents only a third of Hezbollah's estimated rocket/missile arsenal. Though Israeli retaliation against rocket launch sites came in a matter of minutes in some cases, the mobility of the rocket launchers continued to make them difficult targets. The rockets/missiles supplied to Hezbollah by both Iran and Syria carried a variety of conventional warheads and had ranges of up to 120 miles. Though most are of relatively low accuracy by modern standards, they remain effective terror weapons against urban populations. Though Hezbollah's military capabilities may have been substantially reduced, and re-supply from Syria and Iran could be hampered by the presence of international peacekeepers in Lebanon, Hezbollah's long-term potential as a guerrilla movement appears to remain intact. Observers note that Hezbollah's leaders have been able to claim a level of "victory" simply by virtue of not having decisively "lost." Debate Within Israel20 Israelis overwhelmingly supported the war as a legitimate response to an attack on sovereign Israeli territory and as a long overdue and decisive reaction to six years of Hezbollah rocket attacks against northern Israel. As the conflict progressed, however, the public and media increasingly questioned the government's and the military commanders' prosecution of the war. After the war, critics noted that the kidnapped soldiers had not been freed and that Hezbollah had retained its arms and may have been strengthened politically; and they found fault with a government that had produced what they viewed as poor results. The charges levied against the government and the military leaders include hesitant decision-making; excessive reliance on air power; delayed launch of a ground offensive, which, once begun, was seen as deficient; launching an unnecessary and costly final ground action during the weekend after the U.N. passed the cease-fire resolution; poor intelligence concerning Hezbollah locations, arms, tactics, and capabilities; deficient training and equipment for mobilized reservists; tactics unsuitable for terrain and enemy; ill-prepared home front defenses, which left many poor and elderly who were unable to escape in the north; an inadequate presentation of the Israeli view to international audiences; and harm to future Israeli deterrence. The government counters that the war succeeded in forcing Hezbollah from the border and in degrading its arms, particularly in eliminating a substantial number of its long- and mid-range missiles. It also sees success in forcing the Lebanese government, aided by international forces, to assert control over the south, which had been an unfilled demand made by Israel since it withdrew from the region in 2000. Most notably, Israeli officials took Hezbollah leader Sheikh Hassan Nasrallah's admission that he would not have authorized the July 12 action if he had known how strongly Israel would react as confirmation that Hezbollah has been weakened and that Israel's deterrence has been strengthened. Public opinion polls indicate that support for the government has fallen sharply and that a much of the public favors the resignations of Prime Minister Ehud Olmert, Defense Minister Amir Peretz, and Israeli Defense Forces (IDF) Chief of Staff Gen. Dan Halutz. Critics claim that Olmert and Peretz's lack of military command experience make them unqualified to head the state during a war. Both had held only low-level positions during required military service, and neither had served beyond that time. Some critics blame Gen. Halutz, a former head of the air force, for having made too many appointments to the general staff from the air force and for ignoring reportedly well-developed plans for a ground campaign. The revelation that Halutz had engaged in personal stock market transactions in the early hours of the war sparked additional questions about his priorities. Reservists and families of those killed in action have been in the forefront of demonstrations demanding accountability. However, Prime Minister Olmert rejected demands for an independent state commission of inquiry, such as were headed by Supreme Court justices after past controversial conflicts, saying it would take too long and paralyze the military when it needs to attend to more vital tasks. Instead, he at first named former Mossad (Institute for Intelligence and Special Operations) Director Nahum Admoni to head a government investigatory committee to examine wartime decision-making. This move failed to satisfy critics, who charge that a government-appointed committee would lack independence and produce a white-wash; and they continued to demand a state inquiry. Attorney-General Menahem Mazuz then disqualified two of the Admoni committee's five members due to conflicts of interests. Olmert also approved Defense Minister Peretz's appointment of former Chief of Staff Gen. (Res.) Ammon Lipkin-Shahak to head a committee to investigate how the military and the Defense Ministry had performed during the war. Accusations of lack of independence and white-wash also were made against Lipkin-Shahak, who had advised Peretz during the war. Lipkin-Shahak suspended his activities and Peretz later came out in support of a state commission of inquiry. Despite these developments, Olmert persisted in his efforts to avoid a state commission. On September11, he announced that, instead of Admoni, retired judge Eliahu Winograd would head a committee to examine the conduct of both political and military leaders during the war. It will have two civilian and two retired military members and the power to subpoena witnesses and grant immunity for testimony. In addition, State Comptroller Micha Lindenstrausse will probe failings in home front preparedness. Domestic Political Repercussions in Israel Politically, support for Olmert's Kadima and Peretz's Labor parties, the two main coalition partners, has plummeted, while that for the rightist Likud and Yisrael Beiteinu parties and their respective leaders, Benjamin Netanyahu and Avigdor Lieberman, has increased. There has been some speculation that the governing coalition might be reconfigured to bring in one or both of these larger opposition parties, although Olmert professes to have no interest in change. Lieberman disavows interest in joining the government, claiming that it will be short-lived. Netanyahu has been less categorical. Few in parliament, save Lieberman, appear to favor bringing down the government immediately and in sparking an early election as they have been in their seats only a few months. Likud has already struck a deal with the government to support the 2007 budget and budget votes have been used as vehicles for producing no-confidence votes and bringing down a government. Netanyahu may not believe that he has sufficiently repaired his public image from that of a Finance Minister whose policies harmed the aged and the poor to contest another election at this time. Such allegations contributed to Likud's poor showing in the March 2006 election. Many Kadima Members of the Knesset (MKs) know that their political fate is tied to Olmert's and have a vested interest in his political survival. Hence, he does not face an imminent challenge to his party leadership, although polls indicate that Foreign Minister Tzipi Livni is more popular. Kadima had been formed in late 2005 in order to pursue unilateral disengagement from the West Bank. Many Israelis now believe that unilateral withdrawals from south Lebanon in 2000 and from Gaza in 2005 had transformed those regions into terrorist bases, and neither the public nor Kadima still supports disengagement from the West Bank. As a result, some observers say the party lacks a raison d ' etre . Olmert has said that rebuilding a north devastated by the war is his highest priority, but few would consider this goal to be a new platform for the party. Amir Peretz is facing greater challenges from within Labor. Since the government was formed, a block of party dissidents who did not receive cabinet portfolios have taken every opportunity to criticize their party leader and his actions. They are led by former Ben Gurion University President Avishay Braverman and former head of Shin Bet (Israeli counterintelligence and internal security service) Ami Ayalon, two strong personalities, and their voices have grown louder since the war. At the present time, the budget process is providing them with ammunition. Budget cuts to pay for the war are subordinating Labor's social and economic agenda; and the proposed 2007 budget contains more of the same. Defense Minister Peretz is in the awkward position of having to support the military's demands, while conceding championship of social causes to his intra-party opposition. As a former successful union leader who wrested control of Labor from an entrenched old guard, Peretz's abilities as an infighter should not be underestimated. Most Israeli governments last less than two years. The current government is not threatened by imminent demise, but many believe it will not survive two years. The Race to Rebuild Lebanon While fighting has come to a halt, Iran and Hezbollah are vying with the United States and its international and Arab partners over which side can help rebuild southern Lebanon the fastest and win the "hearts and minds" of many distraught Lebanese civilians who have lost homes and businesses due to the war. Hezbollah militants and party members, perhaps as an implicit acknowledgment that the war they began brought much suffering to Lebanon, reportedly have been handing out $12,000 in cash payments to anyone who lost their home during the war. The money is meant to pay for rent and furniture while Hezbollah builds new homes for the displaced. Reportedly, the bulk of Hezbollah's largesse comes from Iran, which may have allocated hundreds of millions in aid to be channeled through Hezbollah to Lebanon. According to the governor of Lebanon's Central Bank, Hezbollah was distributing banknotes that had not gone through the formal banking system implying that they may have been transported across the border by land. According to Time , Hezbollah has pledged to rebuild apartment buildings and entire villages within three years and has sent civil-affairs teams wearing hats that read Jihad For Reconstruction. Lebanon's Prime Minister Fouad Siniora is reportedly offering a government compensation package of $33,000 for Lebanese whose homes were destroyed in the fighting between Hezbollah and Israel. At this time, it is unclear whether the Lebanese government will be able to follow through on such a commitment. Overall, the Lebanese government estimates that damage to the country's infrastructure from the war is approximately $3.5 billion to $4 billion. To counter Hezbollah's efforts, President Bush announced on August 21, 2006 that the United States would provide $230 million to Lebanon (an additional $175 million on top of an earlier pledge of $55 million). According to the U.S. State Department, the President's initial $55 million pledge came from various re-programmed FY2006 foreign aid funds, including $24 million from the International Famine and Disaster Assistance account, $21 million from the Emergency Refugee and Migration Account (ERMA), $10 million from the P.L. 480 fund (food aid), and $420,000 from the Non-proliferation, Anti-terrorism, De-mining, and Related Programs account (NADR). At this time, it is unclear where the second tranche of $175 million will come from. According to Director of U.S. Foreign Assistance Ambassador Randall Tobias, U.S. aid to Lebanon will be focused on the following projects: Reconstructing the Fidar Bridge in Jbeil, a key link in Lebanon's coastal highway between Beirut and the northern city of Tripoli; Removing debris from the southern road between Marjeyoun and Nabatyeh; Procuring materials and hiring local workers to repair damaged homes; Cleaning and repairing schools in preparation for the coming school year; Providing new nets, hooks and other trade material to fishermen whose equipment was damaged; and Supporting local fishermen working to clean up the oil slick that now pollutes 90 miles of the Lebanese coastline. The international community also has recognized Lebanon's urgent need for reconstruction assistance, and on August 31, 2006, donors convened in Stockholm, Sweden for a conference to raise reconstruction funds for Lebanon. A total of $940 million in early reconstruction aid was committed and earmarked for rebuilding. Some observers contend that countries opposed to Iranian influence in Lebanon have already fallen behind due to the slow pace of international financial and security commitments and the lack of adequate personnel on the ground to dispense aid. The War's Impact on Lebanese Internal Politics For almost 30 years prior to 2005, Lebanon's internal politics were dominated by Syria, which maintained a large military presence in Lebanon ostensibly as part of an Arab League peacekeeping force. Though supported by some Lebanese, including much of the Shiite Muslim community, the Syrian presence was increasingly resented by other elements of the Lebanese population including Maronite Christians, Sunni Muslims, and Druze (followers of a small sect derived from Islam). The assassination in February 2005 of former Lebanese Prime Minister Rafiq Hariri, widely blamed on Syrian agents because of Hariri's opposition to Syrian policies, led to a dramatic chain of events that profoundly altered the Lebanese political scene. Under heavy domestic and international pressure, Syria withdrew its forces from Lebanon in April 2005; relatively free parliamentary elections were held in May and June without direct Syrian interference in the balloting process; a cabinet headed by a member of the anti-Syrian bloc was installed; and the U.N. Security Council passed Resolution 1595, which established an independent commission to investigate the circumstances of Hariri's murder. Initial reports of the commission seemed to implicate Syria or pro-Syrian Lebanese but findings remain inconclusive so far. At the time, many observers interpreted Syria's unexpectedly rapid withdrawal and the subsequent election of an anti-Syrian majority in the Lebanese parliament as a major setback for Syria's ambitions in the region, and some even predicted that the regime of Syrian President Bashar al-Asad had been seriously weakened. However, Syria maintained significant assets in Lebanon: a mixed government in Lebanon comprising both pro- and anti-Syrian elements (see below); a possible residual presence of Syrian intelligence assets in Lebanon; and Hezbollah, which has refused so far to relinquish its arms and apparently continued to support Syria's agenda by periodically attacking Israeli military positions near the Israeli-Syrian border. The Lebanese government itself is far from monolithic. On one hand, parliamentary elections gave a majority (72 out of 128 seats) to a large anti-Syrian bloc headed by the late Prime Minister's son; on the other hand, the Lebanese Shiite Hezbollah leads a 33-seat minority bloc, and a third 21-seat bloc headed by an independent former army officer is cooperating with the Hezbollah bloc on some issues. President Emile Lahoud was elected with strong support from Syria and currently enjoys the support of Hezbollah as well; he refuses to retire before his term ends in 2007. Prime Minister Fouad Siniora, though a member of the anti-Syrian bloc, nonetheless heads a mixed cabinet which, for the first time in Lebanese history, contains two members of Hezbollah. Disputes over disarmament of Hezbollah, the status of President Lahoud, and relations with Syria have already created several cabinet crises and severely limited the ability of the government to deal with domestic and regional issues. The 34-day military confrontation between Hezbollah and the Israeli Defense Force in July and August 2006 greatly enhanced the prestige of Hezbollah at the expense of the Lebanese government. Hezbollah's leader Sheikh Hassan Nasrallah acquired a folk-hero status as his organization was widely hailed both for its military prowess in the conflict with Israel and for its perceived ability to initiate disaster relief projects far more quickly and efficiently than the regular governmental organizations. Even those Lebanese who might be inclined to criticize Hezbollah for precipitating a crisis that devastated much of southern Lebanon have been muted, at least temporarily, by Nasrallah's soaring popularity and Hezbollah's success in delivering aid to large numbers of displaced persons and other homeless or destitute Lebanese. Similarly, he finds himself in a strong position to withstand pressures to disarm Hezbollah. Syria too, as a major sponsor of Hezbollah, finds that it has more maneuver room in dealing with Lebanese issues. Notably, the earlier enthusiasm among some Lebanese to pursue investigations designed to uncover a possible Syrian role in the Hariri assassination has dissipated, to a considerable extent. The inevitable comparisons being drawn between Hezbollah effectiveness and Lebanese government ineptitude raise questions about the future of the Siniora government and its ability to withstand domestic criticism over its leadership during the current crisis. To some extent, the answers to these questions depend on the interaction of Lebanon's diverse religious sectarian and political groups. Lebanon is the most religiously diverse country in the Middle East and its political system is based on a careful distribution of governmental posts by religious sect. Shiite Muslims constitute a plurality, though not a majority, of the population, and in recent years they have increased their influence in the Lebanese body politic as their numbers have continued to grow. While not all Lebanese Shiites support Hezbollah, many observers believe Sheikh Nasrallah is likely to be heeded to a greater degree in the post conflict environment in Lebanon; he benefits from his ability to play multiple roles including military leader, reconstruction czar, and political participant. Despite his currently favorable image, however, Nasrallah may prefer to enhance his role in the present government including participation by Hezbollah (albeit at a junior level) in the cabinet and leadership of a strong parliamentary bloc rather than to mount an uncertain challenge that could galvanize currently dormant opposition to the Shiite leadership in Lebanon. In the meantime, the interaction of government offices and agencies in Lebanon remains somewhat awkward, complicating the national decision-making process. For example, Prime Minister Siniora, who maintains a dialogue with the United States and the international community, has not had direct dealings with Hezbollah, which the United States lists as a foreign terrorist organization, since the war began. Rather, Siniora and Nasrallah have communicated through the speaker of parliament, Nabih Berri, who is aligned with the Hezbollah-led bloc, but is a member of the more moderate Shiite faction known as Amal. At the same time, Siniora has gained some stature by negotiating some of the wording to Lebanon's advantage in the final version of Resolution 1701. Realignments within the three somewhat amorphous blocs in parliament are also possible, if not likely, as the political situation continues to evolve in the aftermath of the July-August fighting. Issues for U.S. Policy and Congress U.S. Foreign Assistance to the Middle East31 As a result of the Israeli-Lebanon/Hezbollah conflict, the United States has pledged $230 million in humanitarian and reconstruction assistance to Lebanon. While some parts of Israel were also affected by the war, no additional assistance has been announced with the exception of an extension of existing loan guarantees. The United States has longstanding aid programs to countries in the Middle East, including both Israel and Lebanon. Foreign assistance has been used to promote the peace process, spur economic development, and in the case of Israel, to strengthen its defense capabilities through military assistance. Israel's Loan Guarantees Loan guarantees are a form of indirect U.S. assistance to Israel, since they enable Israel to borrow from commercial sources at lower rates and not from the United States government. Congress directs that appropriated or other funds be set aside in a U.S. Treasury account for possible default. These funds, which are a percentage of the total loan (based in part on the credit rating of the borrowing country), come from the U.S. or the Israeli government. Israel has never defaulted on a U.S.-backed loan guarantee, as it needs to maintain its good credit rating in order to secure financing to offset annual budget deficits. P.L. 108-11 , the FY2003 Emergency Wartime Supplemental Appropriations Act, authorized $9 billion in loan guarantees over three years for Israel. P.L. 108-11 stated that the proceeds from the loan guarantees could be used only within Israel's pre-June 1967 borders, that the annual loan guarantees could be reduced by an amount equal to the amount Israel spends on settlements in the occupied territories, that Israel would pay all fees and subsidies, and that the President would consider Israel's economic reforms when determining terms and conditions for the loan guarantees. On November 26, 2003, the Department of State announced that the $3 billion loan guarantees for FY2003 were reduced by $289.5 million because Israel continued to build settlements in the occupied territories and continued construction of the security barrier separating the Israelis and Palestinians. The Bush Administration reportedly plans to submit a request to Congress to extend the authorization of Israel's loan guarantees through FY2010 . To date, Israel has $4.6 billion in U.S.-backed commercial credit left to draw on. Lebanon35 The United States provides modest amounts of assistance to Lebanon, including economic (ESF) and military assistance (FMF), and humanitarian de-mining funds (NADR). Annual funding for Lebanon has been maintained at roughly $35 to $40 million since FY2001 with the objectives of promoting economic growth, strengthening democracy and good governance, and protecting the environment. In addition, Lebanon may be eligible for $10 million in Department of Defense funds under Section 1206 of the FY2006 National Defense Authorization Act (PL 109-163), which authorizes funds for the training and equipping of foreign military forces conducting counter-terrorist operations. Reportedly, this aid would help modernize the Lebanese Armed forces (LAF) by providing funds for the procurement of spare parts to upgrade and repair the LAFs 5-ton military trucks, M113 armored personnel carriers, and UH-1H utility helicopters. The Pentagon may attach conditions to the $10 million aid package if appropriated, requiring the LAF to use the equipment provided to contain Hezbollah's militia. As stated earlier, the United States has pledged $230 million in aid to Lebanon for reconstruction. Of the total U.S. pledge, $55 million has been committed and re-programmed from various FY2006 foreign operations accounts. The makeup of the remaining $175 million pledge had not been announced as of September 2006, but it is expected that the Administration will send a request to Congress to reprogram existing FY2006 funds for at least part of the total. On September 14, 2006, the Washington Post reported that Representative Tom Lantos, ranking Minority Member of the House International Relations Committee, put a hold on any assistance to Lebanon until the Lebanese Armed Forces and international peacekeepers deploy along the Lebanese-Syrian border. At this point, it is unclear how long the delivery of aid will be suspended. Humanitarian Issues38 During the war, partisans on both sides of the conflict and some independent human rights activists alleged that the warring parties were targeting each other's civilian populations by employing inaccurate munitions that are designed to saturate wide areas with shrapnel or explosive sub-munitions. Condemning Hezbollah Observers have condemned Hezbollah's indiscriminate firing of rockets into northern Israeli towns and cities in order to terrorize the population and cause extensive damage to infrastructure. According to the Jerusalem Post , many of the rockets fired contained anti-personnel munitions such as steel ball bearings. Israeli civil defense agencies continue to identify, disarm, and remove unexploded ordnance (UXO) fired by Hezbollah into northern Israel during the conflict. On September 14, 2006, Amnesty International accused Hezbollah militants of war crimes and "serious violations of international humanitarian law" during the Lebanon war. In a report that attempted to balance earlier accusations against Israel's bombing of civilian areas in Lebanon, Amnesty noted that Hezbollah's Katyusha rockets "cannot be aimed with accuracy, especially at long distances, and are therefore indiscriminate." Israel's Use of Cluster Weapons Observers have decried Israel's use of cluster weapons to counter Hezbollah's rockets attacks. Since the United States is a major provider of military aid to Israel, the cluster weapons issue received media attention during and since the war and has reportedly become the subject of an Administration investigation. Field and press reports suggest that large numbers of cluster weapon sub-munitions (commonly referred to as "cluster bombs") remain scattered across areas of southern Lebanon in the aftermath of fighting between Hezbollah and the Israel Defense Forces (IDF). The sub-munitions in southern Lebanon are the unexploded remnants of a range of Israeli ground- and air-launched cluster weapons, including bombs, artillery shells, and rockets. The United States apparently supplied some of the cluster weapons that Israel used in the conflict. Officials from the United Nations, non-governmental organizations, and foreign governments have criticized Israel for its use of cluster weapons in populated areas because of the known high rate of failure for the cluster weapons' sub-munitions and the potential for these so-called "bomblets" to kill and injure civilians. Israel reportedly fired many of the cluster weapons in question during the final days of the conflict. As of September 7, the United Nations had catalogued 12 deaths and 61 reported injuries from UXO in Lebanon, all but five of which were linked to cluster sub-munitions. Up to 448 cluster weapon strike sites from the recent conflict have been identified, and U.N. experts estimated that 12 to 15 months will be needed to clear the sites of cluster sub-munitions. According to Human Rights Watch, 57 countries maintain stockpiles of cluster weapons, and nine countries have used them in combat, including the United States in Iraq and Afghanistan. Israeli Reaction Israeli officials maintain that the IDF carefully considered the potential for civilian casualties both during and following their military operations, and that IDF use of cluster weapons, as well as the IDF's broader methods during the southern Lebanon campaign, "are legal under international law and their use conforms with international standards." Israel has identified Hezbollah's use of civilian homes for rocket launching and munitions storage as the primary explanation for IDF targeting of some populated areas during the conflict. IDF sources reported during the conflict that the predominant targets for their cluster weapons were Hezbollah-manned Katyusha rocket launch sites in open areas. Following the conclusion of the cease-fire agreement, the IDF transferred maps to UNIFIL forces showing likely locations for UXO and distributed warning notices to residents in conflict zones advising them to delay their return to their villages and homes until UXO had been cleared. Administration Response The U.S. Department of State's Office of Weapons Removal and Abatement has announced plans to expand an ongoing landmine and unexploded ordnance (UXO) humanitarian clearance program in Lebanon in the aftermath of the Israel-Hezbollah conflict. The expansion of the program will consist of an emergency grant of $420,000 in reprogrammed FY2006 funds to a non-governmental UXO removal organization and greater support for the United Nations Joint Logistics Center UXO data collection and mapping operations in Lebanon. The Department of State also is seeking congressional approval for the allocation of up to $2 million to continue UXO clearing activity in Lebanon during FY2007. Munitions Shipment Hold and Investigation According to press reports citing unnamed Administration officials, the Department of State has held up a shipment of M-26 cluster munitions to Israel and initiated an investigation of the Israel Defense Force's use of cluster munitions during the recent fighting. In early August, Israel reportedly requested that a pre-ordered shipment of U.S. M-26 rockets be expedited for IDF use in Multiple Launch Rocket System (MLRS) counterfire strikes against Hezbollah rocket launch sites in southern Lebanon. Initial reports suggested the shipment was delayed out of concern over the weapons' potential use, and subsequent press reports suggest the shipment has been placed on hold. In addition to this reported hold, the Department of State's Directorate of Defense Trade Controls also reportedly is conducting an investigation focused on whether Israel violated confidential agreements with the United States that restrict Israel's use of U.S.-supplied cluster munitions to certain military targets in non-civilian areas. Administration officials have declined to comment specifically on these reports. President Bush repeatedly characterized Israel's military actions as "self-defense" during the conflict. The Arms Export Control Act requires that U.S.-supplied weapons can be used only in "legitimate self-defense." Congressional Responses In Congress, Senators Feinstein and Leahy introduced an amendment to the FY2007 Department of Defense Appropriations bill ( S.Amdt. 4882 to H.R. 5631 ) that would have prevented FY2007 funds from being spent "to acquire, utilize, sell, or transfer any cluster munition unless the rules of engagement applicable to the cluster munition ensure that the cluster munition will not be used in or near any concentrated population of civilians, whether permanent or temporary, including inhabited parts of cities or villages, camps or columns of refugees or evacuees, or camps or groups of nomads." The amendment failed to pass during Senate floor consideration on September 6, 2006 by a vote of 30 to 70 (Vote No. 232). Some opponents of the amendment argued that its language would unduly restrict the options available to U.S. military commanders in battle. Others called for hearings to further discuss the subject. U.S. Efforts and Other Efforts to Combat Hezbollah U.S. Terrorism Designations and Related Effects In December 2004, the U.S. State Department added Al-Manar to the Terrorist Exclusion List (TEL). Applicable criteria for adding Al-Manar to the TEL included inciting to commit a terrorist act and providing material support to further terrorist activity. The effects of an entity being placed on the TEL could include the possible deportation and exclusion from the United States of individuals found belonging to or supporting the TEL designated organization. Concurrent with the State Department's placement of Al-Manar on the TEL, the organization was no longer allowed a satellite feed into the United States. Though Al-Manar is banned from broadcasting its satellite signal into the United States, the station does upload its television programs and other like material on its website, which is accessible to any individual with an internet connection. On March 23, 2006, the Department of the Treasury designated Al-Manar as a Specially Designated Global Terrorist (SDGT) entity. In making this designation, Stuart Levey, Treasury Under Secretary for Terrorism and Financial Intelligence, stated, "Any entity maintained by a terrorist group—whether masquerading as a charity, a business, or a media outlet—is as culpable as the terrorist group itself." The effects of an entity being designated as a SDGT include the blocking of access to all assets under U.S. jurisdiction by the organization, its parent companies, and individuals who have materially supported the entity's terrorist activities. Future transactions between U.S. persons or corporations and Al-Manar are also prohibited consistent with the provisions of the SDGT. Recent Al-Manar Related Activity in the United States In December 2002, Salim Boughader, an owner of a Lebanese restaurant in Mexico, was arrested by Mexican authorities on human-smuggling charges, as he is suspected of trafficking up to 200 Lebanese nationals into the United States. During post arrest questioning, Mr. Boughader reportedly admitted to knowingly providing assistance to an employee of Al-Manar in gaining unlawful entrance into the United States. Mr. Boughader also stated that he assisted individuals with ties to Hezbollah, as he and other Lebanese people "did not see Hezbollah as terrorists." On August 23, 2006, Javed Iqbal was arrested on charges of offering live broadcasts of Al-Manar programming to potential customers in New York. Through selling equipment from his home and his Brooklyn-based company, HDTV Ltd., Mr. Iqbal is suspected of offering customers access to the Al-Manar signal. It is reported that in the instances Mr. Iqbal installed the necessary equipment and attempted to retrieve the Al-Manar transmission, he ultimately was not successful in obtaining the desired signal. U.S. and Israeli Action Against Hezbollah Finances57 On August 29, 2006, the U.S. Department of the Treasury designated the Islamic Resistance Support Organization (IRSO) of Lebanon as a Specially Designated Global Terrorist entity for serving as "a key Hezbollah fund-raising organization." According to Treasury officials, the organization openly raised funds for Hezbollah via direct solicitation and advertisements on Hezbollah's Al Manar television network. The IRSO reportedly allowed its donors to specify whether or not they wished their funds to be used for military equipment or weapons purchases, in addition to a range of other services. As a result of the designation, the IRSO is prohibited from operating in the United States, and any of its assets under U.S. jurisdiction were frozen. The action against IRSO has been followed by two actions against Lebanese and Iranian financial entities suspected of providing support to Hezbollah. On September 7, 2006, Treasury's Under Secretary for Terrorism and Financial Intelligence (TFI) Stuart Levey announced the designation of Bayt al-Mal and the Yousser Company for Finance and Investment of Lebanon for serving "as Hezbollah's unofficial treasury, holding and investing its assets and serving as intermediaries between the terrorist group and mainstream banks." Bayt al-Mal director Husayn al-Shami also was designated. On September 8, 2006, Treasury officials announced that Iran's Bank Saderat would be prohibited from conducting direct or indirect financial transactions with the U.S. financial system, in part because the Government of Iran has used the bank to fund Hezbollah and other terrorist organizations. Prior to the U.S. legal action, Israel reportedly conducted a series of military strikes during July 2006 on Hezbollah financial centers and banks in Lebanon alleged to conduct business for Hezbollah operatives. Brigadier General Dani Arditi, advisor to the Israeli Prime Minister for Counterterrorism, confirmed that the strikes were meant to serve as a message "for all the Lebanese banks.... Assistance to Hezbollah is direct assistance to terrorist organizations." Al-Manar: Hezbollah's Satellite Television Station62 Al-Manar, a satellite television station controlled by Hezbollah, broadcasts into most areas of the world. Al-Manar refers to itself as the "station of resistance" and has a stated mission of conducting "psychological warfare against the Zionist enemy." The station, with a reported budget of $20 million, started transmitting limited programming in June 1991. On two occasions during the recent conflict, Israel bombed the main Al-Manar facility located in southern Beirut. Though buildings on the complex caught fire, transmission satellite antennas were destroyed, and the station's signal went through brief periods of intermittent transmission, the network returned to broadcasting at full capacity shortly after these attacks. Al-Manar's public relations chief Ibrahim Farhat stated that the organization developed contingency plans to allow for broadcasting from remote locations after the U.S. designated it a terrorist organization in December 2004. Islam, Al Qaeda, and the Global War on Terrorism67 The conflict in Lebanon challenged many Sunni Islamists, including jihadist Al Qaeda leaders such as Ayman Al Zawahiri, to reconcile their documented animosity toward Shiite Muslims with their desire to appear to be in solidarity with anti-Israeli and anti-American sentiment and activity that emerged around the Islamic world in response to the crisis. During the fighting, debate over the legitimacy of providing support for Hezbollah, a Shiite Lebanese militia, was particularly pointed on many extremist Internet fora and in a series of public statements issued by conservative Sunni Islamic leaders. Some condemned Hezbollah's actions as part of a Shiite conspiracy to gain regional power or a leadership bid by Hezbollah leader Hassan Nasrallah, while others argued that Sunni and Shiite Muslims should have united to confront Israel and its supporters. To the extent that these debates may have inspired unity or division within and across religious and political communities in the Arab world and beyond, they may have important implications for the success of U.S. foreign policy initiatives in the region, and for U.S. counterterrorism policy objectives in particular. The airing of diverse perspectives toward the crisis across the Arab and wider Islamic worlds brought the competing religious and political priorities of some important figures and groups into contrast and conflict. Conservative Sunni Islamic leaders, such as Qatar-based cleric and international Muslim Brotherhood figure Yusuf Al Qaradawi argued that Muslims should support the activities of Hezbollah and Hamas as legitimate "resistance" activities, based on Quranic injunctions to defend Muslim territory invaded by outsiders. Similarly, Egypt's Grand Mufti Ali Gomaa stated that Hezbollah was "defending its country" and its actions were "not terrorism." Saudi sheikh Salman Al Awda called for Sunnis to set aside their "fundamental and deep disagreement" with Hezbollah and Shiites in order to confront "the criminal Jews and Zionists." While many of the strongest statements that were issued appeared to primarily serve rhetorical purposes, they may have continuing political implications: many religious figures sought to distance themselves from the more nuanced positions of Arab political leaders during the crisis, some of whom have otherwise been characterized as detached from public opinion and vulnerable to revolt. Moreover, groups or individuals may utilize religious figures' judgments and statements to justify future attacks on the interests or personnel of Israel, the United States, or their own governments should the crisis flare up again. Disagreements also emerged among violent Sunni Islamist extremists, including Al Qaeda and its affiliates. In a July 31 Internet posting, an Al Qaeda in the Arabian Peninsula representative seemingly rejected any unitarian sentiment between violent Sunni groups and Hezbollah by characterizing Hezbollah as "the head of the Iranian spear in the Arab region," and arguing that "any support to Hezbollah in Lebanon is indirect support for the Iranian objectives." The view of Al Qaeda leadership figures, as expressed by Ayman Al Zawahiri first in a video released on July 27, and again on September 11, remains somewhat ambiguous with regard to sectarian issues. On July 27, Al Zawahiri stated that "our nation will get together to fight [Israel and its allies]," but he refrained from directly urging Sunni-Shiite unity or advocating direct Sunni support for Hezbollah. A Hezbollah official interviewed on Al Jazeera television following the release of Al Zawahiri's July tape stated that Al Zawahiri's statement should have been "clearer in its reference to the ideological and political dimensions of unity among Muslims, and that, in the future, "there should be clear and direct references to Hizballah and Shiites in a positive sense." In September, Zawahiri addressed his advice and urgings to "Muslims" around the world and in Lebanon rather than addressing the sectarian questions raised by Hezbollah and others. He specifically called on "the Muslim nation" to aid "its Muslim brothers in Lebanon and Gaza," and urged Lebanese Muslims "to reject international resolutions, particularly the recent Security Council Resolution 1701." Any resolution of the ongoing Sunni jihadist debate regarding the appropriate stance toward Shiites will likely have broader implications for any potential intervention in future conflict involving Shiites by Sunni jihadist cells and others who look to Al Qaeda leaders for guidance. Conclusion There are many divergent interpretations of the July-August war in Lebanon and its implications for U.S. policy in the Middle East. On the one hand, some consider this conflict to be just the latest battle in a global war on terror pitting the democracies of the West and Israel against terrorist organizations backed by radical regimes. Others view the war less in terms of an overall effort against Islamic extremism and more of a battle between powerful nation-states, seeing Lebanon as the battleground in an "opening round" of an Iranian-Israeli struggle for regional preeminence. Still, some observers assert that the war is simply another chapter in a long history of localized Arab-Israeli violence spurred by the lack of any discernable progress in a peace process. In reality, there may be elements of truth within all of these perspectives. The conflict has posed its own set of challenges for U.S. policy toward Lebanon. In a broader sense, the war has jeopardized not only the long-term stability of Lebanon but has presented the Bush Administration with a basic dilemma. On one hand, the Administration is sympathetic to Israeli military action against a terrorist organization; President Bush has spoken in favor of Israel's right of self-defense. On the other hand, the fighting dealt a setback to Administration efforts to support the rebuilding of democratic institutions in Lebanon. One commentator suggested "the two major agendas of his [Bush's] presidency—anti-terrorism and the promotion of democracy—are in danger of colliding with each other in Lebanon." If Lebanon disintegrates through a return to communal civil strife or becomes closely aligned with Syria or Iran, U.S. goals could be seriously affected. The United States would lose a promising example of a modernizing pluralist state moving toward a resumption of democratic life and economic reform and quite possibly face a return to the chaos that prevailed in Lebanon during the 15-year civil war. Such conditions would be likely to foster terrorism, unrest on Israel's border, and other forms of regional instability. Moreover, the growth of Syrian or Iranian influence or some combination of the two could strengthen regional voices supporting extremist and likely anti-Western views associated with clerical regimes (Iran), totalitarian models (Syria), or a militant stance toward Israel. A viable cease-fire, on the other hand, could be an initial step toward further progress in the long quest for regional peace. With Hezbollah deeply ingrained in Lebanese Shiite society, the movement has become a fixture in the political system, though whether or not its militia and terrorist wings can be disarmed remains to be seen. Many Israelis remain deeply skeptical over international efforts to disarm Hezbollah, as the real work of preventing re-armament over land, sea, and air will take place behind the scenes in the months ahead. Israeli sources are already reporting the renewal of Syrian and Iranian shipments to Hezbollah though such reports are difficult to confirm. A key aspect of Hezbollah's possible re-armament is the role of Syria. Many questions remain concerning Syria: the willingness of the United States and Israel to bring Syria into the diplomatic mix, Syria's influence over Hezbollah in a Lebanon free of Syria's military occupation, and what demands Syria may make in exchange for its possible cooperation. Some observers suggest a variety of theoretical incentives that the West could provide Syria, including the end of its isolation by the United States and the removal of Syria from the State Department's terrorism list and the relaxation of economic sanctions; the tacit recognition of its influence in Lebanese politics; the ratification of the EU Association Agreement with Syria that provides it with certain trade benefits; diminished international pressure regarding the U.N.-led investigation into the murder of former Lebanese Prime Minister Rafiq Hariri; increased financial support, possibly from Arab Gulf states; and finally (though less likely), a resumption of negotiations over the Israeli-occupied Golan Heights - a longstanding Syrian goal since its defeat in the June 1967 Six-Day War. Others believe that U.S. refusal to reward Syria for its intransigence should continue and that any U.S. engagement would undermine Western efforts to strengthen Lebanese independence and sovereignty, even if the unspoken reality is one in which Syria's special role in Lebanese affairs is widely recognized. After the recent attack on the U.S. embassy in Damascus, some observers have asserted that the United States and Syria share an interest in combating Islamic extremism and should renew limited security cooperation and intelligence sharing. Finally, speculation over the winners and losers of the war will most likely be debated for some time. Israeli officials believe that their overwhelming response to Hezbollah's provocation caught it and Iran off-guard and that Israel's subsequent operations have eroded its opponents' deterrent capabilities along the Israeli-Lebanese borders. Nevertheless, there are many Israelis both in and out of the government who believe that the war was poorly managed, did not achieve its goals, or was simply ill-conceived. Hezbollah claimed that by merely surviving, it gained a symbolic victory over the more powerful Israeli army and that it continued to threaten Israel with rocket attacks after weeks of Israeli attempts to destroy its arsenal. Iran may believe that it achieved an ideological victory against Israel, seeing the conflict as producing increased Arab and Muslim support for Lebanese Shiites and for overall Iranian opposition to Israel. Analysts caution that increased Arab and Muslim support for Hezbollah may simply be a temporary phenomenon in response to solidarity with the Lebanese people and sympathy for Lebanese civilian casualties. Others see increasing domestic political pressure in moderate Arab states and elsewhere, such as Egypt, Jordan, Saudi Arabia, and even Turkey to condemn Israel and hold the United States partially responsible for civilian casualties in Lebanon as a way to deal with popular anger and their own Islamists. Appendix A. Prelude to the Crisis The following was originally the opening section of this report and has been included in the Appendix for use a resource on background to the July-August war. It will not be updated. Although Hezbollah's July 12, 2006, kidnaping of two Israeli soldiers initiated the conflict in southern Lebanon, tensions in the region had grown since the Hamas electoral victory in Palestinian legislative elections in January 2006. Over the course of the next six months, Israeli-Palestinian relations deteriorated rapidly, culminating in renewed fighting in the Gaza Strip, only months after Israel withdrew entirely from the territory and evacuated its settlements. Most observers assert that Hezbollah used the clashes between Hamas and Israel as a pretext and justification for its July 12 attack. The following sections provide background on how the region was transformed over six months from one of relative calm to full-scale war. Palestinian Elections and the Hamas-led PA Government On January 25, 2006, candidates of the "Change and Reform" party associated with the Islamic Resistance Movement (Hamas) won a majority in Palestinian Legislative Council (PLC) elections, defeating Fatah, the prior ruling party of the PLC and of Palestinian Authority President (PA) Mahmoud Abbas. In response, the Quartet (i.e., the United States, European Union, United Nations, and Russia) stated that "there is a fundamental contradiction between armed group and militia activities and the building of a democratic state." Subsequent Quartet statements established clear principles for reviewing further engagement and assistance with the Hamas-led Palestinian government, namely "that all members of a future Palestinian government must be committed to non-violence, recognition of Israel, and acceptance of previous agreements and obligations, including the Roadmap." President Abbas endorsed Hamas' platform and cabinet candidates while expressing his demand that Hamas comply with the Quartet's principles and support his efforts to achieve a two-state solution to the Israeli-Palestinian conflict. Since January 2006, Hamas leaders have largely rejected and refused to discuss the Quartet principles, arguing that while President Abbas may decide to negotiate with Israel, ultimately the Palestinian people would decide what to accept. The Isolation of Hamas and Internecine Palestinian Violence The electoral victory of Hamas surprised many outside observers and created a series of policy challenges for the Bush Administration, which had supported the election process as part of its efforts to reform the Palestinian Authority and its broader Middle East democracy promotion agenda. Israel and members of the Quartet took steps to limit the provision of non-humanitarian aid and financial resources to the Hamas-controlled Palestinian Authority based on Hamas leaders' refusal to accept the Quartet principles. Israel ceased its monthly transfers of approximately $55 million in taxes and customs revenue collected monthly on behalf of the PA, and two leading Israeli banks announced plans to sever their commercial relationships with financial institutions in the West Bank and Gaza Strip. The Bush Administration suspended U.S.-funded development projects in the Palestinian territories and prohibited any and all U.S. persons from engaging in any unauthorized transactions with the Palestinian Authority because of its control by Hamas, a designated terrorist entity. The European Union—the PA's largest donor—also suspended its direct aid to the Palestinian Authority and, at the Quartet's behest, has subsequently spearheaded efforts to develop an international mechanism to deliver assistance to the Palestinian people without transfers to or through Hamas or the elements of the PA under its control. The loss of customs revenue and direct foreign aid created crippling budgetary shortfalls for the PA and significant derivative economic hardship for many Palestinian citizens. President Abbas referred to the steps as a "siege," and throughout April, May, and June 2006, tensions over unpaid salaries and disagreements over command responsibilities flared between the Hamas-led government and armed security force personnel loyal to Fatah. Palestinian leaders, including President Abbas, engaged in several efforts to end the intra-Palestinian violence and bring closure to open questions of official Palestinian support for the Quartet principles (see discussion of the National Accord Document below). However, before these efforts could bear fruit, fresh violence between Israel and Hamas erupted in the Gaza Strip and has escalated. Israeli-Palestinian Fighting For many months prior to the late spring/summer 2006 outbreak of fighting, violence had been somewhat subdued due to some self-imposed restraint by the major players involved. In March 2005, Hamas and 12 other Palestinian groups agreed to extend an informal truce or "calm" (referred to in Arabic as a hudna ) with Israel for one year. Some call the agreement a cease-fire even though it was a unilateral Palestinian declaration to which Israel was not a party. Palestine Islamic Jihad (PIJ) did not agree to the calm and was responsible for several suicide bombings within Israel in the period that followed. Hamas, which had been responsible for many suicide bombings during the second intifadah (Palestinian uprising against Israeli occupation) that had begun in September 2000, refrained from such attacks after declaring the hudna . It did, however, continue to fire mortars and rockets against Israeli settlements in the Gaza Strip before Israel's summer 2005 withdrawal from the region and into southern Israel after Israel's withdrawal. Israel usually responded with air and artillery strikes, but it also carried out what it terms targeted killings of terrorists. On June 9, 2006, a Palestinian family was killed on a Gaza beach. The Palestinians claimed that the victims had been struck by Israeli artillery fire, but Israel denied responsibility for the deaths. Nonetheless, the incident provoked Hamas to call off its truce and intensify rocket fire into southern Israel. Also in June, Palestinian factions held an intense national dialogue in the West Bank and Gaza in which they ultimately agreed on a National Accord Document (also known as the Prisoners' Document because Hamas and Fatah leaders imprisoned by Israel had collaborated on the first draft) to reconcile their positions and goals. Hamas leaders in Damascus, notably political bureau chief Khalid Mish'al, reportedly did not agree with the National Accord Document because it might be seen as suggesting that Hamas had moderated its views regarding Israel and the peace process. On June 25, members of the Hamas military wing (Izz ad-Din al-Qassam Brigades) and two other groups attacked Israeli forces in Israel, just outside of Gaza, killing two Israeli soldiers, wounding four, and kidnaping one. The perpetrators demanded the release of Palestinian women and minors from Israeli prisons. Some analysts suggest that Mish'al was behind the attack in order to assert his power over more "moderate" Hamas officials in the territories and to undermine the National Accord. On June 27, after unsuccessful diplomatic efforts to secure the kidnapped soldier's release, Israeli forces began a major operation which Israel explained as an effort to rescue the soldier, to deter future Hamas attacks including rocket launches from Gaza into southern Israel, and to weaken, bring down, or change the conduct of the Hamas-led Palestinian Authority government. Israeli officials claimed that Hamas had crossed a "red line" with the kidnaping and attack within pre-1967 Israel, but said that Israel did not intend to reoccupy Gaza. On June 28, Hamas officials in the Palestinian Authority allied themselves with the kidnappers by adopting their demands. Israeli officials responded by insisting on the unconditional release of the soldier. On June 29, Israel forces arrested 64 Palestinian (Hamas) cabinet ministers, parliamentarians, and other Hamas officials in the West Bank and Jerusalem in what the Foreign Ministry described the action as a "normal legal procedure" targeting suspected terrorists. In early military operations, Israeli planes bombed offices of PA ministries headed by Hamas, weapons depots, training sites, and access roads; ground forces entered Gaza to locate tunnels and explosives near the border and targeted Hamas offices in the West Bank. After Hamas militants fired an upgraded rocket at the Israeli port city of Ashkelon on July 4, the Israeli cabinet approved "prolonged" activities against Hamas; air and artillery strikes and ground incursions are still occurring. Meanwhile, Palestinian militants continue to fire rockets into southern Israel. International mediators have tried to calm the recent upsurge in violence. The Egyptians have reportedly proposed a resolution in which Hamas would release the soldier in exchange for an Israeli promise to release prisoners at a later date. On July 10, however, Khalid Mish'al insisted on the mutual release or "swap" of prisoners. On the same day, Israeli Prime Minister Ehud Olmert reportedly said that trading prisoners with Hamas would cause a lot of damage to the future of the State of Israel, perhaps because it would continue a precedent that he seeks to break. He later observed that negotiating with Hamas also would signal that moderates such as Palestinian Authority (PA) President Mahmud Abbas are not needed. Abbas told a visiting U.N. team that he wanted to "de-link" the crisis in the Palestinian areas from the crisis that developed subsequently between Israel and Hezbollah in Lebanon in order to prevent non-Palestinian extremists (Hezbollah) from hijacking the leadership of the Palestinian issue. Yet, neither President Abbas nor the Hamas-led PA government officials represent the kidnappers and can bring about a resolution. Hamas leader Mish'al appears to be in control of key elements in Hamas and emphasizes the importance of cooperation between Hamas and Hezbollah and specifically calls for not separating the Palestinian and Lebanese issues. Enter Hezbollah On July 12, under cover of massive shelling of a town in northern Israel, Hezbollah forces crossed the international border from Lebanon into northwestern Israel and attacked two Israeli vehicles, killing three soldiers and kidnaping two. Hezbollah thereby opened a second front against Israel ostensibly in support of Hamas. Sheikh Hassan Nasrallah, Hezbollah's leader, suggested that the Hezbollah operation might provide a way out of the crisis in Gaza because Israel had negotiated with Hezbollah indirectly in the past even though it refuses to negotiate with Hamas now. He said that the only way the soldiers would be returned would be through a prisoner exchange. Although Hezbollah and Hamas are not organizationally linked, Hezbollah provides military training as well as financial and moral support to the Palestinian group and has acted in some ways as a mentor or role model for Hamas, which has sought to emulate the Lebanese group's political and media success. Hamas's kidnaping of the Israeli soldier follows a different Hezbollah example. Moreover, two groups share the goal of driving Israel from occupied territories and ultimately eliminating it; both maintain close ties with Iran. Possible Explanations for Hezbollah's Attack Nasrallah has publicly espoused an intention to kidnap Israelis to effectuate a prisoner exchange. Hezbollah, however, has the capacity to decide to act on its own and could have done so in the spirit of "Shi'a triumphalism" spurred by the Iraqi Shiites' ascension to power and Iran's pursuit of nuclear weapons. It also may have acted in solidarity with the besieged Palestinians or with its Syrian and Iranian supporters. Another explanation is that Hezbollah may have wanted to prevent a resolution of the Gaza crisis. Egyptian President Hosni Mubarak and Palestinian Authority President Mahmud Abbas have claimed that an agreement for a prisoner exchange had almost been reached, immediately before the Hezbollah attack, but Hezbollah's action complicated or prevented it. Some observers question Hezbollah's autonomy and offer other explanations for the July 12 action. Much speculation focuses on whether Hezbollah acted at the behest of or with the approval of Iran, its main sponsor, because Iran also supports Hamas or may have wanted to divert international attention from the impasse over its nuclear program. If the latter is the case, it gained only a limited time when the U.N. Security Council postponed consideration of the nuclear issue due to the Lebanon situation because, on July 31, the Council approved a resolution demanding that Iran suspend its uranium enrichment program by August 31 or face sanctions. Others suggest that Syria may be using its Hezbollah allies to resurrect its influence in Lebanon, from which it had been forced to withdraw in 2005. Other experts give a more nuanced appraisal. U.S. CENTCOM Commander General John Abizaid observed that it is more likely that Syria and Iran are exploiting the situation created by the kidnaping than that they ordered it. U.S. State Department Coordinator for Counterterrorism Henry Crumpton reportedly asserted that Syria and Iran do not control Hezbollah, but added that Hezbollah asks Iranian permission if its actions have broader international implications. In this case, Hezbollah may not have foreseen the implications of its July 12 operation and expected "the usual, limited" Israeli response characteristic of the period since 2000. Therefore, it may not have asked permission from Teheran. Appendix B. Chronology of Conflict on the Israeli-Lebanese-Syrian Border Appendix C. Recent Legislation Congressional Oversight In response to the current crisis, Congress took swift steps to express its support of Israel and that country's "right to take appropriate action to deter aggression by terrorist groups and their state sponsors," and to urge "the President to continue fully supporting Israel as Israel exercises its right of self-defense in Lebanon and Gaza." Some Members of Congress called on the President to appeal to all parties for an immediate cessation of violence, to commit to multi-party negotiations, and expressed support for an international peacekeeping mission in southern Lebanon. Others called for "the cessation of targeting...of infrastructure vital to non-combatants"; establishment of "a secure humanitarian corridor" for purposes of evacuation and transporting of food and medicine to the civilian population; an immediate cease-fire; and a "comprehensive and just solution". House Resolution 954 called on the President to appoint a Special Envoy for Middle East Peace. A Senate resolution, S.Res. 548 , called on Syria and Iran to end their support for Hezbollah, for the warring parties to reach a cessation of hostilities, and for reconstruction to find international support. Evacuation Costs for U.S. Citizens In the early stages of U.S. government-supported evacuations of Americans from Lebanon, the State Department required evacuees to sign promissory notes to assume financial liability of the costs of their evacuation. Several Members of Congress objected to this, noting that the law is ambiguous at best, and called on the U.S. Secretary of State to waive the statutory requirements for reimbursement. On July 18, 2006, after the Secretary of State consulted with some Members, the State Department announced that such fees would be waived. Congress adopted two measures increase funding available to the Social Security Administration to provide temporary assistance to U.S. citizens returned from foreign countries (Public Law 109-250), to authorize the Secretary of State to redistribute funds within the State Department's budget to cover the costs of evacuations, and to increase funding available to the State Department for such evacuations (Public Law 109-268). Other legislation, as yet not enacted, proposed to change permanently the statutory basis under which the State Department requests reimbursements, or replenish funds in the budget of the Department of Health and Human Services that are expended once evacuees have returned to the United States. Appendix D. U.S. Sanctions Syria, Iran, Hamas, and Hezbollah—the states and entities that Congress has noted for aggression against Israel, support for terrorism, or terrorist activities in the current crises—are currently subject to fairly comprehensive U.S. economic sanctions. The Secretary of State designated Syria and Iran as state sponsors of acts of international terrorism, in 1979 and 1984 respectively, thus triggering a myriad of statutorily required restrictions and prohibitions on aid, non-emergency agricultural aid, trade, support in the international banks, and other economic transactions. Such a designation generally triggers a prohibition on all but the most basic of humanitarian exchanges. Iran Iran is also denied investment dollars intended for development of its petroleum industry under the Iran and Libya Sanctions Act of 1996. Sanctions available under this Act, to be imposed on those who engage in unlawful investment in Iran, include a prohibition on Export-Import Bank funds, prohibition on exports, denial of loans from U.S. financial institutions, denial of rights to financial institutions to participate as a dealer in U.S. debt instruments, denial of procurement contracts, and any other transaction the President wishes to restrict if the authority to do so also is stated under the International Emergency Economic Powers Act (IEEPA). Petroleum-related investments are restricted also by Executive Order, and all new investments, regardless of the industry, are also restricted under the IEEPA. Syria Although Syria has been identified as a state sponsor of acts of international terrorism since 1979, regulations that implement restrictions on trade and transactions with that country are less restrictive than those that pertain to other designated countries, reportedly because Syria is considered instrumental in the Middle East peace process. Congress took this into account when it sent the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 to the President. The act, triggered by increasingly organized and forceful efforts in Lebanon to shed itself of foreign forces, and reflecting recent statements from the Bush Administration targeting Syria's involvement with terrorism, development and trade of weapons of mass destruction, and support of the insurgency in Iraq, requires the President to curtail trade and transactions until certain conditions are met. The act requires the denial of export licenses for any item on the U.S. Munitions List (USML) or Commerce Control List (CCL). The act also requires the President to impose two or more of the following restrictions: prohibit export of all products (except food and medicine, as made exempt by the Trade Sanctions Reform Act of 2000); prohibit investment in Syria; restrict travel of Syrian diplomats to only the environs of Washington, DC and the United Nations in New York; prohibit Syrian-owned air traffic in or over the United States; reduce diplomatic contact; and block transactions in property. The President implemented terms of the Syria Accountability and Lebanese Sovereignty Restoration Act on May 11, 2004, by complying with the mandatory restrictions on USML and CCL exports, and by prohibiting U.S. exports and restricting Syrian air traffic. Lebanon For FY2003 and each fiscal year thereafter, of any Economic Support Funds allocated or obligated to Lebanon, $10 million shall be withheld: unless and until the President certifies...that (1) the armed forces of Lebanon have been deployed to the international recognized border between Lebanon and Israel; and (2) the Government of Lebanon is effectively asserting its authority in the area in which such armed forces have been deployed. To date, the President has not certified that these conditions have been met. Congress, however, has ensured that the $10 million would be made available each year by overriding the restriction. Annual foreign operations appropriations measures have provided assistance to Lebanon "notwithstanding any other provision of law." Hamas and Hezbollah In 1995, the President identified Hamas and Hezbollah as Specially Designated Terrorists (SDT) that threaten to disrupt the Middle East peace process and authorized the blocking of all assets and of transactions with persons associated with either organization. Subsequent legislative and executive initiatives led to the creation of several other lists. Enactment of the Anti-Terrorism and Effective Death Penalty Act of 1996, which also authorizes deportation or exclusion from entry into the United States, generated the Foreign Terrorist Organization (FTO) list. The President issued an executive order to create the Specially Designated Global Terrorists (SDGT) list in the wake of events of September 11, 2001. All these lists were subsequently consolidated into one Specially Designated Nationals and Blocked Persons list (the "SDN list"), administered by the Department of the Treasury's Office of Foreign Assets Control in 2002. Hamas and Hezbollah, or individuals associated with each, are on each of the lists.

This report analyzes the conflict between Israel and two U.S. State Department-designated Foreign Terrorist Organizations (FTOs), the Lebanese Shiite Muslim group Hezbollah and the radical Palestinian Hamas organization. On July 12, 2006, what had been a localized conflict between Israel and Palestinian militants in the Gaza Strip instantly became a regional conflagration after Hezbollah captured two Israeli soldiers in a surprise attack along the Israeli-Lebanese border. Israel responded by carrying out air strikes against suspected Hezbollah targets in Lebanon, and Hezbollah countered with rocket attacks against cities and towns in northern Israel. In order to push Hezbollah back from its border, Israel launched a full-scale ground operation in Lebanon with the hopes of establishing a security zone free of Hezbollah militants. Meanwhile, Israeli clashes with Hamas and other Palestinian militants have continued in the Gaza Strip. A United Nations-brokered cease-fire came into effect on August 14, 2006. Based on United Nations Security Council Resolution 1701 passed a few days earlier, the cease-fire is intended to be monitored by the Lebanese Armed Forces in conjunction with an expanded U.N. peacekeeping force in Lebanon. The international community initially hesitated to contribute troops, though it appears now that enough countries have stepped forward to significantly expand the existing U.N. force (UNIFIL). On July 18, 2006, the Senate passed S.Res. 534, which, among other things, calls for the release of Israeli soldiers who are being held captive by Hezbollah or Hamas; condemns the governments of Iran and Syria for their continued support for Hezbollah and Hamas; urges all sides to protect innocent civilian life and infrastructure; and strongly supports the use of all diplomatic means available to free the captured Israeli soldiers. On July 20, 2006, the House passed H.Res. 921, which also condemns Hezbollah's attack on Israel and urges the President to bring sanctions against the governments of Syria and Iran for their alleged sponsorship of Hezbollah. The extension of the Israeli-Palestinian conflict into the Lebanese arena created a multifaceted crisis that cut across a number of U.S. policy issues in the Middle East. This report provides an assessment of the month-long war and its implications for regional stability and other key U.S. policy issues. This report will be updated periodically. A number of CRS analysts have contributed to this report. For additional questions, please contact the individual specialist listed under each section of the report. For more information on the major countries in the current conflict, please see CRS Report RL33476, Israel: Background and Relations with the United States, by [author name scrubbed]; CRS Report RL33509, Lebanon; CRS Report RL33487, Syria: Background and U.S. Relations, by [author name scrubbed]; CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by [author name scrubbed]; and CRS Report RL33530, Israeli-Arab Negotiations: Background, Conflicts, and U.S. Policy, by [author name scrubbed].

Background The Federal Election Campaign Act The Federal Election Campaign Act (FECA), as amended by the Bipartisan Campaign Reform Act of 2002 (BCRA), regulates "federal election activity," which is defined to include (1) voter registration drives in the last 120 days of a federal election; (2) voter identification, get-out-the vote drives (GOTV), and generic activity in connection with an election in which a federal candidate is on the ballot; (3) "public communications" that refer to a clearly identified federal candidate and promote, support, attack, or oppose that candidate (regardless of whether the communications expressly advocate a vote for or against a candidate); and (4) services by a state or local party employee who spends at least 25% of paid time per month on activities in connection with a federal election. FECA further defines "public communications" as broadcast, cable, satellite, newspaper, magazine, outdoor advertising facility, mass mailing, or telephone bank communications made to the general public, "or any other form of general public political advertising." As a result, candidate and party committees can only use regulated federal funds to pay for such "federal election activity." Regulated federal funds, also known as "hard money," are funds that are subject to FECA's contribution limitations, source restrictions, and reporting requirements. Shays v. FEC Shortly after enactment of the BCRA amendments to FECA in 2002, the FEC promulgated regulations that exempted Internet communications from federal campaign finance regulation altogether by excluding such communications from the definition of "public communication." In response, the two primary sponsors of BCRA in the House of Representatives, Representatives Shays and Meehan, filed suit in U.S. district court against the FEC. In seeking to invalidate the regulations, the plaintiffs argued, inter alia, that by not regulating Internet activities, the FEC was opening a new avenue for circumvention of federal campaign finance law, contrary to Congress's intent in enacting BCRA. In 2004, in Shays v. FEC, the U.S. District Court for the District of Columbia agreed with the BCRA sponsors and generally overturned the FEC's initial regulations governing political communications on the Internet. The Shays court held that excluding all Internet communications from the FEC rule defining "public communication," at 11 CFR § 100.26, was inconsistent with Congress's use of the phrase, "or any other form of general public political advertising," in the BCRA definition of "public communication." Further, the court found that the FEC had failed to provide legislative history that would persuade the court to ignore the plain meaning of the statute. While not all Internet communications fall within the phrase, "any other form of general public political advertising," the court observed that "some clearly do." However, the court left it to the FEC to determine precisely what constitutes "general public political advertising" in the context of the Internet. Furthermore, while the court specifically upheld the definition of "generic campaign activity" as a "public communication," it found that the FEC's 2002 Notice of Proposed Rulemaking (NPRM) failed to provide adequate notice to the public, under the Administrative Procedure Act (APA), that the FEC might establish such a definition. As the court noted, it could not "fathom how an interested party 'could have anticipated the final rulemaking from the draft rule.'" The Shays court also found that the FEC rule exempting Internet communications from the definition of "public communications" meant that no matter how closely such communications were coordinated with political parties or candidate campaigns, they could not be considered "coordinated communications" and hence, subject to FECA regulation. As the court observed, it had long been a tenet of campaign finance law that, in order to prevent circumvention of regulation, FECA treated expenditures made "in cooperation, consultation, or concert, with or at the suggestion of a candidate" as a contribution to such candidate. According to the court, the exclusion of Internet communications from coordinated communications contrasted with prior FEC rules and was contrary to Congress's intent in enacting the statute. The court remanded the case to the FEC for further action consistent with its decision. FEC Rulemaking Background In response to the district court's decision in Shays v. FEC , in April 2005, the FEC published an NPRM seeking comment on its proposal to amend the definition of "public communication" to conform to the ruling. In its NPRM, the FEC requested comments on proposed rules to include paid Internet advertisements in the definition of "public communication." In addition, the FEC sought comment on the related definition of "generic campaign activity," on proposed changes to disclaimer regulations, and on proposed exceptions to the definitions of "contribution" and "expenditure" for certain Internet activities and communications that would qualify as individual volunteer activity or that would qualify for the "press exemption." According to the FEC, the proposed rules were intended to ensure that political committees properly finance and disclose their Internet communications, without impeding individual citizens from using the Internet to speak freely regarding candidates and elections (e.g., blogging). The comment period closed and a public hearing was held in June 2005, and in anticipation of congressional action, the FEC delayed consideration of the Internet regulations. However, in the absence of congressional legislation, in March 2006, the FEC voted unanimously to approve the new regulations. In so doing, the commissioners cited the 2004 Shays v. FEC federal district court decision as requiring them to take such action. Summary of Regulations Generally, the Internet regulations reflect an attempt by the FEC to leave blogs, created and wholly maintained by individuals, free of FECA regulation, so long as such services are not performed for a fee. As stated in its NPRM: While drafting a proposed rule, the Commission recognized the important purpose of BCRA in preventing actual and apparent corruption and the circumvention of the Act as well as the plain meaning of "general public political advertising," and the significant public policy considerations that encourage the promotion of the Internet as a unique forum for free or low-cost speech and open information exchange. The Commission was also mindful that there is no record that Internet activities present any significant danger of corruption or the appearance of corruption, nor has the Commission seen evidence that its 2002 definition of "public communication" has led to circumvention of the law or fostered corruption or the appearance thereof. Therefore the Commission proposed to treat paid Internet advertising on another person's website as a "public communication," but otherwise sought to exclude all Internet communications from the definition of "public communication." The regulations apply only when money is exchanged for Internet-related campaign advertisements. Accordingly, the funds expended for such advertisements are subject to the limitations, source restrictions, and reporting requirements of FECA. Key aspects of the FEC regulations include the following: Regulation of paid Internet ads as " public communications " —The definition of "public communication" includes paid Internet ads placed on another individual or entity's website as a form of "general public political advertising," with no dollar threshold required; the advertiser, not the website operator, is considered to be making the public communication. Accordingly, the fees for such ads are subject to FECA contribution limits, source restrictions, and disclosure requirements. Disclaimer requirements —Disclaimers (statements of attribution) are required on all political committee websites available to the public. As "public communications," paid Internet ads must contain disclaimers if they expressly advocate the election or defeat of a clearly identified federal candidate or solicit contributions. Disclaimers are not required on e-mails from individuals or groups unless they are political committees, in which case disclaimers are required if more than 500 substantially similar, unsolicited e-mails are sent within a 30-day period. Disclosure of fees paid by candidates to bloggers —Payments to bloggers from candidates are required to be disclosed only on candidate disclosure statements; no such disclaimers are required on blog sites. Coordinated communications —Internet advertisements made for the purpose of influencing a federal election, placed on the website of another person or entity for a fee —and coordinated with a candidate or party committee—are considered "coordinated communications" and as such, constitute in-kind contributions to the candidate or committee. Accordingly, the fees for such ads are subject to FECA contribution limits, source restrictions, and disclosure requirements. Media exemption —Under the definition of "contribution," the general exemption from FECA coverage of news stories, commentaries, and editorials distributed through broadcasters, newspapers, and periodicals applies to such communications that are distributed over the Internet. Exceptions for individual or volunteer activity on the Internet —Under the definitions of "contribution" and "expenditure," an uncompensated individual or group of individuals using Internet equipment and services in order to influence a federal election, whether or not such services were known by or coordinated with a campaign, are excluded from FECA regulation. Congressional Activity Brief History During Congress's consideration of BCRA in 2001 and 2002, the subject of communications over the Internet was not addressed, but it was discussed during debate on a previous version of what became BCRA during House consideration of H.R. 417 (Shays-Meehan) in the 106 th Congress. An amendment was offered to that bill by Representative DeLay to exempt communications over the Internet from regulation under FECA, but was defeated by a vote of 160-268. During the 109 th Congress, several bills were proposed to exempt all communications over the Internet from the BCRA definition of "public communication," and therefore, regulation under FECA. These proposals included H.R. 1606 (Hensarling), the Online Freedom of Speech Act, which was considered by the House under suspension of the rules but, on a 225-182 vote, failed to receive the two-thirds necessary for passage. The bill was brought up again and ordered reported favorably by the House Administration Committee on March 9, 2006, setting up consideration by the House, but the vote was postponed pending FEC regulatory action. Also during the 109 th Congress, in response to concerns that the Online Freedom of Speech Act could open the door to FECA circumvention (for example, by allowing corporations and unions to finance advertisements), two additional bills were offered: H.R. 4194 (Shays-Meehan) would have excluded Internet communications from FECA regulation, but regulated communications placed on a website for a fee and those made by most corporations and unions, by any political committee, and by state and local parties; and H.R. 4900 (Allen-Bass) would have exempted from FECA regulation most individual online communications and advertisements below a dollar threshold. In the wake of the new FEC regulations approved on March 27, 2006, however, House floor action was postponed indefinitely. 110th Congress During the 110 th Congress, the regulation of political communications on the Internet was not the subject of major legislative action. H.R. 894 (Price, NC) would have extended "stand by your ad" disclaimer requirements to Internet communications, among others. It was referred to the Committee on House Administration. H.R. 5699 (Hensarling) would have exempted from treatment as a contribution or expenditure any uncompensated Internet services by individuals and corporations that are wholly owned by individuals engaging primarily in Internet activities, which do not derive a substantial portion of revenue from sources other than income from Internet activities, except payment for (1) a public communication (other than a nominal fee), (2) the purchase or rental of an email address list made at the direction of a political committee, or (3) an email address list that is transferred to a political committee. H.R. 5699 also would have exempted blogs and other Internet and electronic publications from treatment as an expenditure by including such communications in the general media exemption applicable to broadcast stations and newspapers. It was referred to the Committee on House Administration. 111th Congress Similar legislation has not yet been introduced in the 111 th Congress.

The Federal Election Campaign Act (FECA) regulates "federal election activity," which is defined to include a "public communication" (i.e., a broadcast, cable, satellite, newspaper, magazine, outdoor advertising facility, mass mailing, or telephone bank communication made to the general public) or "any other form of general public political advertising." In 2006, in response to a federal district court decision, the FEC promulgated regulations amending the definition of "public communication" to include paid Internet advertisements placed on another individual or entity's website. As a result, a key element of online political activity—paid political advertising—is subject to federal campaign finance law and regulations. During the 110th Congress, the regulation of political communications on the Internet was not the subject of major legislative action. H.R. 894 (Price, NC) would have extended "stand by your ad" disclaimer requirements to Internet communications, among others. H.R. 5699 (Hensarling) would have exempted from treatment as a contribution or expenditure any uncompensated Internet services by individuals and certain corporations. Similar legislation has not yet been introduced in the 111th Congress. This report will be updated in the event of major legislative, regulatory, or legal developments.

Introduction This report describes the terms most commonly used when discussing the federal individual income tax. The format of this report is structured to follow the general order of the IRS Form 1040—the form individuals use to determine their income tax. Many taxpayers, however, determine their tax liability with the use of tax preparation software (e.g., TurboTax®) and paid tax preparers, which eliminates the need to be familiar with Form 1040. Therefore, taxpayers who rely on tax preparation software or services may not be familiar with some of the concepts presented in this report. Total Income Total income, also sometimes referred to as gross income, is the broadest measure of income used for tax purposes. It is the total of all realized income recognized by the tax law. It is measured net of business expenses but before any other deductions or adjustments. It includes employee compensation such as wages, salaries, and tips; taxable interest and dividend income; business and farm income (net of expenses); realized capital gains; income from rents, royalties, trusts, estates, and partnerships; and taxable pensions and annuities. Gross income does not include income explicitly excluded from tax. An exclusion is an item of income that is not included as income for tax purposes because the tax code explicitly excludes—or exempts—it from taxation. Examples of items of income which are exempt from federal income taxation and, hence, excluded from gross income, are state and local bond interest income, public assistance (welfare), small gifts, employer contributions for health care, and employer-provided contributions to retirement plans. Social security and railroad retirement income may or may not be excluded from income subject to tax. The taxability of social security and railroad retirement depends on the amount of other income the taxpayer receives. Other forms of income excluded from taxation are a clergy member's tax-free housing allowance, qualified foster care payments, and qualified scholarship and fellowship grants. Under certain conditions, a taxpayer can exclude a limited amount of disability pay such as workers' compensation. Except for tax-exempt interest, exclusions generally are not required to be reported to the Internal Revenue Service. A taxpayer's gross income is listed on line 22 of the Form 1040 found in Appendix A . The individual components of a taxpayer's gross income are listed on lines 7 to 21. Exclusions are not listed explicitly on the Form 1040. Adjustments to Income Adjustments to income, also known as above-the-line deductions, are allowed for certain payments made by the taxpayer and are generally related to the earning of income. These payments are deducted from gross income in arriving at adjusted gross income. Payments that may qualify for an above-the-line deduction may include contributions to Keogh or traditional (but not Roth) individual retirement accounts (IRAs), forfeited penalties on early withdrawals of savings, interest paid on student loans, moving expenses, and alimony payments. Adjustments to income function similarly to deductions. However, unlike deductions, adjustments are made to arrive at adjusted gross income, and hence can be claimed by all qualified taxpayers, whether or not they use the standard deduction amount or have itemized deductions (see " Deductions "). The sum of a taxpayer's adjustments to income is listed on line 36 on the Form 1040. The individual components of a taxpayer's total adjustments to income are listed on lines 23 to 35. Adjusted Gross Income (AGI) Adjusted gross income (AGI) is equal to a taxpayer's total income minus adjustments to income (see previous two sections). AGI is the basic measure of income under the federal income tax and is the income measurement before deductions and personal exemptions are taken into account. AGI is commonly used as the base for computing many of the limits under the tax law, such as those on the itemized deduction for medical and dental expense and miscellaneous itemized deductions. A taxpayer's adjusted gross income is listed on line 37 of the Form 1040 and is carried over to line 38 so that the taxpayer may continue onto page 2 of the Form 1040. Deductions Deductions from adjusted gross income are allowed for certain types of expenditures of income. Deductions may be claimed in one of two ways. First, taxpayers can choose to itemize (explicitly list) their deductible expenses. Itemized deductions are allowed for many purposes, including certain medical expenses; state and local property taxes, income (or sales) taxes, and a few other taxes; home mortgage interest, points, and limited amounts of other interest paid (but not personal interest); contributions to charitable organizations; certain casualty and theft losses less $100 per event; investment expenses; tax preparation fees; certain unreimbursed employee business expenses; and a few other "miscellaneous" expenses. Alternatively, a taxpayer can choose to claim the so-called standard deduction, which was intended to reduce the complexity of paying taxes. The standard deduction varies depending on filing status (single, married filing jointly, head of household), whether the taxpayer is over 65, and whether the taxpayer is blind. For 2016 the standard deductions were as follows: $12,600 for married taxpayers filing jointly or qualified widow(er)s; $6,300 for single taxpayers; and $9,300 for taxpayers who qualify as the head of a household. The standard deductions for those who are 65 or older and for those who are legally blind are increased by $1,550 if single or head of household and $1,250 if married filing jointly. These increases apply per classification. Thus, a 70-year-old blind and single taxpayer would be eligible for a $3,100 increase in his or her standard deduction. These amounts are adjusted annually for inflation. Only individuals with deductions that can be itemized in excess of the standard deduction find it worthwhile to itemize. These tend to be taxpayers in the middle to high income ranges. For the 2014 tax year (the most recent data), approximately 30% of taxpayers itemized their deductions. Whichever deduction the taxpayer claims—itemized or standard—the deduction amount is subtracted from AGI. Deductions function like adjustments and exclusions in their effect on tax liability. Deductions reduce a taxpayer's tax liability, but only by a percentage of the amount deducted. An individual in the 35% tax bracket would receive a reduction in taxes of $35 for each $100 deduction while an individual in the 25% tax bracket would receive a reduction in taxes of $25 for each $100 deduction. Hence, the same deduction can be worth different amounts to different taxpayers depending on their marginal tax bracket. More simply stated, the tax savings from deductions are generally equal to the taxpayer's tax rate times the amount of the deduction. So higher-income taxpayers typically benefit more than lower-income taxpayers from deductions. A taxpayer's standard or total itemized deductions are listed on line 40 of the Form 1040. The individual components of the itemized deduction are listed on lines 1 to 28 on Schedule A to Form 1040 in Appendix A . Exemptions Before calculating total income, personal exemptions are allowed for the taxpayer, his or her spouse (if married and filing a joint return), and each dependent. If a taxpayer's AGI is less than $155,650 each exemption claimed reduces income subject to taxation by $4,050 for tax year 2016 (this amount is adjusted for inflation annually). If a taxpayer's AGI is greater than $155,650, then they must reference the Worksheet for Determining the Deduction for Exemptions on page 23 of IRS Publication 501. The personal exemptions combined with the standard deduction amount are designed to remove low-income households from the tax rolls, and exempt a minimum level of income from taxation for other families. The value of the personal exemptions is reduced or eliminated for certain taxpayers with a relatively high AGI. The number of exemptions a taxpayer claims is listed on line 6 of the Form 1040. The value to the taxpayer of claiming this particular number of exemptions is found on line 42. Taxable Income Taxable income, the narrowest measure of income used on the income tax return, is equivalent to adjusted gross income reduced by either the standard deduction or itemized deduction and the personal exemption. Taxable income is the base upon which the income tax rates are applied to calculate income tax liability. Taxable income is listed on line 43 of the Form 1040. Tax Liability Tax liability, also sometimes referred to as gross tax liability, is a taxpayer's tax liability prior to the subtraction of tax credits. For most taxpayers, gross tax liability is equal to regular income tax liability, which is calculated by applying the marginal tax rate schedule to taxable income. The structure of the marginal tax rate schedule is progressive, which means higher-earning taxpayers face higher tax rates on the last dollar that they earn. To understand how the marginal tax structure is applied, consider the 2016 marginal tax rate schedule provided in Appendix B . The 2016 tax schedule shows the various tax rates and income ranges to which those rates are applied. A married couple with a taxable income of $80,000 would fall into the 25% tax bracket. This means that the first $18,550 of their taxable income would be taxed at a rate of 10%, their next $56,750 of income would be taxed at 15%, and the last $4,700 of income would be taxed at 25%. A small fraction of taxpayers (4.8% in 2016) must also account for the alternative minimum tax (AMT) when computing their gross tax liability. The AMT is calculated in the following manner. First, an individual adds back certain tax deductions and tax preference items to taxable income. This amount then becomes the AMT tax base. Next, a basic exemption is allowed and subtracted from the AMT tax base. A two-tiered tax rate structure of 26% and 28% is then assessed against the remaining AMT tax base to determine the AMT liability. If the AMT liability exceeds a taxpayer's regular income liability a taxpayer must add the difference between the two to his or her regular income tax liability to arrive at gross tax liability. Congress, in 1969, enacted the predecessor to the current individual AMT to make sure that everyone paid at least a minimum of taxes and still preserve the economic and social incentives in the tax code. A taxpayer's regular income tax liability is listed on line 44 of the Form 1040. The AMT liability is listed on line 45 of the Form 1040, and the gross tax liability is listed on line 47 of the Form 1040. Nonrefundable Credits Nonrefundable tax credits are subtracted from gross tax liability to arrive at a taxpayer's final tax liability. Thus, nonrefundable tax credits generally reduce an individual's tax liability directly, on a dollar-for-dollar basis, and are available to all qualified taxpayers. A taxpayer may not claim more nonrefundable tax credits than his or her tax liability. Therefore, the only time in which nonrefundable tax credits do not result in a dollar-for-dollar reduction in an individual's tax liability is when the amount of nonrefundable tax credits exceeds the individual's tax liability. A different class of tax credits, known as refundable tax credits, can be claimed even when they exceed an individual's tax liability. Refundable tax credits are discussed later in this report. Examples of nonrefundable credits are the credit for the elderly and the permanently and totally disabled, the credit for child and dependent care expenses, and the foreign tax credit. The total amount of nonrefundable tax credits is found on line 55 of the Form 1040. The individual nonrefundable credits are listed on lines 48 to 54. Total Tax Liability Total tax liability, also sometimes referred to as final tax liability, is the amount of federal income tax owed by the taxpayer to the federal government after taking into account allowable refundable tax credits. Thus, total tax liability represents the taxpayer's total federal income tax bill for the tax year. A taxpayer's total tax liability is found on line 63 of the Form 1040. Payments Most taxpayers make periodic tax payments throughout the year via income withholdings that are credited against their federal income tax liability. Employees typically have a certain percentage of their paycheck withheld (W-2 withholding, named for the IRS Form W-2) each pay period by their employer. Taxpayers who receive nonwage or nonsalary income, such as interest or dividend payments, debt cancelation, and certain other types of income, generally have a fraction of this income withheld (1099 withholding, again, named for IRS Form 1099) by the compensating party. The withheld amounts are then forwarded to the IRS. Some taxpayers make estimated tax payments throughout the year—typically quarterly. There are a variety of reasons why estimated tax payments may be required—for example, when the taxpayer earns income not subject to withholding or when there is an expectation that a taxpayer may owe more than a certain amount in taxes even after accounting for withholdings and credits. A taxpayer estimates the taxes owed on the income he or she earned in a particular quarter and pays this amount during the year rather than waiting until April 15 of the following year. Refundable tax credits are another form of tax "payment." Refundable tax credits are similar to nonrefundable tax credits except that a taxpayer may claim refundable tax credits in an amount greater than his or her tax liability. When the amount of refundable credits exceeds a taxpayer's tax liability, the Treasury makes a direct payment to the taxpayer for the difference. The primary refundable credits are the earned income tax credit and the child tax credit. A taxpayer's total tax payment is found on line 74 of the Form 1040. The individual components of a taxpayer's total tax payment are found on lines 64 to 73. Tax Refund A tax refund is a payment by the federal government to a taxpayer whose withheld taxes, estimated tax payments, and refundable credits exceeded final tax liability, entitling him or her to a refund for overpayment of the tax bill. The amount of refunded taxes owed to a taxpayer may be found on line 75 of the Form 1040. Amount Owed When a taxpayer's total tax liability exceeds federal taxes withheld, estimated tax payments, and refundable credits, then the taxpayer will owe the federal government an additional amount to cover the shortfall in paid taxes. Taxes owed are found on line 78 of the Form 1040. Appendix A. 2016 IRS Form 1040 2016 IRS Schedule A (Form 1040) Appendix B. 2016 Marginal Tax Rate Schedule

Described in this report are the terms most commonly used when discussing the federal individual income tax. Most of these tax terms are explained in the order that they occur in the process of determining one's income tax on the Form 1040. Total income is the sum total of all income required to be reported for tax purposes before adjustments to income are made for special types of expenses which Congress has determined should be considered in calculating gross income. These adjustments function like deductions, except that unlike deductions, adjustments are calculated in arriving at adjusted gross income, and thus can be claimed by all taxpayers, not just those who itemize deductions. An exclusion from income refers to an item specifically excluded from determination of gross income. Adjusted gross income (AGI) equals gross income less qualifying adjustments to income. It is the income measurement before deductions and personal exemptions are taken into account. Deductions from adjusted gross income are allowed for certain types of expenditures for which income taxation is deemed inappropriate or inadvisable. Deductions function like adjustments and exclusions in their effect on tax liability. In addition to the standard deduction, an additional standard deduction amount is available to certain individuals, for example the blind or elderly. Personal exemptions are allowed for the taxpayer, his or her spouse, and each dependent. Exemptions affect tax liability like deductions, adjustments to income, and exclusions. Taxable income is adjusted gross income reduced by either the standard deduction (plus the additional standard deduction in some cases) or itemized deductions along with personal exemptions. Taxable income is the base to which the income tax rates are applied to calculate income tax liability. Tax liability is calculated by applying the marginal tax rate and schedule to taxable income. Tax credits are then subtracted from gross tax liability to arrive at a taxpayer's final tax liability. Hence, tax credits reduce tax liability directly, on a dollar for dollar basis. Tax credits are available to all qualifying taxpayers, whether they itemize deductions or not. Total tax liability is the amount of federal income tax owed by the taxpayer to the federal government. When a taxpayer's final tax liability exceeds federal taxes withheld, estimated quarterly taxes paid, and certain other credits, then the taxpayer has taxes due and must pay the federal government additional federal income taxes to cover the shortfall. A refund is a payment by the federal government to a taxpayer whose withheld taxes and/or estimated tax payments or refundable credits exceeded his final tax liability. A copy of the 2016 IRS Form 1040 is included at the end of this report. This report will be updated as warranted by legislative events.

Introduction The Consumer Financial Protection Bureau (CFPB) has been a controversial product of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Since it began operations in July 2011, the CFPB has been hailed by some as being the "cop on the beat" that protects consumers, whereas others have derided it as "perhaps the single most powerful and least accountable Federal agency in all of Washington." From this debate about the merits of the CFPB, two main sets of policy questions have emerged, with supporters and critics of the CFPB generally falling on opposing sides: 1. Is the CFPB as an institution structured appropriately so as to achieve the correct balance between independence on the one hand and transparency and accountability on the other? 2. Has the substance of the CFPB's rulemaking struck an appropriate balance between protecting consumers from abuse and ensuring that consumers have access to financial products while lenders are not unduly burdened by new regulations? Congress has assessed these questions using a range of its authorities, including holding oversight hearings and providing advice and consent during the confirmation of the CFPB's director. This report focuses on Congress's exercise of another of its authorities—the consideration of legislation related to the CFPB. After providing an overview of the CFPB, the report examines some of the legislative proposals from the 113 th Congress that have seen committee or floor action and that respond to the two policy questions described above. Each bill is explained and placed in the larger context of the policy debates about the CFPB. Overview of the CFPB Title X of the Dodd-Frank Act established the CFPB, and, in doing so, it consolidated many consumer financial protection responsibilities into one agency. The Dodd-Frank Act states that the purpose of the CFPB is to implement and enforce federal consumer financial law while ensuring that consumers have access to financial products and services. It also instructs the CFPB to ensure the markets for consumer financial services and products are fair, transparent, and competitive. To fulfill its mandate, the CFPB can issue rules, examine certain institutions, and enforce consumer protection laws and regulations. The Dodd-Frank Act further established that the CFPB is to be headed by a director, appointed by the President and subject to the advice and consent of the Senate, for a five-year term. After the expiration of the term, the director may continue to serve until a successor has been appointed and qualified. The CFPB is located within the Federal Reserve System. The Federal Reserve Board, however, cannot veto a rule issued by the CFPB, although the Financial Stability Oversight Council (FSOC) can set aside a CFPB-proposed rule with the vote of two-thirds of its members. The CFPB, which is not subject to the congressional appropriations process, is funded through the earnings of the Federal Reserve System. The Dodd-Frank Act caps the CFPB's funding at 12% of the Federal Reserve's operating expense as reported in its FY2009 Annual Report, subject to annual adjustment based on a formula set in statute. For FY2015, the transfer cap is estimated to be $618.7 million. The CFPB has the authority to enforce many of the federal financial consumer laws, primarily for large depository institutions (such as banks) with assets of more than $10 billion as well as for some nonbank institutions, such as mortgage lenders, mortgage servicers, payday lenders, and private education lenders. However, some consumer protection responsibilities were not given to the Bureau. The CFPB is not the primary consumer protection regulator of depositories with less than $10 billion in assets. The prudential regulators that regulate the smaller institutions for safety and soundness continue to regulate these institutions for consumer protection. The Dodd-Frank Act also provides some industries with exemptions from CFPB regulation. The CFPB generally does not have supervisory or enforcement authority over automobile dealers; merchants, retailers, and sellers of nonfinancial goods and services; real estate brokers; real estate agents; sellers of manufactured and mobile homes; income tax preparers; insurance companies; and accountants. Balancing Independence with Transparency and Accountability As described in more detail in CRS Report R43391, Independence of Federal Financial Regulators , by [author name scrubbed], [author name scrubbed], and [author name scrubbed], the structure of a government agency may affect the policies created by that agency. Financial regulators generally have certain characteristics that increase their independence from the President or Congress, and that independence may make policymaking more technical and less political or partisan, for better or worse. Independence may also make regulators less accountable to elected officials and can reduce presidential and congressional influence, at least in the short term. Since the CFPB was established, some have argued that it has too much independence and not enough accountability. They point to structural issues, such as that the CFPB is headed by a single director rather than a board and that it is funded outside the traditional congressional appropriations process. Supporters of the CFPB highlight other aspects that they argue provide transparency and accountability, including the CFPB director's biannual testimony before Congress and the cap on the CFPB's funding. The remainder of this section evaluates CFPB-related legislation that would alter the structure and design of the Bureau to increase its transparency and accountability. H.R. 3183, To amend the Consumer Financial Protection Act of 2010 to provide consumers with a free annual disclosure of information the Bureau of Consumer Financial Protection maintains on them, and for other purposes, and H.R. 4604, the CFPB Data Collection Security Act11 H.R. 3183 was ordered to be reported by the House Committee on Financial Services on November 21, 2013. H.R. 3183 as ordered reported would allow individuals to request from the CFPB, at no cost to the individual, all information about the individual held by the CFPB at the time of the request, the source of the information, and any other person or federal department or agency to which the CFPB disclosed the individual's information. H.R. 4604 was ordered to be reported by the House Committee on Financial Services on June 11, 2014. Similar to H.R. 3183 , H.R. 4604 as ordered reported concerns information that the CFPB has collected about consumers. H.R. 4604 as ordered reported would allow individuals to opt out of allowing the CFPB to collect personally identifiable information about them. It would also require the CFPB to delete or destroy certain information about consumers and entities that it regulates after a specified period of time. In the event of a privacy breach at the CFPB that exposes consumers' personally identifiable information, the CFPB would notify consumers and provide them with one year of free credit monitoring. H.R. 4604 as ordered reported would limit the personally identifiable information that the CFPB could collect if it does not have a Senate-confirmed director. It would also require CFPB employees to have a confidential security clearance to access personally identifiable information collected by the Bureau. The CFPB uses data about consumers to inform its actions. It procures data from publicly available sources (such as other federal entities), requests information from entities it supervises, receives complaints directly from consumers about their experiences with certain financial products and services, conducts surveys and interviews with consumers, and purchases data from data vendors. The CFPB is generally not focused on the actions of individual consumers but on aggregated information about consumers that highlights the functioning of consumer markets. The Bureau does, however, have access to data containing personal identifiers in some instances, such as when it collects information on borrowers from a particular company whose actions have harmed borrowers in the course of ensuring that those borrowers receive restitution. The CFPB has instituted policies related to data that contain personally identifiable information about consumers. These policies are intended to ensure that the data are protected and that employees and third parties have limited access to it only under specified conditions. A September 2014 Government Accountability Office (GAO) review of the CFPB's data collection found that the CFPB collects a significant amount of data but that other financial regulators, such as the Federal Reserve System and the Office of the Comptroller of the Currency (OCC), "collect similarly large amounts of data." GAO found that the CFPB "has taken steps to protect and secure these data collections," including removing personal identifiers from the data where possible and establishing an information-security program. GAO also determined that "additional efforts are needed in several areas to reduce the risk of improper collection, use, or release of consumer financial data." GAO made 11 recommendations for the CFPB that were divided into three broad categories: (1) establishing additional written procedures for data collection and privacy practices; (2) completing the implementation of security and privacy steps; and (3) complying with the Paperwork Reduction Act by receiving Office of Management and Budget (OMB) approval for certain data collections. GAO reports that the CFPB "agreed with GAO's recommendations and noted steps they plan to take or have taken to address them." Critics of the CFPB's data collection argue that the Bureau is amassing a significant amount of data on consumers. Learning what information the CFPB has collected and having the ability to opt out of collection efforts, they argue, could afford consumers more control over the data the government collects on them and increase the transparency and accountability of the CFPB. Part of the concern stems from questions about the security of the data held by the CFPB. Destroying some types of data after a certain period of time and requiring a confidential security clearance, the argument goes, would provide added protections to consumers. Opponents of the proposals counter that preserving the CFPB's ability to collect data is essential to ensuring that the Bureau makes informed decisions in fulfilling its mission. They also contend that keeping data for extended periods of time allows the CFPB to observe important long-run trends in consumer markets. Additionally, opponents assert that the data the CFPB collects is, for the most part, scrubbed of personally identifiable information. The additional requirements that the proposals would impose on the CFPB, they argue, would go beyond what other financial regulators must follow even though these regulators also collect data about consumers. The Congressional Budget Office (CBO) estimates that "enacting H.R. 3183 would increase direct spending by $18 million over the 2015-2024 period" and "enacting H.R. 4604 would cost the CFPB $83 million over the 2015-2024 period, thus increasing direct spending by that amount." H.R. 3193, the Consumer Financial Freedom and Washington Accountability Act25 H.R. 3193 was passed by the House on February 27, 2014. Originally a narrower bill, H.R. 3193 was modified prior to floor consideration by H.Res. 475 . H.Res. 475 made in order for consideration an amendment in the nature of a substitute to H.R. 3193 consisting of the legislative text of five bills previously reported by the House Financial Services Committee. The five bills were: H.R. 2385 , the CFPB Pay Fairness Act of 2013, reported by the House Financial Services Committee on February 10, 2014; H.R. 2446 , the Responsible Consumer Financial Protection Regulations Act of 2013, reported by the House Financial Services Committee on February 6, 2014; H.R. 2571 , the Consumer Right to Financial Privacy Act of 2013, reported by the House Financial Services Committee on February 6, 2014; H.R. 3193 , reported by the House Financial Services Committee on February 6, 2014; and H.R. 3519 , the Bureau of Consumer Financial Protection Accountability and Transparency Act of 2013, reported by the House Financial Services Committee on February 6, 2014. H.R. 3193 as passed by the House would reduce the majority required to set aside or delay a regulation promulgated by the CFPB from two-thirds of FSOC to one-half, excluding the CFPB director. It would also change the grounds for a member of FSOC to bring a petition to set aside or delay the regulation from posing a risk to the safety and soundness of the banking or financial system to being "inconsistent with the safe and sound operations of United States financial institutions." In addition, H.R. 3193 as passed by the House would require the CFPB to consider the impact of its rules on the safety and soundness of depository institutions, and it would replace the CFPB's director and deputy directors with a five-person commission to head the Bureau. Commissioners could only be removed for cause and would serve a five-year term. They would be appointed by the President subject to Senate confirmation, and not more than three commissioners could be members of the same political party. A chairperson would be selected by the President from among the commissioners and would exercise the executive and administrative functions of the bureau. Under the bill as modified, the CFPB would become a stand-alone, independent agency and would no longer be an autonomous bureau of the Federal Reserve. H.R. 3193 as passed by the House would eliminate the statutorily required revenue transfers from the Fed to finance the CFPB's budget and subject that budget to the congressional appropriations process. It would authorize "such sums as may be necessary" to be appropriated through FY2015 and place CFPB employee pay on the federal government's general schedule. It would also govern the CFPB's use of confidential information. Supporters of H.R. 3193 as passed by the House argue that the different pieces of the proposal are collectively intended to increase the transparency and accountability of the CFPB. For example, supporters contend that because the CFPB's funding is from the Federal Reserve System, "Congress's traditional use of the 'power of the purse' to hold executive agencies accountable to the American people is of little to no use when it conducts oversight of the CFPB." Subjecting the CFPB to the appropriations process would strengthen congressional oversight. Opponents of the measure argue that changes to the CFPB's funding, leadership structure, and treatment by FSOC are part of an effort to "impede the CFPB in its mission of protecting American consumers." The existing structure, they argue, is important to reinforce the CFPB's independence from the political process, an attribute generally found in various forms in other financial regulators as well. CBO projects that H.R. 3193 as passed would reduce mandatory spending by $6 billion over 10 years. Assuming future appropriations were provided, that reduction would be offset by a roughly equal increase in discretionary spending. H.R. 3389, the Ensuring Harmed Consumers Receive Compensation Act H.R. 3389 was ordered to be reported by the House Committee on Financial Services on June 11, 2014. H.R. 3389 as ordered reported would restrict payments from the CFPB's Consumer Financial Civil Penalty Fund to the victims of activities for which civil penalties have been imposed. The Dodd-Frank Act established the Civil Penalty Fund, which is administered by the CFPB. When the CFPB obtains a civil penalty in any judicial or administrative action under federal consumer financial laws against an entity it regulates, the CFPB is authorized to deposit that penalty into the Civil Penalty Fund. The CFPB may use the fund to compensate victims of activities for which penalties have been imposed. If the victims cannot be located or payments are otherwise not practicable, the CFPB may use the funds for consumer education and financial literacy programs. The CFPB also sets aside money from the fund to cover administrative expenses associated with hiring third-party vendors to distribute the funds to affected consumers. As of May 2014, the CFPB had deposited $119 million into the fund; approximately $31 million was allocated to consumers and $13.4 million was allocated to a consumer education and financial literacy program (the unallocated money remains in the fund). H.R. 3389 as ordered reported would prevent the CFPB from using the funds in the Civil Penalty Fund for consumer education and financial literacy and would remit to the Treasury those funds not used to compensate victims. A June 2014 GAO report reviewed the Civil Penalty Fund, examining how the fund is administered and comparing it with other similar funds. GAO found that CFPB "has implemented a number of internal controls for managing the fund" but recommended that CFPB "document the specific factors considered in determining the amount of funding, if any, allocated to consumer education and financial literacy programs." GAO reports that CFPB has generally agreed with GAO recommendations. In comparing the CFPB with several selected agencies, GAO found that the CFPB, with its Civil Penalty Fund, differed from the Department of Justice, Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), and OCC in that those agencies did not have a separate fund for penalties they imposed but remitted the funds to Treasury. By contrast, the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), and Centers for Medicare and Medicaid Services (CMS) have funds for penalties that, although all are different, share similarities with the CFPB's Civil Penalty Fund. Supporters of H.R. 3389 as ordered reported take issue with the CFPB's Civil Penalty Fund for multiple reasons. During the markup of the bill, H.R. 3389 's supporters argued that because they believed the CFPB lacked sufficient accountability, it was inappropriate for the CFPB to have discretion to allocate money from a fund for purposes besides compensating victims, especially when many of the CFPB's settlement agreements already require covered financial institutions to remediate harmed consumers. They also questioned the need for additional financial literacy programs, pointing to reports by GAO that the federal government already has multiple programs to support financial literacy, and whether CFPB's financial literacy programs are effective. Opponents of H.R. 3389 as ordered reported argue that supporting financial literacy is an important part of the CFPB's mission and, therefore, the CFPB should be allowed to continue using the Civil Penalty Fund for that purpose. They also contend that the CFPB plays a significant role in coordinating the multiple financial literacy programs across the government. CBO estimates that H.R. 3389 as ordered reported would reduce direct spending by $8 million over the 2015-2024 period. H.R. 3770, the Bureau of Consumer Financial Protection-Inspector General Reform Act of 201341 H.R. 3770 was ordered to be reported by the House Committee on Financial Services on June 11, 2014. H.R. 3770 as ordered reported would create a new, separate "federal establishment" inspector general (IG) to audit, investigate, and evaluate the CFPB. The overwhelming majority of IGs are governed by the Inspector General Act of 1978, as amended (hereinafter referred to as the IG Act). Pursuant to the IG Act, IGs are vested with substantial independence and powers to combat waste, fraud, and abuse within designated federal departments and agencies. To execute their missions, offices of inspectors general (OIGs) conduct and publish audits and investigations, among other duties. Established by public law as permanent, nonpartisan, and independent offices, OIGs audit, investigate, and review operations within more than 70 federal agencies. The IG Act provided the blueprint for IG appointments and removals, powers and authorities, and responsibilities and duties—and it explicitly created OIGs in 12 federal establishments . The Inspector General Act Amendments of 1988 created a new set of IGs in designated federal entities , which are usually smaller federal agencies. (See text box.) Typically, the jurisdiction of an IG includes only the programs and operations of the affiliated agency. A few IGs, however, have express authority to cover more than one agency, organization, program, or activity. For example, the Inspector General of the Board of Governors for the Federal Reserve System, an establishment IG, was given jurisdiction over the CFPB in the Dodd-Frank Act. To reflect this expanded coverage, the IG was retitled the Inspector General of the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection. Among other requirements, H.R. 3770 would create a new, separate federal establishment IG to audit, investigate, and evaluate the CFPB. The bill would also require the CFPB IG to appear before the Senate Committee on Banking, Housing, and Urban Affairs and the House Committees on Financial Services and on Energy and Commerce two times per year to present the contents of the OIG's statutorily required semiannual reports. Pursuant to Section 3(c) of H.R. 3770 , 2% of the CFPB's annual funding would be provided to the OIG. The bill would require the President to appoint the CFPB's IG within 60 days of enactment, and the Inspector General of the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection would serve as the CFPB's IG until an IG was appointed. Pursuant to Section 5 of H.R. 3770 , upon appointment of an IG to the CFPB OIG, the Inspector General of the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection would be renamed the Inspector General of the Board of Governors of the Federal Reserve System. H.R. 3770 , if enacted, would create two federal establishment IGs within the same federal agency (the Federal Reserve System). Only one federal department currently contains two federal establishment IGs: the U.S. Department of the Treasury. Proponents of the bill argue that establishing an IG that focuses specifically on the CFPB "will allow for increased oversight of an agency that has been given broad authority." Proponents have also noted that because the CFPB does not receive direct congressional appropriations, congressional oversight of the entity is more difficult than if it were subject to appropriations. A Senate-confirmed IG, they argue, would hold the CFPB more accountable. Opponents may argue that the Federal Reserve IG already performs audits, inspections, and evaluations on the CFPB. Establishing a new, separate IG, therefore, could create redundancies and unclear jurisdictional boundaries between the two IGs as they conduct oversight operations. Additionally, establishing any IG would likely increase federal budget deficits. CBO's score of H.R. 3770 is presented in greater detail below. Appropriations Pursuant to the IG Act, presidentially appointed IGs in federal establishments are provided a separate appropriations account for their offices. These so-called line items may prevent agency administrators from limiting, transferring, or otherwise reducing IG funding once it has been specified in law. H.R. 3770 , if enacted, would set the newly authorized CFPB OIG's annual budget at 2% of the CFPB's overall funding. CRS could find no other instances for which the funding or appropriation level of an IG is statutorily set at a particular percentage of its affiliated agency's funding or appropriation level. Supporters of the bill might argue that this provision would ensure a budget for the OIG that would be proportional to that of the board it covers—regardless of growth or contraction of the CFPB's funding. Requiring 2% proportional funding, however, may limit the authority of the OIG to request more or less funding to execute its mission. Once every three years, for example, an OIG undergoes a peer review, which may require additional resources. In other years, the OIG workflow may require fewer resources. The Federal Reserve System generates its own revenue. The appropriations process described above that funds most OIGs, therefore, may not be applicable to a new CFPB OIG. Congress may choose to adopt an appropriations process that provides the CFPB OIG the opportunity to articulate its funding needs directly to Congress, thereby allowing some flexibility in the funding process. CBO projects that H.R. 3770 as ordered reported would increase direct spending by $100 million over the next 10 years and increase revenues by $51 million over the same time period (due to lower costs for the Federal Reserve's OIG). As a result, "taking those effects together, CBO estimates that enacting H.R. 3770 would increase budget deficits by $49 million over the 10-year period." H.R. 4262, the Bureau Advisory Commission Transparency Act56 H.R. 4262 was introduced in the House on March 14, 2014, and concurrently referred to the House Committees on Financial Services and Oversight and Government Reform. H.R. 4262 as ordered reported on June 10, 2014 would require any CFPB advisory committee to be administered pursuant to the Federal Advisory Committee Act (FACA). The CFPB's four advisory boards and councils are the Consumer Advisory Board, Community Bank Advisory Council, Credit Union Advisory Council, and Academic Research Council. Pursuant to Sec. 1101 of the Dodd-Frank Act, the CFPB was established as an independent bureau of the Federal Reserve System. As will be described in greater detail below, the Federal Reserve System is explicitly exempted from FACA. FACA, therefore, arguably does not apply to the CFPB. The CFPB stated that its "Advisory Boards and Councils are organized to be transparent and operate in the spirit of the principles that underlie the FACA." Federal advisory committees are designed to collect a variety of viewpoints and provide advice to the federal government from outside sources. Advisory committees may be created by Congress, the President, or agency heads, and they may conduct studies, render independent advice, or make recommendations to various bodies within the federal government. In 1972, Congress passed FACA in response to the perception that existing advisory committees were duplicative, inefficient, and lacked adequate control or oversight. FACA sets structural and operational requirements for many advisory committees, including formal reporting and oversight procedures. FACA, for example, requires that committee membership be "fairly balanced in terms of the points of view represented" and that the advice provided by committees be objective and accessible to the public. Additionally, FACA requires that committee meetings be open to the public, unless the material discussed meets certain requirements. Both the Central Intelligence Agency and the Federal Reserve System are explicitly exempted from FACA's requirements. Members of Congress presented two arguments for exempting the Federal Reserve System from FACA's requirements at the time of the law's enactment. 1. One goal of FACA was to reduce federal costs by eliminating duplication of committees. These committees are usually provided federal appropriations to support their operations. The Federal Reserve's Federal Advisory Council was funded through Federal Reserve Banks' earnings, and, therefore, applying FACA would not reduce federal appropriations. 2. Another goal was to protect the potential improper release of sensitive information or opinions. Some Members of Congress and the Chairman of the Federal Reserve Board asserted that "premature publication of views candidly expressed at meetings" on delicate subjects of "monetary policy, the international payments system, and liquidity conditions in the banking system ... could prove harmful." Supporters of the H.R. 4262 may argue that applying FACA to an advisory committee may improve both the perception and reality of transparent governmental operation and accessibility, thereby increasing confidence and trust in an advisory body's findings or recommendations. As some opponents of FACA's application have stated, however, FACA's requirements may also place a number of additional chartering, record-keeping, notification, and oversight requirements on the entity. In particular, some agencies have claimed that compliance with the various FACA requirements is cumbersome and resource intensive, reducing the ability of committees to focus on substantive issues in a spontaneous and timely fashion. Other scholars have argued that the scope of the openness requirements could have the practical effect of stifling candid advice and discussion within a committee. Congress can choose to exempt certain congressionally mandated advisory committees from all or some of FACA's provisions to allow them to operate more quickly than FACA might permit. For example, the requirement that all meetings be posted "with timely notice" in the Federal Register can slow down the daily operations of an advisory committee, which will typically not hold meetings until 15 days after the notice is published. Congress can choose to exempt a committee from this publication requirement. Additionally, Congress may determine that the subject matter discussed at advisory board meetings is substantively sensitive and should be withheld from public record. Pursuant to FACA, however, agencies are already provided the authority to hold closed-door meetings, provided the substance of the meeting meets particular requirements. CBO projects that H.R. 4262 as ordered reported would increase direct spending by $1 million over the next 10 years because the CFPB "would incur additional costs to train staff, review committee activities annually, and prepare reports, and to provide accommodation for public meetings." H.R. 4383, the Bureau of Consumer Financial Protection Advisory Boards Act71 H.R. 4383 was ordered to be reported by the House Committee on Financial Services on June 10, 2014. H.R. 4383 as ordered reported would require the CFPB to establish and appoint members to a Small Business Advisory Board, Credit Union Advisory Council, and Community Bank Advisory Council. The two councils, the Credit Union Advisory Council and the Community Bank Advisory Council, already exist because the CFPB voluntarily created them. H.R. 4383 would statutorily mandate their existence and set requirements for their size and composition. The board and councils would advise and consult with the CFPB in the exercise of the bureau's functions related to small businesses, credit unions, and community banks, respectively. Each advisory board would comprise at least 15 and no more than 20 members who would be appointed by the director of the CFPB. The members would be required to be representatives of their relevant business type. Additionally, the CFPB director would be encouraged to ensure "the participation of minority- and women-owned small business concerns and their interests" in the Small Business Advisory Board, "the participation of credit unions predominantly servicing traditionally underserved communities and populations and their interests" in the Credit Union Advisory Council, and "the participation of community banks predominantly serving traditionally underserved communities and populations and their interests" in the Community Bank Advisory Council. The board and councils would each be required to meet from time to time upon the call of the director and at least twice a year. Members of the board and councils who are not full-time employees of the United States government would receive compensation and have travel expenses covered. Currently, the CFPB identifies on its website four short-term advisory boards whose charters are of limited duration (each charter is for two years but may be amended by the director of the CFPB). Those four groups are the Consumer Advisory Board, the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council. Unlike these groups, however, the existence of the proposed board and councils would not be of limited duration. The proposed board and councils would create a permanent source of feedback for the CFPB on small business, credit union, and community bank concerns. The Academic Research Council, which was voluntarily created by the CFPB and advises the bureau on "research methodologies, data collection, and analytic strategies and provides feedback about research and strategic planning," would not be codified by H.R. 4383 as ordered reported. The proposed board and councils would offer additional methods of providing feedback to the CFPB, which proponents of the bill say could improve decision-making at the agency. Some methods do exist under current law to receive feedback on various topics—for example, the CFPB may be required to seek input from the small business community under the Regulatory Flexibility Act. The new boards would supplement that with additional feedback on topics identified in the bill. Opponents might suggest that the value of what these entities can offer to the agency may not be worth the cost of each board or council—CBO estimates that H.R. 4383 would "cost about $4 million over the 2015-2024 period" to support the three new entities. H.R. 4466, the Financial Regulatory Clarity Act of 201477 H.R. 4466 was ordered to be reported by the House Committee on Financial Services on May 22, 2014, and is currently before the House Committee on Agriculture. H.R. 4466 as ordered reported would require the CFPB and other financial regulators to assess their existing federal regulations and orders prior to issuing a new regulation or order. Each agency's assessment must consider whether the new proposal is in conflict with, inconsistent with, or duplicative of any previously issued regulations or orders and whether those previously issued orders are outdated. If any previously issued regulations are determined to have any of these characteristics, the agency would be required to "take all available measures under current law to resolve any duplicative or inconsistent existing regulation or order with any proposed regulation or order before issuing a final regulation or order." The bill also would require each agency to submit a report to Congress on its assessment, including in the report any recommendations to Congress for statutory changes that may be needed before the agency can repeal or amend any regulations identified. The proposed requirements in H.R. 4466 would be similar to existing requirements in various executive orders that do not currently apply to independent regulatory agencies, including the CFPB. In 1993, President William Clinton issued Executive Order 12866, which is still in effect, in which he stated that agencies should "avoid regulations that are inconsistent, incompatible, or duplicative with [their] other regulations." In January 2011, President Barack Obama issued Executive Order 13563, which reaffirmed Executive Order 12866 and directed executive agencies (not including the CFPB or other independent regulatory agencies) to undertake an examination of their current rules and eliminate or update any that were "outmoded, ineffective, insufficient, or excessively burdensome." Executive Order 13579, issued by President Obama later in 2011, encouraged independent regulatory agencies, including the CFPB, to conduct a similar review of their regulations. Specifically, the order asked the independent regulatory agencies to "consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned." Following the issuance of Executive Order 13579, many independent regulatory agencies did engage in a retrospective review of rules, including the CFPB, which instigated a review of its inherited regulations in December 2011. The CFPB stated in its Federal Register notice announcing that review that it was "based in part on guidance provided by the Office of Management and Budget" pertaining to Executive Order 13579. There has been some debate over whether the President can and should assign independent regulatory agencies such a task. Regardless of that debate, however, having a requirement for retrospective review in statute would emphasize the importance to Congress, as well as the President, of retrospective review at the CFPB and other covered agencies. One might argue that the other agencies covered by H.R. 4466 , all of which have been in existence longer than the CFPB, may find retrospective review more fruitful for identifying previously issued rules that should be amended or eliminated. The CFPB may have more limited success in such a retrospective review simply because it is a newer agency and has been issuing rules only for a few years. On the other hand, the CFPB inherited rulemaking authority from several federal agencies and, as the CFPB demonstrated in the review it instigated in December 2011 referenced above, a retrospective review could take these inherited regulations into account. Furthermore, H.R. 4466 would require the CFPB and the other agencies to undertake this consideration process each time a new regulation or order is issued, which could help to prevent a buildup of duplicative or inconsistent regulations in the future. H.R. 4662, the Bureau Advisory Opinion Act H.R. 4662 was ordered to be reported by the House Committee on Financial Services on June 11, 2014. H.R. 4662 as ordered reported would require the CFPB to establish a procedure to provide responses to questions by a CFPB-regulated entity as to whether a product or service offered by that entity would violate a federal consumer financial protection law. The CFPB would be required to respond within 90 days but could make an extension of up to 45 days. The CFPB would also make public its advisory opinion but would not disclose certain information about the request, such as the identity of the requesting entity. In a June 18, 2014, hearing, CFPB Director Richard Cordray was asked about whether the CFPB would issue advisory opinions and stated that it is "something we're working to do in appropriate cases." He also noted that the CFPB provides informal feedback in response to questions it receives as well as formal guidance on topic areas about which it receives questions. Following Director Cordray's comments, the CFPB published a notice in the Federal Register on October 16, 2014, seeking comment on its proposed Policy of No-Action Letters. Under the proposal, a company would be able to ask the CFPB for a no-action letter with regard to a new product or service. Under the CFPB's proposed policy, a No-Action Letter would be a statement that the staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester with respect to particular aspects of its product, under specific identified provisions of statutes or regulations. Such a letter may be limited as to time, volume of transactions, or otherwise, and may be subject to potential renewal. Supporters of H.R. 4662 (which was introduced prior to the CFPB's no-action letter proposal) argue that the CFPB's methods of providing information to businesses about specific questions do not provide enough certainty and transparency to businesses as to whether a particular product or service would comply with federal consumer protection laws. They contrast the CFPB's approach with those of agencies such as the Internal Revenue Service (IRS), SEC, and FTC that provide formal opinions in different formats. The IRS, for example, provides written determinations in which it advises taxpayers on certain issues under its jurisdiction. The SEC may provide a no-action letter to entities that are unsure as to whether a product or service would violate a federal securities law if the SEC staff concludes that it "would not recommend that the Commission take enforcement action against the requester based on the facts and representations described in the individual's or entity's request." The FTC provides advisory opinions "to help clarify FTC rules and decisions, often in response to requests from businesses and industry groups." Supporters argue that the approaches offered by the IRS, SEC, and FTC provide more certainty to businesses than the one used by the CFPB. Critics of H.R. 4662 counter that the requirement that the CFPB respond within specified time frames is unworkable, especially if the CFPB is inundated with requests. The need to respond to many requests in a narrow time frame, they argue, would limit the CFPB's ability to pursue its other activities for protecting consumers. Some of the critics who were still generally supportive of the bill suggested charging a fee to those who ask for an advisory opinion (which is an approach used by some but not all of the agencies described previously) and removing or modifying the time limits for a response from the CFPB. H.R. 4804, the Bureau Examination Fairness Act H.R. 4804 was ordered to be reported by the House Committee on Financial Services on June 11, 2014. H.R. 4804 as ordered reported would (1) prevent enforcement attorneys from being a part of the CFPB's examinations; (2) require the CFPB to satisfy certain criteria before requesting data from a company (such as ensuring the different divisions of the CFPB coordinate with each other before requesting the data and using samples of data rather than full data sets when possible); (3) require the CFPB to meet certain deadlines for completing its examinations of companies; and (4) limit the CFPB to performing one examination of an institution at any one time. As part of its regulation of financial institutions, the CFPB performs examinations. As described in its supervision and examination manual, the purpose of examining institutions is to "assess compliance with Federal consumer financial laws, obtain information about activities and compliances systems or procedures, and detect and assess risks to consumers and to markets for consumer financial products and services." The CFPB is also required to coordinate with other regulators and to use where possible publicly available information and existing reports by other regulators pertaining to regulated entities. The CFPB has the authority to perform examinations on depositories (such as banks and credit unions) with more than $10 billion in assets and certain nondepository financial institutions (such as payday lenders, providers of private student loans, mortgage servicers, and other entities), but it is not the primary consumer protection supervisor for depositories with $10 billion or less in assets. The supervisory powers for small depositories remain with the institutions' prudential regulator (i.e., the OCC, FDIC, National Credit Union Association, and Federal Reserve), although the CFPB does have some limited supervisory authority over smaller depository institutions. For instance, the Bureau, "on a sampling basis," may participate in examinations of smaller depository institutions conducted by prudential regulators. H.R. 4804 would codify some of the CFPB's existing examination practices. For example, the CFPB brought enforcement attorneys, who (among other things) investigate potential violations of consumer protection laws, on some supervisory examinations before reversing its policy in 2013. Some argued that the presence of enforcement attorneys created an adversarial dynamic between the CFPB and the financial institution. Additionally, the deadlines mandated in H.R. 4804 for the CFPB to complete its examination and provide feedback to the institution on its performance are similar to the timeliness guidelines the CFPB has instituted for itself, although a March 2014 OIG report stated that the CFPB "did not meet internal timeliness requirements for examination reporting." Supporters of H.R. 4804 argue that the bill would provide clarity and certainty about supervisory examinations while also reducing the CFPB's discretion. The existing uncertainty about examinations and the CFPB's ability to change its current practices, the argument goes, imposes "unjustified costs on legitimate businesses seeking to comply with the law." Opponents of H.R. 4804 , however, note that the CFPB is not the primary supervisor for depositories with less than $10 billion in assets. H.R. 4804 , therefore, would affect the CFPB's supervision of large depositories and nonbank firms and is not aimed at community banks. Additionally, critics of H.R. 4804 believe the CFPB should have the discretion to establish its examination policies, similar to the other regulators. CBO estimates that H.R. 4804 would "increase direct spending by $178 million over the 2015-2024 period" because the CFPB would have to hire additional staff to satisfy the new deadlines. H.R. 4811, the Bureau Guidance Transparency Act103 H.R. 4811 was ordered to be reported by the House Committee on Financial Services on June 11, 2014. H.R. 4811 as ordered reported would require the CFPB to subject its guidance documents to certain procedural requirements. First, a guidance document would be subject to public notice and a comment period prior to finalization. Second, upon issuing the final version of the guidance document, the CFPB would be required to post any "studies, data, methodologies, analyses, and other information relied on by the Bureau in preparing and issuing such guidance." Finally, the bill would prohibit Bulletin 2013-02, entitled "Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act," from taking effect. If enacted, H.R. 4811 would not prohibit the CFPB from reissuing Bulletin 2013-02. However, prior to reissuing the bulletin, the CFPB would be required to subject it to the aforementioned procedural requirements. Currently, federal agencies are generally required to subject their regulations, but not their guidance documents, to notice and comment procedures under the Administrative Procedure Act (APA). Specifically, under the APA, agencies generally must publish a notice of proposed rulemaking, hold a public comment period, and allow for a 30-day delay following the publication of the final rule before the rule may become effective. Guidance documents are not subject to these APA requirements, nor are they currently subject to any broad procedural requirements. The APA also does not require agencies to make public the studies, data, methodologies, or other related information used in the development of their regulations. As a matter of practice, however, agencies often make information upon which their rules are based available to the public. Various executive orders also encourage agencies to use the best data available and to make that information available to the public. Proponents of subjecting agency guidance documents to rulemaking-type procedures often argue that guidance documents are a potentially significant means through which agencies can implement policy and that even though a guidance document cannot impose a requirement, it can still have a notable effect. Subjecting guidance documents to a rulemaking-type process, they argue, will add an element of transparency and public participation that currently exists for the formulation of rules but not for guidance documents. In contrast, opponents of such requirements argue that mandating rulemaking-type procedures for guidance documents would remove flexibility for the agency. When issuing or amending rules, agencies must generally follow the above-mentioned set of procedures in law and executive orders, but guidance documents are not subject to these requirements and therefore can be changed or amended more easily. Opponents of subjecting guidance documents to rulemaking procedures also argue that additional procedural requirements may invite legal challenges to agency actions. CBO projects that H.R. 4811 as ordered reported would "would cost the CFBP $49 million over the 2015-2024 period, thus increasing direct spending by that amount" but would not affect revenues or discretionary spending. Balancing Consumer Protection with Credit Availability and Regulatory Burden As mentioned previously, the CFPB's purpose is "to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive." One of the long-standing issues in the regulation of consumer financial services is the perceived trade-off between protecting consumers and ensuring the providers of financial goods and services are not unduly burdened. If regulation intended to protect consumers increases the cost of providing a financial product, a company may reduce how much of that product it is willing to provide and to whom it is willing to provide it. Those who still receive the product may benefit from the enhanced disclosure or added legal protections of the regulation, but that benefit may come at the cost of a potentially higher price for the product. Some Members of Congress believe that, in its rulemaking, the CFPB has struck the appropriate balance between protecting consumers and ensuring that credit availability is not restricted due to overly burdensome regulations on financial institutions, especially small banks. Others counter that some of the CFPB's rules have imposed compliance costs on lenders of all sizes that will result in less credit available to consumers and restrict the types of products available to them. This section will evaluate CFPB-related legislation that would alter the contents of the CFPB's rulemaking. H.R. 1779, the Preserving Access to Manufactured Housing Act of 2013 H.R. 1779 was ordered to be reported by the House Committee on Financial Services on May 22, 2014. H.R. 1779 as ordered reported would affect the market for manufactured housing by amending the definitions of mortgage originator and high-cost mortgage in the Truth-in-Lending Act (TILA). Manufactured homes, which are often located in more rural areas, are a type of single-family housing that is factory built and transported to a placement site rather than constructed on-site. The Dodd-Frank Act changed the definitions for mortgage originator and high-cost mortgage to provide additional protections to borrowers, and those changes may affect the market for manufactured homes. H.R. 1779 would modify the definitions again with the goal of increasing the credit available for manufactured homes. A mortgage originator is someone who, among other things, "(i) takes a residential mortgage loan application; (ii) assists a consumer in obtaining or applying to obtain a residential mortgage loan; or (iii) offers or negotiates terms of a residential mortgage loan." The current definition excludes employees of manufactured-home retailers under certain circumstances, such as when the employees do not advise consumers on the terms of a loan that the consumer could receive to purchase the manufactured home. H.R. 1779 would expand the exception such that retailers of manufactured homes or their employees would be considered mortgage originators for the purposes of TILA if they received more compensation for a sale that included a loan than for a sale that did not include a loan. The definition of mortgage originator is relevant to the manufactured-housing industry because some rules issued by the CFPB, such as the Ability-to-Repay (ATR) rule, require compensation paid to a mortgage originator to be included in the definition of points and fees. When points and fees are above certain thresholds, consumers may receive certain additional protections that could impose additional costs on lenders. The more types of costs included in the definition of points and fees, the more likely it is that the caps will be breached and lenders may be subject to additional legal liability. If the definition of mortgage originator is modified by H.R. 1779 as ordered reported so that certain fees paid to manufactured-home retailers would not be included in the points and fees cap, then the points and fees thresholds would be less likely to be breached and the risk to lenders would be reduced (although borrowers would also be less likely to receive added consumer protections). A lender, in that instance, may be more willing to offer credit for a manufactured-housing loan. The CFPB has noted that the treat ment of manufactured - home retailers is one of the issues on which it has received feedback and stated that it " will continue to conduct outreach with the manufactured - home industry and other interested parties to address concerns about what activities are permissible for a retailer and its employees without causing them to qualify as loan originators. " H.R. 1779 as ordered reported would also narrow the definition of high-cost mortgage. The Dodd-Frank Act expanded the protections available to high-cost mortgages, and the CFPB issued a rule implementing those changes. A mortgage is deemed a high-cost mortgage if the annual percentage rate (APR) or the points and fees for the mortgage exceed certain thresholds. The definition of high-cost mortgage is particularly important for the manufactured-home market because a loan used to purchase a manufactured home is generally more likely to be a high-cost loan than a mortgage for a non-manufactured home. As described previously, H.R. 1779 would amend the points and fees definition, making it less likely that the high-cost mortgage threshold would be triggered. As described below, H.R. 1779 also would increase the APR trigger for certain types of high-cost mortgages. Both changes would make it less likely for a manufactured-home loan to be deemed a high-cost mortgage. If a mortgage is high cost, then a lender is limited in the types of fees it can charge, is restricted in the features it can offer on the mortgage (such as a balloon payment), and must provide additional disclosures about the terms of the loan. In addition, a borrower must receive housing counseling if a mortgage is high cost. Although consumers may benefit from these protections, the protections may impose additional costs on lenders and make it less likely that a lender will extend credit to a borrower whose mortgage is above the high-cost threshold. H.R. 1779 would increase the APR threshold for certain loans used to purchase a manufactured home, making it less likely that a loan will receive a high-cost designation and potentially making it more likely that a lender will originate a manufactured-home loan. Supporters of H.R. 1779 argue that the changes to the definitions of mortgage originator and to high-cost mortgage would expand credit in the manufactured-housing market. Opponents of H.R. 1779 believe loosening the protections available to consumers could result in consumers receiving relatively high-interest loans without the counseling and disclosure typically associated with such loans. CBO projects that H.R. 1779 as ordered reported would "increase direct spending by less than $500,000 in 2015 to implement changes to the TILA" but would not affect revenues or discretionary spending. H.R. 2672, the Helping Expand Lending Practices in Rural Communities Act H.R. 2672 was passed by the House on May 6, 2014. H.R. 2672 would establish a process by which individuals could petition the CFPB for counties that were not designated as rural by the CFPB to receive the rural designation. It would also establish evaluation criteria and an evaluation process for the CFPB to follow in assessing the petitions. In implementing its regulations, the CFPB designates certain counties as rural. Lenders operating in rural areas may be exempt from some regulations or have additional compliance options that are unavailable to lenders in areas that are not designated as rural. For example, the ATR rule has an additional compliance option that allows small lenders operating in rural or underserved areas to originate balloon mortgages, subject to some restrictions. The compliance option for rural lenders is specified in the Dodd-Frank Act, but the definition of rural is left to the discretion of the CFPB. Balloon mortgages originated by lenders in areas that are not designated as rural may be ineligible for qualified mortgage (QM) status (although the CFPB has established a two-year transition period to allow small lenders to originate balloon mortgages, subject to some restrictions). Lenders that benefit from exemptions may be able to offer products to their consumers that lenders in non-rural areas would be less likely to offer, but consumers in rural areas may not receive the same protections as those in non-rural areas. Some argue that the CFPB's method of designating counties as rural, which is based on the U.S. Department of Agriculture's Urban Influence Codes, is inflexible and may not account for "atypical population distributions or geographic boundaries." The CFPB stated that it believes it defined rural in a manner consistent with the intent of the exemptions contained in statute but that, over the next two years, it "intends to study whether the definitions of 'rural' or 'underserved' should be adjusted." When publishing the ATR rule, the CFPB estimated that its definition of rural results in 9.7% of the total U.S. population being in rural areas. It is unclear, however, for what fraction of the 9.7% of the population in rural areas a rural lender is the only source for affordable credit. CBO projects that H.R. 2672 as ordered reported would increase direct spending by $3 million over the next 10 years but would not affect revenues or discretionary spending. H.R. 2673, the Portfolio Lending and Mortgage Access Act H.R. 2673 was ordered to be reported by the House Committee on Financial Services on May 22, 2014. H.R. 2673 as ordered reported would create an additional category of QM. A mortgage would receive QM status so long as it appears on the balance sheet of the creditor that originated it. The criteria that would otherwise need to be satisfied to receive QM status, such as limits on the fees associated with the mortgage or restrictions on certain product features, would not apply. Title XIV of the Dodd-Frank Act established the ATR requirement and instructed the CFPB to establish the definition for QM as part of its implementation. The ATR rule requires a lender to determine based on documented and verified information that at the time a mortgage loan is made, the borrower has the ability to repay the loan. Lenders that fail to comply with the ATR rule could be subject to legal liability. A lender is presumed to have complied with the ATR rule when it offers a QM. A QM is a mortgage that satisfies certain underwriting and product-feature requirements, such as being below specified debt-to-income ratios, having a term of 30 years or fewer, and having fees associated with the mortgage below certain thresholds. There are several different categories of QM, including ones related to mortgages made by small lenders and lenders in rural or underserved areas. There is also a category for mortgages that meet the standards of Fannie Mae and Freddie Mac. Unlike the other QM compliance options, the additional QM compliance option that would be created by H.R. 2673 would have no underwriting or product-feature requirements; any mortgage could receive QM status so long as the mortgage is held in the portfolio of the lender that originated it. Some argue that the ATR rule has negatively affected lenders, especially those that originate mortgages and hold them in their portfolios. Lenders that hold the mortgage, the argument goes, should have discretion over what types of mortgages they originate and to whom they lend because the lender bears the consequences of a potential default by the borrower when the mortgage is held in portfolio. The lender, therefore, has "every incentive to ensure that the mortgage is conservatively underwritten and that the borrower has the ability to repay." Proponents of H.R. 2673 argue that mortgages retained in portfolio by the original lender should receive QM status without the need to satisfy additional underwriting and product requirements. Critics of H.R. 2673 contend that the retained risk of the mortgage held in the lender's portfolio may be insufficient to align the incentives of the lender and the borrower. In a period of rising house prices, the lender may be able to sell the home of a delinquent borrower for enough to cover the amount of the loan. In such a scenario, the lender may be more concerned about the value of the underlying house than about the borrower's ability to repay the loan even if the lender holds the loan in its portfolio. The lender may be protected from losses, but the consumer would bear some of the consequences of the foreclosure. Critics are also concerned that establishing a QM compliance option that does not have additional underwriting and product-feature requirements, such as limits on the fees that can be charged for the mortgage, could lead to consumers having insufficient protection against abusive or unfair practices. CBO projects that H.R. 2673 as ordered reported would affect direct spending but that "those effects would be insignificant." H.R. 2673 would not affect revenues or discretionary spending. H.R. 3211, the Mortgage Choice Act of 2014 H.R. 3211 was passed by the House on June 9, 2014. H.R. 3211 as passed would modify the definition of points and fees for a QM to exclude from the definition insurance held in escrow and certain fees paid to affiliates of the lender. Certain fees paid for comparable services provided by independent or unaffiliated companies, such as for title insurance, are already excluded from the definition of points and fees. By excluding additional types of costs that are currently included in the definition of points and fees, more expensive mortgages would be likely to fall within the points and fees threshold and therefore be eligible for QM status. As described in more detail below, some are concerned that lenders will be less likely to originate mortgages that do not have QM status. They argue that a broader definition of QM is therefore important for ensuring broad credit availability. As mentioned previously, a lender is presumed to have complied with the ATR rule when it offers a QM. To receive QM status, a loan must meet certain underwriting and product-feature requirements. One of the requirements is that certain points and fees associated with originating the mortgage be below specified thresholds. The points and fees calculation includes, among other things, the compensation paid to the loan originator; some real estate-related fees paid to affiliates of the lender (for example, for property appraisals); premiums for some types of insurance; and prepayment penalties. Because of the benefits associated with being a QM, some argue that lenders will predominantly originate QMs. The definition of QM (including what constitutes points and fees), therefore, could have a significant effect on the amount of credit that is available to potential borrowers. Some argue that by removing certain costs from the definition of points and fees, H.R. 3211 would expand credit availability by allowing more mortgages to receive QM status. It would also, supporters of the bill contend, allow certain real estate-related services to compete on fairer terms. Opponents of H.R. 3211 state that exempting certain fees from the caps could result in lenders steering borrowers to overpriced services and lead to less protection for consumers. CBO projects that H.R. 3211 as ordered reported would affect direct spending but that the effect would be insignificant. CBO also estimates that H.R. 3211 would not affect revenues or discretionary spending. H.R. 4521, the Community Institution Mortgage Relief Act of 2014 H.R. 4521 was ordered to be reported by the House Committee on Financial Services on May 22, 2014. H.R. 4521 as ordered reported would make two modifications to CFPB mortgage rules to reduce the regulatory burden of small lenders. H.R. 4521 would (1) exempt from certain escrow requirements a mortgage held by a lender with assets of $10 billion or less and (2) exempt from certain servicing requirements a servicer that annually services 20,000 or fewer mortgages. An escrow account is an account that a "mortgage lender may set up to pay certain recurring property-related expenses ... such as property taxes and homeowner's insurance." Property taxes and homeowner's insurance are often lump-sum payments owed annually or semiannually. To ensure a borrower has enough money to make these payments, a lender may divide up the amount owed and add it to a borrower's monthly payment. The additional amount paid each month is placed in the escrow account and then is drawn on by the mortgage servicer that administers the account to make the required annual or semiannual payments. Maintaining escrow accounts for borrowers may be costly to some banks, especially smaller lenders. An escrow account is not required for all types of mortgages but was required for at least one year for higher-priced mortgage loans even before the Dodd-Frank Act. A higher-priced mortgage loan is a loan with an APR "that exceeds an 'average prime offer rate' for a comparable transaction by 1.5 or more percentage points for transactions secured by a first lien, or by 3.5 or more percentage points for transactions secured by a subordinate lien." The Dodd-Frank Act, among other things, extended the amount of time an escrow account for a higher-priced mortgage loan must be maintained from one year to five years, although the escrow account can only be terminated after five years if certain conditions are met. It also provided additional disclosure requirements. The CFPB issued a rule implementing these requirements. The CFPB's rule also included exemptions from escrow requirements to lenders that (1) operate predominantly in rural or underserved areas; (2) extend 500 or fewer mortgages; (3) have less than $2 billion in total assets; and (4) do not escrow for any mortgage they service (with some exceptions). An exempted lender must maintain an escrow account for a higher-priced mortgage loan, however, if at the time the loan is made the lender intends to sell the loan to another party ("is subject to a forward commitment"). An exempted lender does not need to maintain an escrow account for a loan that it intends to hold in portfolio. H.R. 4521 would expand the exemption such that a lender would not have to maintain an escrow requirement for a mortgage so long as the mortgage is held by the lender in its portfolio and the lender has $10 billion or less in assets. The second part of H.R. 4521 addresses mortgage servicers. A mortgage servicer functions as an intermediary between the mortgage holder and the borrower. The role of the servicer may be performed by the same institution that made the loan to the borrower or by another institution. Servicers collect payments from borrowers that are current and forward them to the mortgage holder, work with borrowers that are delinquent to try to get them current, and extinguish the mortgage (such as through foreclosure) if a borrower is in default. Servicers received added attention from Congress after the surge in foreclosures following the bursting of the housing bubble. The Dodd-Frank Act imposed additional requirements on servicers to protect borrowers through amendments to TILA and the Real Estate Settlement Procedures Act (RESPA). The CFPB issued rules implementing those changes. The CFPB regulations included, among other things, additional disclosure requirements about the timing of rate changes, requirements for how payments would be credited, obligations to address errors in a timely fashion, and guidance on when foreclosure could be initiated and how servicers must have continuity of contact with borrowers. For the rules implemented under TILA, servicers "that service 5,000 mortgage loans or less and only service mortgage loans the servicer or an affiliate owns or originated" are considered small servicers and are exempted from certain requirements related to disclosures and periodic statements. For the rules implemented under RESPA, some of the requirements were specific mandates in Dodd-Frank and some were implemented at the discretion of the CFPB; small servicers are exempted from those implemented at the discretion of the CFPB but must comply with those mandated by Dodd-Frank. For example, small servicers are exempted from the continuity-of-contact requirements but must comply with certain disclosure requirements for changes in interest rates. H.R. 4521 would modify the exemption for the rules implemented under RESPA by directing the CFPB to provide exemptions to or adjustments for the RESPA servicing provision for servicers that service 20,000 or fewer mortgages. In providing exemptions or adjustments, the CFPB would be directed to "reduce regulatory burdens while appropriately balancing consumer protections." Supporters of H.R. 4521 argue that small financial institutions were not the cause of the financial crisis and should be exempted from many of the regulations that apply to larger institutions to reduce the regulatory burden on smaller lenders. Although the CFPB's rules that would be affected by H.R. 4521 already have some exemptions for small lenders, H.R. 4521 would expand those exemptions to include more lenders. Additionally, supporters argue that the exemption for escrow accounts would only apply to lenders below the $10 billion threshold that hold the loan in their portfolio. The lender would have additional incentive, the argument goes, to make sure the borrower will pay taxes and insurance even without the escrow account because the lender is exposed to some of the risk by keeping it in its portfolio. Opponents of H.R. 4521 have contended that the exemptions in the CFPB's regulations are sufficient to protect small lenders and that expanding the exemptions would weaken the protections available to consumers. Critics point to mortgage servicers in particular as actors that performed poorly during the foreclosure crisis and should not receive additional exemptions from CFPB regulations. CBO projects that H.R. 4521 would "increase direct spending by less than $500,000 in 2015 for expenses of the CFPB to prepare and enforce new rules" but would not affect revenues or discretionary spending .

The Consumer Financial Protection Bureau (CFPB) has been a controversial product of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203; the Dodd-Frank Act). Some in Congress view the CFPB as an important protector of consumers and families against predatory financial actors. Others believe the CFPB is an institution not subject to sufficient accountability that imposes undue regulatory burdens on providers of financial services and limits credit available to households. This policy disagreement among Members of Congress has been on display during the controversy surrounding the confirmation of the CFPB's director, in oversight hearings, and in legislation that has been introduced. This report focuses on selected legislation related to the CFPB that has seen committee or floor action during the 113th Congress. Most of these proposals address one of two main policy topics, the structure of the CFPB and the substance of the CFPB's rulemaking. On the first policy question, many acknowledge that the structure of a government agency may affect the policies an agency creates. Financial regulators generally are structured in statute to have characteristics that increase their independence from the President or Congress, which may make policymaking related to these regulators more technical and less political or partisan, for better or worse. Independence may also make regulators less accountable to elected officials and can reduce presidential or congressional influence. Since the CFPB was established, some have argued that it has too much independence and not enough accountability. Critics point to structural issues, such as the presence of a director rather than a board and funding that is outside the traditional congressional appropriations process. Supporters of the CFPB highlight other aspects that they argue provide transparency and accountability, including the CFPB director's biannual testimony before Congress and the cap on the CFPB's non-appropriated funding. Other structural characteristics, they argue, are important for ensuring that the CFPB is somewhat insulated from political pressures and can focus on the technical aspect of policymaking. With regard to the second policy question, one of the long-standing issues in the regulation of consumer financial services is the perceived trade-off between protecting consumers and ensuring that the providers of financial goods and services are not unduly burdened. If regulation intended to protect consumers increases the cost of providing a financial product, a company may reduce how much of that product it is willing to provide and to whom it is willing to provide it. Those who still receive the product may benefit from the enhanced disclosure or added legal protections of the regulation, but that benefit may come at the cost of a potentially higher price for the product and reduced availability for others. Some Members of Congress believe the CFPB has struck the appropriate balance in its rulemaking between protecting consumers and ensuring that credit availability is not restricted due to overly burdensome regulations on financial institutions, especially small banks. Others counter that some of the CFPB's rules have imposed compliance costs on lenders of all sizes that will result in less credit available to consumers and restrict the types of products available. An analysis of whether recent rulemaking has restricted the availability of credit is complicated by the effects of the financial crisis on the supply of and demand for credit, as well as the fact that many of the more significant CFPB rulemakings only took effect in early 2014.

Overview The statutory framework for the communications sector largely was enacted prior to the commercial deployment of digital technology. The Telecommunications Act of 1996 (1996 Act), the most recent comprehensive revision of that framework, is virtually silent with respect to Internet Protocol (IP), broadband networks, and online voice, data, and video services. The expert agencies charged with implementing the relevant statutes—the Federal Communications Commission (FCC) and the Copyright Office—have had to determine if and how to apply the law to technologies and circumstances that were not considered by Congress. Frequently, their decisions have led to litigation, requiring the courts to rule with limited guidance from the statutes. This has led to long delays in the rule implementation and increased market uncertainty. These new technologies have driven changes in market structure throughout the communications sector that were not contemplated by the 1996 Act. Technological spillovers have allowed for the convergence of previously service-specific networks, creating new competitive entry opportunities. But they also have created certain incentives for market consolidation. Firms also have used new technologies to attempt to "invent around" statutory obligations or prohibitions, such as retransmission consent and copyright requirements. In addition, firms have developed new technologies that allow consumers to avoid paying for programming or to skip the commercials that accompany video programming, challenging traditional business models. The statutory framework imposes obligations and prohibitions on certain networks and service providers, but also provides privileges and rights. In some cases, entrants employing new technologies are not subject to the obligations and prohibitions imposed on the incumbents they compete against, but also are denied access to privileges and rights that accrue to those incumbents. Members on both sides of the aisle as well as industry stakeholders have suggested that many existing provisions in the Communications Act of 1934, as amended, and in the Copyright Act of 1976, as amended, need to be updated to address current technological and market circumstances. There is no consensus about the changes needed. There is agreement, however, that the statutory framework should foster innovation, investment, and competition both in physical broadband networks and in the applications that ride over those networks. One of the challenges is to determine the appropriate mix of market forces and regulation when the sector is characterized by a small number of vertically integrated network providers that also offer applications in direct competition with the independent applications providers that must use those networks. Any statutory provision intended to create incentives for one group of industry players to innovate and invest runs a risk of creating disincentives for other groups to do likewise. Three broad, interrelated policy issues are likely to be prominent in any policy debate over how to update the statutory framework: how to accommodate technological change that already has taken place and, more dynamically, how to make the framework flexible enough to accommodate future technological change; given that underlying scale economies allow for only a very small number of efficient facilities-based network competitors, how to give those few network providers the incentive to invest and innovate while also constraining their ability to impede downstream competition from independent service providers who must use their networks; and given that spectrum is an essential communications input, how to implement a framework that fosters efficient spectrum use and management. Congress will be addressing these three broad questions during a time of great market uncertainty. Technology-driven market forces are potentially undermining the established business models of many incumbent firms, even as the viability of most new entrants remains uncertain. But the communications sector as a whole is robust and growing, with overall usage and revenues increasing, many incumbents enjoying record revenues and profits, and many new entrants enjoying rapid revenue gains though they may not yet have attained profitability. It is difficult to predict which business models ultimately will succeed, and therefore it is difficult to predict the ultimate impact of proposed statutory changes. While this suggests the need for caution, it should not necessarily be justification for inaction if technology-driven market forces have rendered some existing statutory provisions ineffective or even counterproductive. How the Communications Sector Has Changed Since Passage of the 1996 Telecommunications Act The communications sector does not look at all as it did when the Telecommunications Act was passed in 1996. Most significantly, consumer behavior in 2013 bears little resemblance to that in 1996. The Centers for Disease Control's National Health Interview Survey found that 38.2% of U.S. households had only wireless telephones during the second half of 2012, and six in 10 adults aged 25-29 lived in households with only wireless telephones. According to eMarketer, which performs data collection and analysis on digital markets, "the average adult will spend over 5 hours per day online, on nonvoice mobile activities or with other digital media this year ... compared to 4 hours and 31 minutes watching television." Thus it is not surprising that Verizon Communications chief financial officer Francis Shammo reportedly has stated that its recent deal with the National Football League for the rights to live-stream football games on 7.5-inch devices or smaller (including smartphones) was "pretty significant for us." Similarly, James Dolan, chief executive officer of Cablevision Systems, a major cable company, has reportedly stated that "Ultimately over the long term I think that the whole video product is eventually going to go over the Internet. I'm not willing to cede that position now, and I've got a lot of customers that buy my video product ... [but] the handwriting is on the wall, particularly when you look at young customers." Changes in Underlying Costs Have Fostered Entry Three interrelated elements of this digital transition have had substantial impact on U.S. markets and on the efficacy of the existing communications statutory framework. First, digital technologies have led to the "convergence" of networks that previously had provided a particular type of communication, such as voice or video. This has fundamentally changed market structure. As explained in the 2005 Phoenix Center Paper, true convergence (i.e., one that actually affects the underlying market structure) is not the offering of a "bundle" of several products into a single service offering, but is, in fact, a technological spillover that reduces entry costs so that existing firms find it profitable to extend their network into related markets, a decision that would not be profitable without the spillover. As such, "convergence" does not generally mean that busloads of new firms can now enter the market—it means only those firms with assets in a related market that have been affected by the spillover can afford to enter. [Emphasis in original.] Network providers that are able to exploit these technological spillovers can enter new service markets, as with cable operators that have upgraded their coaxial cable networks to offer high speed Internet access and voice services. But providers whose service-specific networks could not be readily modified to exploit spillovers, such as satellite operators unable to offer quality high speed Internet access or voice services, not only have failed to gain new business opportunities but now face competition from network providers that were able to exploit the spillovers. Second, independent efforts by a wide variety of large and small entrepreneurs, using unlicensed as well as licensed spectrum, have yielded a mobile wireless alternative to local wireline broadband networks that is viable for most popular consumer and small business applications (though this new alternative still depends on wireline facilities for much of its backbone and backhaul). This new mobile wireless ecosystem includes (1) cellular broadband wireless networks (sometimes referred to as macro networks) that offer consumers mobile connectivity to the Internet and hence access to a vast array of voice, data, and video services, (2) femtocell and other small cell networks that extend the reach of macro networks, and (3) WiFi networks that sometimes compete with macro networks but more often provide essential offloading and backhaul capabilities that allow macro network providers to relieve traffic pressures and constrain the capital and spectrum requirements of their macro networks. Given the projected rate of growth in mobile data (including video) traffic that will be generated by users of mobile devices such as smartphones and tablets, and the consequent need of macro network providers to offload from their macro networks a substantial portion of that traffic (onto femtocell or WiFi networks that they or other network providers may own), all three technologies—macro networks, small cell networks, and WiFi—are needed for mobile wireless broadband to succeed. The initial research and development efforts relating to the non-macro technologies were not necessarily undertaken with the expectation that there would be synergies with the macro technologies. Today, however, the value of each of these wireless technologies (and of the licensed and unlicensed spectrum on which they ride) is tied to the other. Third, digital technologies have significantly changed the underlying cost structure of a wide range of communications services—voice, data, video, music—that ride over the new wireline and wireless broadband networks, with potentially revolutionary market ramifications. Most digital services are applications that ride on existing wireline or wireless broadband networks; although they directly or indirectly compensate broadband network providers for use of their networks, digital service providers do not face the substantial fixed upfront costs associated with constructing a network. For certain types of content, digital technologies turn products that can be costly to produce and distribute (such as CDs, DVDs, and hard copy newspapers) into formats that can be distributed inexpensively. More generally, digital technologies potentially allow for cost-saving "disintermediation"—the elimination of middle men between the content producer and the final consumer. But the ease associated with digital content distribution also can create costs for content providers, as the proliferation of distribution channels can make it more costly or more difficult for content producers to obtain compensation for use of their content, both because of increased piracy and because the elimination of middle men may be accompanied by the loss of scale economies needed for more efficient marketing and distribution. New Market Incentives for Consolidation Technological change has lowered entry costs and thus boosted competition, but it also has created incentives for market consolidation. The technology-driven reduction in content distribution costs has fostered entry into the distribution of all types of content and, as a result, generally has increased the negotiating strength of content owners—or, perhaps more accurately, of owners of "must have" content—relative to distributors. This has created incentives for distributors to merge with content providers, for example, for Comcast to acquire NBC Universal. Where network providers have networks that cannot exploit spillover economies that would allow them to use their existing networks to enter new service markets, these network providers have had the incentive to seek marketing joint ventures with network providers that do offer those services. For example, the major cable operators, whose networks cannot accommodate wireless services, have entered into marketing agreements to sell Verizon Wireless service to their customers. In exchange, Verizon is marketing the cable companies' video services in those markets where it has not deployed its FiOS fiber-to-the-home network and thus cannot offer its own multichannel video service. Similarly, Dish Network, which cannot offer broadband services over its satellite network, in recent months has made (unsuccessful) offers to buy the wireless broadband providers Clearwire, Sprint, and LightSquared. There also are non-technology-driven incentives for consolidation. As broadcast television station groups purchase additional stations, they increase their leverage in retransmission consent and other negotiations. For example, recently proposed and/or consummated acquisitions will expand Sinclair Broadcast Group's reach to an estimated 37.1% of U.S. television households and Nexstar Broadcasting Group's reach to 14%. Similarly, Gannett's proposed acquisition of Belo Corporation's stations will allow it to reach 33% of U.S. television households and the combined Media General/Young Broadcasting will reach 14% of U.S. television households. Tribune Company's proposed purchase of Local TV LLS, which owns 19 stations in 16 markets, for $2.75 billion in cash, would leave Tribune with 42 stations, including 14 in the top 20 markets. Tribune chief executive officer Peter Liguori reportedly has stated he will seek higher retransmission consent fees for its growing number of network affiliated stations. Video distributors, fearful of potentially higher programming costs, have sought to thwart broadcaster consolidation. The American Cable Association (which represents small cable companies), Time Warner Cable, and DirecTV have filed with the FCC a petition to deny the transfer of five stations from Belo to Gannett on the grounds that, through the use of sharing agreements, Gannett would be able to negotiate retransmission consent agreements on behalf of multiple stations within a local market, enabling it to increase retransmission rates and raising the risk of a negotiations impasse leading to a programming blackout. Negotiating leverage is not the only motivation in today's brisk market for television stations, however. Purchasers also have been attracted by low interest rates and the rapid growth in political advertising revenues for stations in swing-states. Also, according to Michael Kupinski, an analyst with Noble Financial Group, "the industry needs to consolidate because you ... need to have scale now to invest in digital media technologies and move into mobile applications ... and also to drive economies through developing your own programming." Broadcaster consolidation may be triggering countervailing consolidation in the video distribution market. The trade press has reported that Liberty Media, which owns 27% of Charter Communications, seeks to have Charter purchase Time Warner Cable and then additional cable systems. SNLFinancial reports that "Time Warner Cable, which reportedly showed little interest in a deal with Charter, is reportedly eyeing mergers with Cablevision Systems Corp., which Charter also is eyeing, and Cox Communications Inc." It also reports that Charter CEO Thomas Rutledge predicted that only "two major players" will eventually emerge in the U.S. cable industry. At the same time, Charlie Ergen of Dish Network has suggested that a merger of Dish and DirecTV, which was rejected by the antitrust authorities in the past, might be possible now. If ownership consolidation by broadcasters triggers countervailing consolidation by video distributors, many programmer-distributor negotiations will feature large companies on both sides of the table, each with some leverage from their scale. This may make it more difficult for either party to impose its will on the other. But a battle between two companies, each with sufficiently deep pockets to be willing and able to withstand an extended blackout—as was the case in the month-long blackout of CBS programming channels on Time Warner Cable systems in August 2013—may injure consumers. There also will be situations in which a large broadcast station group is across the table from a small cable carrier or a large cable or satellite operator is across the table from an independent broadcast television station, with the smaller entity at a negotiating disadvantage. In addition to the programmer-distributor market, there also is a local advertising market. If the broadcast television stations in a local market are part of a large television group, and especially if that group owns more than one station in that market (or has a joint marketing agreement or shared services agreement with another station in that market), local retailers and other local advertisers may find themselves at a disadvantage when attempting to negotiate local advertising rates. The Impact on Investment in Networks and Applications The new market opportunities and new market forces generated by technological change have, overall, been a boon to stakeholders in the communications sector, with incumbents as well as new entrants benefiting. At the same time, even for the most successful firms the landscape is potentially risky since underlying costs and consumer demands continue to change. The big picture for communications remains favorable. Segments under direct pressure from new technologies likely will face lower rates of growth, but appear to continue to plan significant capital expenditures. According to a March 2013 FCC document, there has been nearly $250 billion in private capital investment in U.S. wired and wireless broadband networks since 2009. Annual investment in U.S. wireless networks alone was $30 billion in 2012 and is projected to be $35 billion in 2013, and more fiber-optic cable has been laid in the U.S. in each of the past two years than in any year since 2000. But there are some indications that network capital expenditures will fall. AT&T has announced a $2 billion decrease in capital expenditures over the next two years; and SNLFinancial forecasts a long-term decline in cable companies' capital expenditures, from a peak of $13.1 billion in 2012 to $11.4 billion in 2016. This decline may, in part, be the result of consolidation as mergers and joint marketing agreements reduce the number of competitors that must build out national networks. Although the term "apps economy" is widely used, it is difficult to get a handle on aggregate capital spending in the United States by applications providers. The United States enjoys dominance in some markets—according to the FCC, more than 90% of smartphones sold globally in 2012 use operating systems developed by U.S. companies. Also according to the FCC, there was more Internet venture capital investment in the U.S. in 2011 and 2012 than in any year since 2001. Looking only at those large venture capital investments for which there were public announcements, SNLFinancial estimated that such funding for digital-media firms in May 2013 alone was $601.8 million, with the largest investments coming in online advertising ($90.1 million), digital media ($85.2 million), online video ($72.2 million), mobile software/cloud ($55.7 million), and social networking ($53.5 million). Since these estimates only capture very large venture capital investments for which there are public announcements, they fall far short of aggregate investment levels. With respect to potential revenues, perhaps the most important group of applications involves over-the-top (OTT) video—video provided online by means other than a website controlled by the content owner or a cable television or satellite television company. SNLFinancial has begun to construct a database on five types of OTT deployments: OTT aggregators (currently dominated by Netflix, but also including Hulu, Amazon, Apple's iTunes, Redbox, Automated Retail LLC, Verizon's Redbox Instant, Time Warner's Warner Archive, Sony Entertainment Network, and subscription channels on Google's YouTube); game consoles (Nintendo's Wii, Microsoft's Xbox, and Sony's PlayStation 3), which have integrated a lot of video content and offer major aggregator services such as Netflix and Hulu; stand-alone set-top boxes such as Roku units and Apple TV, which also offer aggregator services such as Netflix and Hulu; Internet-connectable television sets, which have become the industry standard, with the manufacturers offering apps and both free and premium programming capabilities; and TV Everywhere, which gives authenticated subscribers to traditional MVPD service access to content on a variety of screens in addition to their television sets. As the OTT segment matures, more data may be collected to help policy makers analyze the impact of alternative public policies on the health and viability of applications markets. Various estimates indicate that the number of online video ads viewed is growing quickly and that media spending on OTT video is surging. SNLFinancial reports that 20.09 billion online video ads were viewed on desktops and laptops in June 2013, a 120.9% increase from January 2013, driven by more online sites monetizing their videos with an increasing number of ads and by the relatively stable pool of viewers watching more videos. BIA/Kelsey projects that local online video will increase fivefold to $5 billion by 2017; similarly, Standard Media Index found that digital media spending grew 27% during the first half of 2013 and Borrell Associates found digital video advertising increased 29% this year, to about $1 billion in revenues and will continue to grow. At the same time, advertising on traditional broadcast and cable channels continued to grow, though at lower rates; according to Standard Media Index, broadcast television advertising spending grew between 5 and 10% and cable television advertising spending grew 4% in the first half of 2013. (Although each of these data collection and analysis organizations uses its own unique data collection methodologies, so it is not appropriate to compare the numbers generated by one organization to those of another organization, they all are reporting similar trends.) There is no consensus on the extent to which households that had been subscribers to a pay cable, satellite, or telephone multi-channel video have "cut the cord" and now rely solely on over-the-air broadcasts and over-the-top video. But such cord-cutting is an identifiable trend. A recent study by GfK reportedly found that 19.3% of television homes (22.4 million) have broadcast-only reception (though they may also get programming online), compared with 17.8% in 2012. Of those 22.4 million households, 5.9% cut the cord in their current home at some point in the past; the remainder never subscribed to an MVPD service while living in their current house. The Statutory Framework and Technological Change The current statutory framework—which was shaped by negotiations among the many stakeholders present at the time the statutes were being developed—created obligations, prohibitions, privileges, and even rights for those various stakeholders. Industry players have constructed business models based on these. Now, new technologies have spawned entirely new networks, services, and industries that compete with the incumbent stakeholders but do not always easily fit the statutory definitions used to delineate who is subject to/eligible for those obligations, prohibitions, privileges, and rights. As a result, existing statutory provisions—and the regulations constructed by the FCC and Copyright Office to implement the provisions—in some cases may no longer be effectively fostering competition, public safety, and other long-standing policy goals for which they were created. In a technologically dynamic sector, the statutory framework cannot be modified every time there is a significant technological change. The challenge therefore is to create statutory language that is flexible enough to continue to foster articulated public policy objectives in the face of technological change, without artificially favoring either legacy technology or new technology. In industries characterized by networks and services provided over those networks, this tends to raise three related types of policy questions. Given that statutory provisions generally must define the services, networks, or entities to which they apply, and technological change may result in some competing services, networks, or entities falling within those definitions while others do not, how can policy makers minimize artificial competitive advantages or disadvantages, especially those that would discourage innovation or efficiency or otherwise undermine public policy goals? As providers deploy new technologies to migrate from legacy networks that are subject to statutory requirements to new networks that are not explicitly subject to statutory requirements, which of those requirements should be applied to the new networks? As some network providers (typically the largest providers) migrate from legacy time-division multiplexing (TDM) networks to new (IP) networks, but other network providers or end users have not made the investments needed to be able to connect with or otherwise utilize the new networks, (1) what requirements, if any, should be placed on the migrating providers to continue to support their legacy networks, and (2) what time limits should be placed on the other network providers and end users to take the steps needed for them to connect to the new IP networks? Statutory Definitions and New Technology An obvious—but by no means simple, appropriate, or even feasible—way to limit distortions created when statutory definitions do not cover newly available technology is to frequently modify definitions and other relevant provisions in existing statutes. But even if it were possible for Congress to constantly monitor technological change and instantly modify statutes, this likely would not be an effective strategy because it often takes some time to identify the market and public policy implications of new technologies. There does come a time, however, when technological change renders statutory provisions ineffective. Existing statutes are silent on digital technology, Internet protocol, broadband networks, and online services, forcing the FCC, Copyright Office, and courts to extrapolate to these new technologies provisions explicitly crafted for legacy technologies. Obsolete Definitions In another report, CRS has explored in detail the policy issues that this has created in the video distribution market. Online video distributors do not meet the statutory definitions of a "multichannel video programming distributor (MVPD)," "cable company," or "satellite carrier," and thus are treated differently than their distribution competitors on a wide range of issues. These include retransmission consent, broadcast retransmission rights, access to a compulsory copyright license, program access rules, program carriage rules, network non-duplication and syndicated exclusivity rules, must-carry obligations, equal employment opportunity rules, closed captioning, and emergency video programming accessibility for persons with hearing and visual disabilities. These differences in rights and obligations are likely to distort, and may undermine, potential competition from over-the-top online video distributors. Table 1 provides a brief summary of the different statutory treatment of competing video programming distributors. Similar analysis can be performed of other technology-specific definitions and provisions in current statute to determine whether they favor some competing services over others. For example, the statutory treatment of copyright for the public performance rights for sound recordings is different—and more favorable—for terrestrial broadcast radio (that is, AM and FM radio stations) than for satellite radio (XM-Sirius) or online radio (for example, Pandora), although all provide competing audio services. In June 2013, Broadcast Music Inc. (BMI), which represents 600,000 songwriters, composers, and music publishers, filed an action asking a federal court to set royalty rates for Internet radio service Pandora after negotiations did not result in an agreement. At about the same time, Pandora announced its purchase of KXMZ-FM, a small terrestrial radio station in Box Elder, SD, in order to qualify to pay lower royalty rates to music publishers. In response, the American Society of Composers, Authors and Publishers (ASCAP) has filed with the FCC a petition to deny the license transfer. "Inventing Around" Regulations In a technologically dynamic environment, there may be opportunities for a firm that is constrained by regulatory restrictions or prohibitions, or by patent or copyright restrictions, to "invent around" the impediment. This might take the form of exploiting a loophole in the regulation. It may allow for greater competition but it also could result in the innovating firm avoiding a regulation intended to foster a public interest objective. For example, the public performance of copyrighted works on broadcast television signals is subject to copyright licensing, but the private performance of such works is not. A cable or satellite operator must obtain a copyright license to retransmit the copyrighted material on broadcast signals to its subscribers, but a consuming household does not have to pay a license fee to capture the same broadcast programming directly over the air with use of a rooftop antenna. Video distributors therefore have the incentive to develop and deploy technologies that mimic the household's rooftop antenna or in some other fashion allow the consuming household to directly capture the broadcast signal. A start-up company, Aereo, now has deployed thousands of mini-antennas, which, though maintained at Aereo's own premises, are assigned to individual subscribers as their personal antennas; these antennas send the broadcast television signal to individual subscribers over the Internet. Aereo claims that it is not a video distributor but rather a technology rental company and that the programs received by its subscribers are private performances and not subject to copyright licensing requirements. The broadcasters claim otherwise and have sued Aereo for copyright infringement and sought a preliminary injunction. On July 11, 2012, a federal district court judge denied the injunction, concluding "that plaintiffs have failed to demonstrate they are likely to succeed in establishing that Aereo's system results in a public performance." That decision was appealed, but first a three-court panel of the Second U.S. Circuit Court of Appeals and then the full court en banc refused to enjoin Aereo from continuing to operate while a lower court decides the case. Aereo therefore has been able to continue to offer its service to residents of New York, Connecticut, and Vermont (the three states within the Second Circuit's jurisdiction) as the copyright infringement case moves forward. Separately and in two different federal district courts (in California and in Washington, DC), broadcasters have sought injunctions against a company using the same technology as Aereo, and in those cases the courts found that the online provider was infringing copyrights and enjoined it from offering service. The judge in the Washington, DC case made the scope of the injunction national, with the exception of the states in the northeastern part of the U.S. covered by the Aereo decision. These cases also are being appealed. It is widely expected that with these inconsistent court rulings appeals will continue, perhaps reaching the Supreme Court. Should the Court decide to resolve the disagreement among the lower courts on the legality of these issues, a potential Supreme Court ruling is unlikely before 2015. In the interim, however, the adverse rulings in the AereoKiller/FilmOnX cases are expected to threaten Aereo's expansion plans. If the broadcasters are unsuccessful on this issue and lose copyright revenues, they are likely to pursue alternate compensation, most likely by seeking to make Aereo and similarly situated video distributors subject to retransmission consent requirements. Currently, however, online video distributors such as Aereo do not meet the definition of an MVPD and therefore are not subject to the statutory retransmission consent requirements, so the broadcasters would have to seek a statutory change. Since the current legal uncertainty is making it more difficult for both programmers and distributors to make business decisions, Congress may choose to address this issue through legislation. In another copyright case involving new technology, the U.S. Court of Appeals for the Ninth Circuit has affirmed the denial of a request by Fox Broadcasting Company, Twentieth Century Fox Film Corp., and Fox Television Holdings, which own the copyrights to television shows that air on the Fox television network, for a preliminary injunction against a Dish Network product, Auto-Hop, that allows subscribers to skip over commercials in the programming they receive. The court found that the plaintiffs "did not establish a likelihood of success on its claim of secondary infringement because, although is established a prima facie case of direct infringement by customers, the television provider showed that it was likely to succeed on its affirmative defense that the customers' copying was a 'fair use.'" The case will proceed, but whatever its outcome Congress may want to review copyright law in light of new technologies being developed by video distributors that make their products more attractive to consumers by giving consumers the ability to skip commercials. Copyright, New Technology, and Innovation The copyright cases mentioned above are symptomatic of a larger challenge: how, in this digital era, to keep the balance in our copyright laws between rewarding creators for their work and fostering the dissemination and innovative use of those works. Article I, Section 8 of the Constitution states that Congress shall have power: "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." It gives Congress the authority to grant copyright holders a limited monopoly over their works in order to foster the public policy goal of promoting innovation. This has two, sometimes complementary, sometimes conflicting, components—protecting copyright holders' intellectual property rights while promoting the dissemination of the knowledge, information, and other value in the copyrighted content. In the digital age, it is very cheap and easy to copy and distribute works, so copyright laws must set up a framework for protecting the intellectual property rights of the copyright holders. At the same time, digital technology provides unique opportunities for unleashing the value in existing works that may be denied if the creator of the work is allowed to employ exclusive rights to curtail innovative uses. This argues, at the least, for laws that clearly spell out what is legal and what is illegal use of copyrighted materials so potential innovators are not unnecessarily discouraged by penalties for infringement that, in their view, does not cause substantial economic harm to copyright holders. The Department of Commerce Internet Policy Task Force has released a report, Copyright Policy, Creativity, and Innovation in the Digital Economy, which lists a number of policy issues that the Obama Administration seeks to address. The report tends to focus more on protecting copyright holders' intellectual property than on removing disincentives for third party use of copyrighted materials, but it does demonstrate the strain between those two objectives. Some of the issues identified in the report, which Congress may want to investigate, include the following: A proposal supported by the Administration to extend the public performance right for sound recordings to cover broadcasting (as discussed earlier in this report). Assessing the appropriateness of different rate-setting standards for the public performance of sound recordings by different types of digital music services (as discussed earlier in this report). A proposal supported by the Administration to make willful violations of the public performance right—such as streaming copyrighted materials without a license—a felony, rather than a misdemeanor. Determining whether legislative adjustments can help modernize the existing mechanical license by converting it into a blanket license, permitting a single license for a complete repertoire. A proposal supported by the Administration to ensure that consumers have the ability to unlock their cell phones, subject to applicable service agreements. A review of the legal framework for the creation of remixes, which some observers claim is being unacceptably impeded by legal uncertainty. Reviewing the relevance and scope of the "first-sale doctrine" in the digital environment. A copyright owner has an exclusive distribut ion right and also an exclusive reproduction right, which involves making copies. The first-sale doctrine creates a basic exception to the distribution right; once the work is lawfully sold or transferred, the copyright owner's interest in the material object in which the copyrighted work is embodied (a book or a CD) is exhausted; the owner of that material object can thereafter dispose of the object as she sees fit (such as giving it away to a friend or reselling it to a used book or record store). But unlike a tangible transfer, a digital transfer between two end users results in a reproduction of the work through the electronic transmission of a new copy of the work to its recipient, and the reproduction right is not subject to the first-sale doctrine limitation, so such transfers are a copyright infringement. Reviewing the application of statutory damages in the context of individual file-sharers and secondary liability for large-scale online infringement. The particular concern is that while statutory damages are necessary for online copyright enforcement, in some cases they may be set at an unreasonably high level. The appropriate role for the government, if any, to help the private sector improve the online licensing environment. Derek Khanna raises several additional copyright issues that may affect innovation and therefore may be of interest to Congress. The original copyright term was 14 years, plus a 14 year renewal if the author were still alive. Over time it has been extended and now the term is the lifetime of the author plus 70 years, and for corporate authors 120 years after creation or 95 years after publication. Khanna suggests that these time periods may be inconsistent with the constitutional language restricting exclusive rights to "limited times." He claims that these lengthy terms benefit content producers, but harm other, added-value services that have the potential to develop in an interactive Internet environment. For example, with shorter copyright terms, entrepreneurs seeking niche audiences would have greater access to books to which they could add pop-up text capability and to videos to which they could add pop-up trivia and commentary add-ons. He therefore proposes significantly shortening the term. Khanna also argues for an expansion of what is legally fair use. In addition, to protect against the abuse of false copyright infringement claims, he proposes more stringent requirements for requests that content be removed from websites (takedown requests) and penalties for fake takedown requests, which have a chilling effect on legitimate speech. The Transition to New IP Networks The current federal statutory framework for communications contains many network interconnection, network reliability, emergency service, consumer protection, universal service, and competition provisions intended to foster specific public policy objectives. But most of those provisions only apply to a subset of communications networks that are "telecommunications carriers," that is providers of telecommunications services. To foster the development of advanced communications services, Congress created a category of services, called "information services," that it distinguished from "telecommunications services" and freed from some of the regulations imposed on telecommunications services in Title II of the Communications Act. Telecommunications services involve "the transmission of information of the user's choosing, without change in the form or content of the information as sent and received ." In contrast, information services are defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications." In 2002, the FCC classified cable modem Internet access service as an information service with a telecommunications component, rather than a telecommunications service, and thus outside the purview of Title II. In 2005, the Supreme Court upheld this determination. Later that year, the FCC reached a similar determination with respect to the DSL Internet access service offered by telephone companies. As a result, wireline broadband Internet access service, whether provided by a cable company or by a telephone company, is not treated as a telecommunications service and services offered as broadband applications, such as Voice over Internet Protocol, are not telecommunications services. But this creates some statutory and regulatory asymmetry because IP networks offer voice services in direct competition with the voice services provided by telecommunications carriers; the latter may be subject to regulations that do not apply to the former. Moreover, among telecommunications carriers there is a statutory hierarchy, with some carriers subject to greater regulation than others. There are a number of statutory provisions that apply to all telecommunications carriers. Additional provisions apply to "local exchange carriers" (LECs), basically those telecommunications carriers that offer local telephone service. And still more provisions apply to "incumbent local exchange carriers" (ILECs), those local exchange carriers that offered service as government-sanctioned monopolies before the 1996 Act opened up the market to competitive entry. In addition, many state regulatory agencies require ILECs (and sometimes all LECs) to be "carriers of last resort" and to serve all requesting customers in their service areas upon demand. In the on-going broadband transition, many network providers are migrating from legacy circuit-switched, largely copper networks that use time division multiplexing technology—the long-standing public switched telephone network (PSTN) that offers plain old telephone service (POTS)—to packet-switched, fiber and wireless-based networks that offer multiple video and data as well as voice services. These new networks are not subject to many of the requirements imposed on telecommunications carriers, LECs, and ILECs. But in some cases the network providers, which have invested billions of dollars to deploy these new networks, are required by federal or state law to maintain their legacy networks and to continue to offer legacy voice services. AT&T has announced its intention to upgrade all of its wireline and wireless facilities to IP, which may result in it no longer serving about one percent of its legacy customers. It has asked the FCC to open a proceeding to address transition issues, including legacy regulations to which it is subject, but to which some of its competitors are not subject. The FCC has opened a proceeding and also has created an internal Technology Transitions Policy Task Force. But the FCC will deliberate in the absence of congressional guidance about which of the statutory requirements on legacy networks should apply to new networks, how they should be applied, and which legacy requirements should be retained during the transition. Some issues of potential interest to Congress include the following: VoIP Interconnection: Although the FCC in May 2013 reiterated that it "expect[s] all carriers to negotiate in good faith in response to requests for IP-to-IP interconnection for the exchange of voice traffic" and that "[t]he duty to negotiate in good faith has been a longstanding element of interconnection requirements under the Communications Act and does not depend upon the interconnection, whether TDM, IP, or otherwise," IP network providers are not considered telecommunications carriers and therefore are not subject to the interconnection requirements in Section 201 of the 1996 Act. Rather, IP networks rely on negotiated "peering agreements" for the exchange of traffic. But there have been instances of "peering disputes" in which networks refuse to exchange traffic because they cannot agree on terms. Although such disputes—and the resultant interruption of traffic—are rare, Congress may well be concerned if peering disputes between IP network providers result in captive customers losing access to telephone service. Interconnection agreements cover a multitude of parameters, including the number and physical points of interconnection, pricing (intercarrier compensation), transit, numbering and number portability, service levels, quality of service, and other terms and conditions. Many of these parameters may be best left to negotiations among private parties, and others may be best left to the FCC's expertise, but Congress may want to provide guidance and a mechanism for protecting residential and business customers if disputes arise between network providers. Public Safety/NG911: Successful transition from the legacy enhanced 911 (E911) architecture to the IP-based NG911 model will require the industry to resolve challenging technical issues relating to conveying accurate caller location data to the 911 call center when calls are made using nomadic, mobile, and over-the-top VoIP applications. The FCC plans to have trials to determine, among other things, how VoIP and other IP-based networks can interconnect with emergency service IP networks (ESInets). Although the industry and the FCC will take the lead in this transition, Congress may want to review statutory requirements to make sure they are not impeding the E911 to NG911 transition. Copper Wireline to Fiber or Wireless: Some ILECs are replacing existing customer voice and broadband services delivered over legacy circuit switched wireline networks with similar product offerings delivered over fiber and/or wireless IP networks. The FCC intends to seek information on how this technology migration would affect capabilities such as access to 911 and emergency services, the ability to send and receive a fax, credit card transactions for small businesses, alarm/security systems, and the ability for individuals with disabilities to continue to use assistive devices. This is important because, despite the fact that both wireline and wireless IP networks have many capabilities that the legacy copper PSTN lacks, there also are some uniquely positive features of the PSTN that wireless or fiber networks lack. For example, the legacy copper PSTN network has its own power source and continues to operate even when the electric service to a premise is not working; by comparison, fiber networks depend on the electric service at the premise. The copper PSTN has been engineered and built to 99.999% reliability, which is significantly higher than the reliability of IP and wireless networks. Also, the copper PSTN has been adapted to be able to accommodate the special needs of hearing-impaired and vision-impaired customers. Wireless networks may be less able to accommodate these needs. Congress may want to review the many requirements it has imposed on telecommunications carriers to determine which of these, if any, should be retained for IP networks. Legacy M onopoly- Era R egulatory O bligations: There are a number of federal and state statutory requirements, first enacted during the long period of government-sanctioned monopoly provision of telephone service, that are intended to protect customers from discontinued service or unanticipated network changes. For example, Section 214(a) of the Communications Act prohibits common carriers from discontinuing, reducing, or impairing service to a community, or part of a community, until the FCC certifies that the public interest will not be adversely affected in the present or future. Many states impose "carrier of last resort" service obligations that require ILECs to serve customers in their service areas on demand, regardless of the cost of offering such service. The FCC's rules for "eligible telecommunications carriers" (ETCs)—those providers eligible to receive funds from the high-cost universal service fund—also require network providers to offer certain services upon demand. These requirements, singly or in combination, may have the effect of forcing incumbent carriers to maintain their legacy TDM-based networks and services even as they are attempting to migrate to IP-based networks and services. Any diversion of capital expenditures to the upkeep of legacy networks could slow migration to the innovative new architecture. At the same time, Congress may be concerned that even if the vast majority of customers benefits, some may lose service in the transition. To the extent these issues stem from state laws, Congress might want to delineate what role, if any, states should continue to have as technology renders all services interstate in character. Differing R ates of IP A doption in a Network E nvironment: Some network providers are migrating to IP networks more quickly than others, and some end-users are migrating to IP-based customer premises equipment more quickly than others. Though the transition to an IP world is inevitable, late adopters will prefer to control the timing of their change-over. In some cases, they may even have a market incentive to delay the changeover, for example if that would allow a carrier to continue to collect above cost intercarrier compensation payments that it would not be able to command if interconnection rates were set in peering negotiations. Similarly, consumers who seek only the most basic voice service might resist purchasing IP-capable customer premises equipment such as a smartphone. If legacy networks or legacy customer premise equipment are incompatible with new IP networks, and if network providers are required to retain legacy networks and services in order to serve the slow-adopters, the IP transition will be delayed. Congress may want to provide the FCC with guidance on how to weigh the tradeoff between rapid IP deployment and protection of end users who may not wish to adopt new technologies. The Statutory Framework and Changes in Market Structure Wireline and Wireless Broadband Markets From its inception, the statutory framework for the U.S. communications sector has explicitly addressed issues of market structure for two reasons. First, communications networks are characterized by significant economies of scale that limit the number of efficient-sized providers in the market. Second, the capacity of the spectrum available for use at any point in time is constrained by existing technology and lack of spectrum can impede competition by inhibiting market entry or the offering of new services. A comprehensive statutory framework for U.S. communications policy, covering telecommunications and broadcasting, was first created in the Communications Act of 1934. That act created the FCC to implement and administer the economic regulation of the interstate activities of government-sanctioned telephone monopolies and the licensing of spectrum used for broadcast and other purposes. It explicitly left most regulation of intrastate telephone services to the states. In the 1970s and 1980s, a combination of technological change, court decisions, and changes in U.S. policy permitted competitive entry into some telecommunications and broadcast markets. In 1996, Congress passed the Telecommunications Act (1996 Act), which sought to open up markets to competition by removing unnecessary regulatory barriers to entry. Intramodal Competition The 1996 Act attempted to foster competition among providers that used similar underlying network technologies (for example, circuit-switched telephone networks) to offer a single type of service (for example, voice). It created one regulatory regime for carriers providing voice telephone service and another regime for cable television providers, and removed barriers to competitive provision of voice or cable (video) services. Within each of these communications modes it attempted to foster "intramodal competition." For example, the ILECs, which until passage of the 1996 Act enjoyed government-sanctioned monopolies and a regulated rate of return, were required to make the individual, unbundled elements of their networks available to new entrants at cost-based rates. It was assumed that the entrants would slowly build out their networks, and reduce their dependence on ILEC network elements, as they built up market share and could begin to exploit economies of scale. But intramodal competition has proved limited. Although a number of new entrants were able to take advantage of the unbundling requirements to serve large business customers across multiple urban locations—and to build out their own telecommunications networks in geographic areas with large business concentrations—these "competitive local exchange carriers" (CLECs) generally were not able to successfully enter the residential voice market. Intermodal Competition Technological advances not envisioned by, or addressed in, the 1996 Act, however, created spillovers that began to allow for inter modal competition. Cable operators upgraded their networks to offer voice and Internet access as well as video services. Responding to the cable operators, telephone companies have now upgraded their wireline networks to offer video and Internet access services. Increasingly, both the legacy telephone companies and the legacy cable networks are migrating their traffic onto IP networks whose offerings represent information services that to varying degree are not subject to the legacy voice or video statutory provisions. Although both the cable and telephone companies have invested heavily in their new networks, it appears that the migration has been relatively easier and less expensive for the cable companies to accomplish. The relatively inexpensive upgrade available to the telephone company networks—deploying digital subscriber line (DSL) technology on existing copper telephone lines—could not provide bandwidth and speeds equivalent to those provided over cable companies' upgraded hybrid fiber-coaxial cable networks with data over cable service interface specification (DOCSIS) 3.0 technologies. Instead, landline telephone companies have had to deploy relatively expensive optical fiber that cannot be economically justified except in areas that exceed some threshold level of population density. AT&T has deployed optical fiber to neighborhood nodes and then used legacy copper lines into customer premises. Verizon has deployed optical fiber all the way into the customer premise, and although this has yielded a higher bandwidth service it has cost a lot more to deploy. Wall Street has penalized Verizon for the higher upfront costs. AT&T has been able to extend its U-verse service into a larger portion of its service area than Verizon has been able to deploy its FiOS service, but neither has been able to provide high bandwidth landline broadband service universally throughout its service area. Moreover, by choosing an all-Internet Protocol technology platform with a fiber to the node network architecture, AT&T has had challenges meeting long-standing regulatory requirements, such as making public, educational, and governmental (PEG) access cable television channels available to subscribers in the same fashion as it makes commercial programming available, including making its PEG platform fully accessible to hearing-impaired and visually impaired viewers. Those same telephone companies, however, have been the leaders in developing wireless broadband networks. Although these wireless networks do not have the same bandwidth capability as optical fiber networks and upgraded coaxial cable networks, they do offer sufficient bandwidth for many applications, and especially for many consumer and small business users. They also provide complementary mobile services for enterprise customers and other heavy-bandwidth users whose bandwidth needs cannot be met by wireless alone. Although the telephone companies continue to invest in their wireline facilities, they have responded to an apparent shift in demand from fixed to mobile services by shifting their capital investments from wireline to wireless. For example, in September 2012 Verizon announced that it would not expand its FiOS fiber-optic network beyond its existing contractual franchise obligations, and would redirect investment toward its wireless network. Yet Tony Melone, Verizon's chief technical officer, explicitly included the FiOS network among the four platforms the company plans to use in the future, alongside its 4G LTE wireless network, a global IP backbone, and data centers using cloud infrastructure. On one hand, Verizon appears to be committed to taking full advantage of FiOS capabilities in the locations where it is deployed; on the other hand, the high cost of FiOS deployment appears to be constraining the footprint on which such deployment will take place. Joint Marketing Agreements In December 2011, Verizon announced it was purchasing from four major cable operators—Comcast, Time Warner Cable, Bright House Networks, and Cox Communications—the advanced wireless service (AWS) spectrum that those companies had first purchased in a federal auction in 2006. At the same time, Verizon announced joint marketing agreements with these four companies, under which Verizon would market the cable operators' video services in those markets in which Verizon did not offer its own FiOS video service and the cable companies would market Verizon Wireless service. These agreements confirmed that the cable companies had decided not to enter the wireless service market and that Verizon was not planning to expand the footprint of its FiOS offering. The spectrum transfers and joint marketing agreements were approved by the Antitrust Division of the Department of Justice and by the FCC in August 2012 subject to several modifications and conditions. In those markets in which the purchase would have resulted in Verizon Wireless holding more than certain threshold levels of spectrum, Verizon Wireless sold or swapped spectrum with T-Mobile. Similarly, the joint marketing agreement was modified to allow the cable companies to market Verizon Wireless services under their own brand names, such as Comcast Wireless, immediately (rather than having to postpone such marketing for five years, as required under the original agreement). The policy implications of these transactions, and thus the appropriate statutory framework for this new market structure, may depend on the extent to which consumers view wireline and wireless services as substitutes or complements. The decision of the cable companies to forgo entry into the wireless market, Verizon's acquisition of an important block of wireless broadband spectrum, and the joint marketing agreements between Verizon and the cable companies may reduce the amount of spectrum available to independent wireless carriers and limit Verizon's participation in the video market to those geographic markets in which it already offers FiOS service. The Verizon/cable company transactions highlight the possibility that the enter/don't enter/exit decisions of incumbent network providers can markedly change market forces and incentives. Congress may want to consider whether structural constraints (such as spectrum caps) and/or behavioral constraints (such as interoperability and/or network neutrality requirements) are needed to limit the market power of the vertically integrated network providers. The 2005 Phoenix Center Convergence Paper describes possible policy-maker concerns when there is convergence. In a section entitled "What Entry Says About Collusion," it first states, "When faced with a concentrated market, probably the first concern that comes to the mind of a policymaker is the threat of collusion." It then explains that "the collusive outcome is to ignore convergence and not enter. The converse is also true— if we observe reciprocal entry, then that entry is solid evidence that collusion is not occurring. " (Emphasis in original.) Noting cable operator entry into the voice market and telephone company entry into the video market, it concludes that "this simple observation alone is strong evidence that collusion is not present ... and policymakers should not focus on the possibility of collusion, at least in those markets where reciprocal entry is observed." But in a footnote it adds the caveat, "Once market shares stabilize, probably five to seven years out, then policymakers may wish to revisit the question of collusion." Although the Phoenix Center scenario focuses solely on wireline convergence, and thus does not take into account the development of wireless networks as partial complements to and substitutes for wireline networks, its analysis suggests that policy-makers should be mindful of the enter/don't enter/exit decisions of incumbent network providers. Given the simultaneous decisions of the cable operators not to enter the wireless broadband market and of Verizon to limit its geographic reach in the wireline broadband market, Congress may want to be sure that its statutory framework is able to address competition and other public policy issues in an environment in which the enter/don't enter/exit decisions of one or two providers can markedly change market forces and incentives. Alternative Approaches to Statutory Frameworks There are four general approaches that a statutory framework could take (or some combination of these): structural regulation, such as caps on the amount of spectrum any network provider may own or control in a geographic market; ex ante non-discrimination rules, such as explicitly stated network neutrality requirements; ex post adjudication of abuses of market power, as they arise, on a case-by-case basis; and reliance on antitrust (and unfair methods of competition) law and self-regulation. Ex ante rules and ex post adjudication both typically focus on anti-competitive discrimination that harms consumers, but in distinct ways. Ex ante rules create affirmative legal duties that are intended to remedy either past discrimination or the likelihood of future discrimination, prohibiting certain activities before the fact. By contrast, ex post adjudication typically seeks to punish identified episodes of discrimination on a case-by-case basis, after the fact. Ex ante schemes impose more up-front costs, by restricting certain behaviors, some of which might have proven beneficial to consumers. But, depending on the cost to consumers (in terms of denied access to potentially highly valued applications) of allowing discrimination to occur and then adjudicating after the fact, the ultimate cost of ex ante rules might prove lower than that of ex post adjudication. Structural Rules Such as Spectrum Caps The dominant cost characteristic of the communications sector is the substantial fixed costs, and associated scale and scope economies, of large networks. Both wireline and wireless broadband networks are subject to economies of scale that limit the number of efficient competitors that can participate in the market. Thus, historically the statutory framework for communications has focused on market structure. As discussed earlier, in recent years the FCC has taken steps to reduce structural regulation by distinguishing between telecommunications services and information services and removing information services and networks from Title II regulation. But given recent enter/don't enter/exit decisions by major network providers, there has been increased interest in structural regulation. There has been concern about potential choke points that could limit the number of viable competitors. This is a particular concern in the wireless broadband market, as only limited amounts of suitable spectrum are available in major metropolitan areas. As wireless carriers migrate from 2G to 3G and 4G networks, they cannot abandon their customers who still have older-technology phones, and thus they must allocate some of their spectrum to each generation of technology. As a result, the major wireless carriers have sought to amass large amounts of spectrum in major markets. Some observers have alleged, however, that the two dominant carriers—AT&T and Verizon Wireless—may have the incentive to strategically hoard spectrum, depriving smaller carriers of access to the low frequency spectrum that has superior propagation characteristics. These observers generally argue that spectrum caps or spectrum screens are needed both for the auctioning of newly available spectrum and for reviewing wireless spectrum license transactions. The FCC has employed such structural rules since 1994. (The policy debate on spectrum caps and screens is discussed later in this report, in the section on spectrum policy.) Ex Ante Non-Discrimination Rules The basic principle behind a network non-discrimination regime is to give users the right, by rule, to use non-harmful attachments or applications, and to give equipment and applications innovators the corresponding right, also by rule, to supply them. It therefore applies both to end users and to independent applications providers. Proponents claim that such a regime avoids some of the costs of structural regulation by allowing for efficient vertical integration so long as the rights granted to the users of the network are not compromised. In December 2010, the FCC adopted its Open Internet Order, establishing ex ante rules to govern the network management practices of broadband Internet access providers. There are three primary components: transparency: fixed and mobile broadband Internet service providers are required to publicly disclose accurate information regarding network management practices, performance, and commercial terms to consumers and to content, application, service, and device providers; no blocking: fixed and mobile broadband Internet service providers are both subject, to varying degrees, to no blocking requirements. Fixed providers are prohibited from blocking lawful content, applications, services, or non-harmful devices, subject to reasonable network management. Mobile providers are prohibited from blocking consumers from accessing lawful websites, subject to reasonable network management, nor can they block applications that compete with the provider's voice or video telephony services, subject to reasonable network management; and no unreasonable discrimination: fixed (but not mobile) broadband Internet service providers may not unreasonably discriminate in transmitting lawful network traffic over a consumer's broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination. Multiple appeals of the order, challenging the FCC's authority to impose these rules, have been filed and subsequently consolidated for review in the U.S. Court of Appeals, D.C. Circuit, with Verizon Communications the remaining challenger seeking review. Oral arguments were held in September 2013. Typically, proponents of non-discrimination rules are proponents of network neutrality—not favoring one application (or applications provider) over another. They argue that network neutrality, as embodied in ex ante non-discrimination rules, fosters the goal of stimulating investment and innovation in broadband technology and services in two ways: (1) by eliminating the risk of future discrimination, thereby providing independent applications providers greater incentives to invest in broadband applications, and (2) by facilitating fair competition among applications, ensuring the survival of the fittest. Proponents claim that a network that is as neutral as possible, with such neutrality ensured by explicit non-discrimination rules, provides entrepreneurs predictability in that all applications are treated alike. This, they argue, will foster investment in broadband applications by eliminating the unpredictability created by potential future restrictions on network usage. Neutrality provides applications designers and consumers alike with a baseline on which they can rely. Usage restrictions, they claim, particularly harm those small and startup developers that are most likely to push the envelope of what is possible using the Internet's architecture. Proponents also claim that the most promising path of development will be difficult to predict in advance; neutral network development is likely to yield better results than planned innovation directed by a single prospect holder. Any single entity will suffer from cognitive biases (such as a predisposition to continue with current ways of doing business). These proponents conclude that restrictions on usage, however well-intended, tend to favor certain applications over others. A regulatory framework that requires network providers to justify deviations from neutrality would prevent both unthinking and ill-intentioned distortions of the market for new applications. The proponents of non-discrimination rules argue that the restrictions not only directly harm consumers and applications providers today, but also have a chilling effect on innovators and venture capitalists considering future applications development and deployment. They argue that the possibility of discrimination in the future dampens the incentives to invest today. Critics of e x ante non-discrimination rules claim that such rules would intrude too much into the business plans of broadband network providers. These critics argue that non-discrimination rules impinge on the ability of broadcast network providers to fully exploit efficiencies from vertical integration or to use price discrimination or other pricing strategies to maximize return on investment. Another criticism of ex ante non-discrimination rules is that they inherently lead to delays, litigation, and other regulatory costs, as parties fight over interpretation of the rules. The complexity of communications networks, it is argued, renders it difficult, if not impossible, to construct clear ex ante rules. These critics point to the industry experience implementing the 1996 Act. The other major criticism is that ex ante rules of any sort, and especially those relating to network access, will artificially aid an independent applications provider in its contractual negotiations with a broadband network provider by allowing the applications provider to threaten to bring a regulatory complaint and attendant costs if the network provider does not accept its terms. According to this argument, the network provider often might be forced to accept unfavorable or inefficient access terms to avoid the threat of litigation. Ex Post Adjudication of Abuses of Market Power An alternative approach would adjudicate alleged abuses of market power ex post , as they arise, on a case-by-case basis. For example, the Progress and Freedom Foundation has proposed an ex post approach modeled after the Federal Trade Commission Act which would give the FCC the authority to adjudicate allegations of "unfair methods of competition ... and unfair or deceptive acts in or affecting electronic communications networks and electronic communications services." These unfair practices could include interconnection-related practices (such as the refusal to interconnect or unfair terms, conditions, and rates of interconnection): if such practices were shown to pose a substantial and non-transitory risk to consumer welfare; and if the Commission determined marketplace competition were not sufficient to protect consumer welfare; and if the Commission considered whether requiring interconnection would affect adversely investment in facilities and innovation in services. Under the proposal, the Commission could require the guilty party to pay damages to the harmed party if any violation were found. Proponents of ex post adjudication claim that the potential harm to consumers from bad regulation far exceeds the potential harm from badly functioning markets and therefore the burden of proof must fall on the regulator for imposing any regulation. They claim that even inefficient market outcomes are likely to be less problematic than regulatory solution because (1) markets are effective at responding to and overcoming their own inefficiencies, (2) government may not have the incentive to improve matters, and (3) policy makers are likely to lack the information needed to make efficient decisions. Proponents of ex post adjudication argue that a new statute is needed in order to replace the current model of regulation based on vague standards such as the "public interest" and "just and reasonable" with the well-established "unfair competition" standard in the Federal Trade Commission Act. E x post adjudication has been subject to several criticisms. First, it is based on the assumption that consumer welfare loss from bad regulation is always far greater than consumer welfare loss from badly performing markets, and that it is therefore best to err on the side of under-regulating. This may or may not be true in the case of markets characterized by networks where the platform provider and applications providers must cooperate to maximize consumer welfare. There is a large and growing academic law and economics literature on these unique markets; there is no consensus in the literature, or from empirical evidence, that in these markets there is less risk from erring on the side of under-regulation than on the side of over-regulation. Nor is there theoretical or empirical proof that the potential harm to consumers from distortions created by ex ante rules are greater than those created by ex post adjudication. It is possible that a narrowly crafted ex ante non-discrimination rule could create less distortion than ex post adjudications that will inherently result in some, and potentially many, innovative independent applications providers being driven from the market, thereby denying customers the benefit of their services. More generally, critics claim that ex post regulation distorts the business plans, and undermines the negotiating positions, of independent applications providers by placing the burden of proof for network access on them if they seek to develop and introduce an application that may not fit into the business plan of the network provider. According to this argument, the independent applications provider might be forced to modify its planned application or accept unfavorable or inefficient access terms to avoid the threat of being denied access to the broadband network. Some critics also are concerned that replacing the public interest standard with what is basically an antitrust standard fails to take into account non-economic objectives of U.S. communications policy, such as public safety, consumer protection, access for hearing- and visually impaired individuals, localism, and diversity of voices. Reliance on Antitrust Law The broadband network providers have argued that they should not be subject to access regulation because they face strong market incentives not to restrict the access of independent applications providers to their networks. They cite the existence of indirect network efficiencies, which reward network providers for keeping their networks open, and the availability to most Americans of at least two broadband networks. They argue that any access regulation would cause harm, by curtailing their ability to vertically integrate to exploit efficiencies such as ensuring quality of service levels needed for video and voice services. They argue that where they have placed usage restrictions on customers those restrictions were needed to ensure quality of service and other bandwidth management objectives and to make it feasible to undertake their huge infrastructure investments. They also claim that they remain subject to the antitrust laws, which would constrain them from undertaking any anticompetitive activities that are harmful to consumers. Critics of reliance on antitrust enforcement argue that public policy objectives in the communications sector extend far beyond the market competition issues addressed by antitrust law, to include public safety, consumer protection, access for hearing- and visually impaired individuals, localism, diversity of voices, etc. There is a Supreme Court decision that could affect the efficacy of an antitrust approach to regulation. The 1996 Telecommunications Act includes an "antitrust savings clause" stating that neither the act nor any amendments made by it "shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws." An antitrust suit was brought against Verizon, an incumbent telephone company that had been disciplined by both the FCC and the New York Public Service Commission (PSC) for breaching its duty under the 1996 Act to adequately share its network with competitive providers. The plaintiff alleged that such breaches represented illegal exclusionary and anticompetitive behavior under Section 2 of the Sherman Act. In its 2004 Trinko decision, the Supreme Court ruled that the breached FCC and PSC rules affirmatively required Verizon to aid its competitors but that failing to meet those requirements was not a sufficient basis for finding a violation of antitrust law. The Court found that "the act does not create new claims that go beyond the existing antitrust standards." Violations of the obligations under communications law cannot be enforced via the antitrust laws. In the case, three justices joined the concurring opinion that argued that Trinko, the plaintiff, did not have standing. The majority opinion decided the case on the merits, and did not address the question of whether the plaintiff had proper standing. The concurring opinion raises important questions as whether Trinko has the proper standing to bring the case. That opinion did not say that no one had standing to bring the case, but rather that AT&T, Trinko's service provider, would have been the proper plaintiff (since it was injured by Verizon's failure to provide it access), rather than Trinko, AT&T's customer. This means it is likely possible to bring a private antitrust suit against a regulated telecommunications company, but it may not be possible for consumers to bring suit. Congressional reaction to the Trinko decision was mixed. Then-chairman of the House Judiciary Committee, Representative Sensenbrenner, stated concern that the decision not be "perceived as giving a green light to all manner of anticompetitive behavior by the Bells.... The Committee on the Judiciary ... will not hesitate to develop legislative responses to competitive problems that may arise as a result of this decision." Then-ranking minority member of the House Judiciary Committee Conyers called for legislation to address the "Supreme Court's horrible blunder." Representatives Sensenbrenner and Conyers introduced a bill in May 2004 that would have added a section to the Clayton Act to make unlawful actions such as those that had been taken by Verizon, but the bill did not move forward. At the same time, then-chairman of the House Energy and Commerce Committee Tauzin expressed his approval that the Supreme Court had "decisively reiterated ... that the regulation of the telecommunications industry should be the purview of the FCC and the state [public utility commissions], rather than judges all across the country." It may be that, when Congress inserted the "antitrust savings" clause in the 1996 Act, many Members believed that the clause was preserving an unlimited private right of action on the part of other-than-directly affected parties to sue under the antitrust laws. But, as this case indicates, the clause may be of little effect in instances such as this in which it is found that traditional antitrust principles and standards are not implicated. These concerns might be moot, however. Under current FCC and court interpretations of law, IP network providers and providers of information services are not subject to the provisions in Title II of the Communications Act that were intended to jump-start competition, but rather to the much more limited requirements in Title I. Congress, however, may want to clarify that for those network and service providers that are not subject to the provisions in Title II that require local exchange carriers to affirmatively aid new entrants, the Trinko decision is not relevant. Market Structure-Based Regulation in the Video Market Two elements of the current regulatory framework—the retransmission consent/must carry requirements for retransmission of broadcast signals by multi-channel video programming distributors (MVPDs) and the broadcast media ownership rules—were constructed to address specific market structure concerns. The Cable Television Consumer Protection and Competition Act of 1992 (1992 Cable Act, P.L. 102-385 ) established rules that govern the carriage (retransmission) of television signals by cable operators. At that time, before cable faced competition from satellite television or from the video services of telephone companies, Congress was concerned that cable companies might refuse to carry the signals of local broadcast stations or might refuse to compensate local stations for the carriage of their signals. Those outcomes would have harmed the long-standing public policy objective of localism—fostering programming of particular interest and importance to the local area. Congress therefore created the retransmission consent/must-carry rules under which every three years each local commercial broadcast television station must choose between the following: retransmission consent— negotiating a retransmission consent agreement with each cable system operating in its area, such that either the broadcaster is compensated by the cable system for the right to retransmit the broadcast signal or the cable system may not retransmit the broadcast signal; and must-carry —requiring each cable system operating in its service area to carry the signal, but receiving no compensation for such carriage. With this mandatory election, broadcasters with popular programming that are confident the local cable systems will want to carry that programming can make the retransmission consent election and be assured compensation for such carriage, and broadcasters with less popular programming that the local cable systems might otherwise not choose to carry can make the must-carry election and be assured that their signals will be carried by all local cable systems. As satellite and telephone providers have entered the video distribution market and been classified as MVPDs, they too have become subject to the same or analogous retransmission consent/must-carry requirements. The retransmission consent/must-carry rules were intended to help mitigate cable company negotiating leverage vis-à-vis local broadcast stations. The regulatory framework also includes broadcast media ownership rules (some explicitly in statute, some implemented by the FCC but later referred to in statute) intended to place limits on broadcasting consolidation that could impair the three long-standing policy objectives of competition, localism, and diversity of voices. There are separate rules addressing the number of television stations that a single entity may own or control in a local market, the number of radio stations that a single entity may own or control in a local market, ownership or control of radio and television stations (radio/television cross-ownership) in a local market, ownership or control of a newspaper and a broadcast station (newspaper/broadcast cross-ownership) in a local market, the total television reach that a single entity may have nationwide (in terms of the percentage of all U.S. television households served by the stations owned or controlled by that entity), and the number of national broadcast networks that a single entity may own or control. In addition, there are FCC rules relating to what kind of activities and decision making one station in a market may undertake on behalf of a second station in the same market without control of the second station being attributed to the first station. By statute, the FCC must review these ownership rules every four years to determine if they remain in the public interest. There have been many structural and behavioral changes in the video market since the retransmission consent/must carry rules were enacted in 1992 that have affected the relative negotiating strength of the various parties. Market Changes Affecting Retransmission Consent Negotiations In 1992, there were only limited multichannel pay television alternatives to cable. Today, Dish Network operates in all 210 U.S. markets, DirecTV in about 195 markets, and AT&T and Verizon are expanding their video footprints. As a result, the cable companies have lost some of their leverage when negotiating retransmission consent agreements with broadcasters. If a broadcaster reaches an impasse with a cable company and the cable company faces the threat of not being allowed to carry the broadcaster's signal, then that cable company risks losing customers to a cable or telephone company competitor that continues to offer the broadcast programming, especially if the broadcaster offers "must-have" programming that some portion of cable subscribers would change providers to retain. The Shift to Cash Compensation In the 1990s and early 2000s, the compensation that local broadcast stations received for retransmission consent rarely took the form of cash payments from MVPDs. Rather, in most cases, the local broadcast affiliate gave its network the right to negotiate retransmission consent directly with the MVPDs; in exchange, the affiliate station made lower cash payments to its network for the network programming (or, in some cases, received cash payments from the network). The major broadcast networks, which are subsidiaries of major program producers and aggregators that also own multiple cable networks, sought non-cash compensation in the form of MVPD agreement to carry their full array of cable networks. By the mid-2000s, there were two market developments that led to changes in these business relationships. The broadcast network parent companies had successfully gotten most of the major MVPDs to carry their full array of branded cable networks. And the cable networks had developed a very successful business model based on two revenue streams—advertising revenues and also per subscriber license fees imposed on MVPDs. By 2005, some broadcasters—in particular, those that had many stations across multiple markets, such as CBS with its owned-and-operated stations and large group station owners, such as Sinclair and Nexstar—sought to emulate the cable network business model, especially as their advertising revenues were becoming increasingly sensitive to the underlying business cycle. This placed an emphasis on cash compensation for retransmission consent. Since in many cases compensation previously was in non-cash form, the move to cash payments was strongly resisted by MVPDs. In this new strategy, the broadcast network or station group negotiated with each MVPD on behalf of all of its owned stations. That is, a single retransmission consent negotiation covered multiple local markets, rather than having separate negotiations for each broadcast station. New Parameters Complicate the Negotiations Process At the same time, online video distribution and mobile video distribution were beginning to develop. MVPDs developed their own websites and sought the rights to retransmit the broadcast signals over those websites. In some cases, the broadcasters and MVPDs jointly developed "TV Everywhere," a strategy to retain the legacy business model by extending consumer access on new gateways such as applications for tablets and smartphones to those consumers who subscribed to an existing MVPD. But there also were new online video distributors not affiliated with the MVPDs and the broadcasters also wanted to make their programming available to these new outlets. As a result, the traditional retransmission consent negotiations between broadcasters and MVPDs began to take on additional elements—for example, the terms and conditions, including timing windows and exclusive/non-exclusive access to the broadcaster programming for screens other than the television screen. The terms, conditions, and rates that had to be negotiated within retransmission consent agreements increased exponentially. This created many more elements that potentially could create a negotiating impasse. Thus, although formally retransmission consent is a right of a particular local broadcast television station, an impasse could be caused by a conflict that had nothing to do with that station or with its local market. In addition, in recent years, many television stations have entered into sharing arrangements with other stations in their local market to jointly sell advertising and/or produce local news programming, typically with one station managing the shared operation and perhaps providing most or all of the staffing and other resources. In many cases the FCC has not deemed a station to have control over another station in the same market even if such control is considered to exist, and must be reported, under generally accepted accounting practices. Such agreements have resulted in the proliferation of so-called "virtual duopolies" that would not be allowed under the local ownership rule if control had been attributed to the first station. Where a single entity is able to jointly negotiate retransmission consent on behalf of two or more stations in a local market, this provides that broadcaster with leverage, especially if both stations are affiliates of major broadcast networks. According to the American Cable Association, which represents small cable companies, "48 pairs of Big 4 broadcasters in 43 DMAs coordinat[ed] their retransmission consent negotiations in 2011." The number of virtual duopolies is expected to increase if the many recently announced television group mergers are approved. As explained above, in recent months there have been a large number of mergers that, if approved, would give the acquiring station groups greater leverage when negotiating retransmission consent agreements with MVPDs. In some cases, these larger station groups also will enjoy duopoly or virtual duopoly positions in some local markets, again increasing their negotiating leverage. In part to create a countervailing negotiating force, some large cable companies have discussed merging and Dish Network has raised the trial balloon of merging with DirecTV. The Impact of Online Video Distributors According to a recent survey by Leichtman Research Group, 86% of households nationwide subscribe to a multichannel video service, down from 88% in 2010. Of the television households that do not subscribe to an MVPD service, 42% get one or more of the three major over-the-top services (Netflix, Amazon Prime, and Hulu Plus). Eight percent of all television households watch over-the-air broadcast television only. About 1.4% of all television households discontinued subscription to an MVPD service over the past year, which is about the same rate as in recent years, suggesting no great surge in "cord cutting" households. In recent years, a number of online video distributors have entered the market. They do not qualify as MVPDs and therefore are not subject to the retransmission consent requirements. As discussed earlier, Aereo and a number of copycat companies have a mini-antenna for each of their subscribers to retransmit broadcast signals to subscriber premises, and claim that such retransmission does not infringe copyright. Broadcasters have sued these companies for copyright infringement, but the cases are still progressing in court. In the interim, in those markets in which the courts have not issued an injunction, those services provide households with an alternative source of broadcast programming if an impasse between their MVPD and a local broadcaster has resulted in a blackout of that broadcaster's programming. This alternative access to broadcast programming could weaken the position of broadcasters in their retransmission consent disputes with MVPDs, though it is potentially a two-edged sword since households that subscribe to Aereo might have less reason to maintain their MVPD subscriptions. More Complicated Negotiations Have Resulted in More Blackouts These market developments, with the exception of the last one, have tended to make broadcaster-distributor negotiations more contentious, with greater risk of impasses. The highly publicized retransmission consent blackout of CBS networks on Time Warner Cable systems was just one of several impasses between programmers and distributors in the summer of 2013, some of which were resolved before blackouts occurred, some of which were not. For the period January 1 through August 22, 2013, SNLFinancial has identified 12 publicized instances of broadcast signal negotiation impasses, which resulted in the blackout of 94 full-power broadcast television stations for various periods of time, including the CBS-Time Warner Cable and Raycom-DISH blackouts that began in August. In addition to these blackouts involving broadcast station signals, there have been a number of impasses involving MVPDs and cable networks. Congress is more likely to be concerned about broadcast-related blackouts than cable network-related blackouts because of its long-standing commitment to localism and diversity of voices, which are impacted more by the loss of local broadcast signals than by the loss of a national cable programming network. (Congress also has been concerned about blackouts of local sports programming when regional cable sports networks are unable to reach agreement with MVPDs, because such programming is of great interest to consumers, but local news and public affairs programming is more central to civic institutions.) Congress may want to review the current statutory framework to determine whether any changes are needed to make it more effective in the new market environment characterized by greater consolidation and increased risk of programming blackouts. From the perspective of consumer protection, blackouts result in households losing access to programming that they paid for. SNLFinancial has identified 35 retransmission consent blackouts between 2005 and 2013 that lasted 28 days or longer. In total, these blackouts involved 145 stations in 111 markets. Four of these blackouts, involving 30 stations in 19 markets, began in 2013. In these situations, MVPDs are in a difficult situation. On one hand, they risk alienating customers by not providing a credit for blacked out programming. On the other hand, giving anything beyond the most token credit lends support to the broadcaster negotiating claim that its programming is highly valued and thus merits substantial retransmission consent compensation. One of the most effective broadcaster negotiating devices is to time the termination of retransmission consent agreements to coincide with major sports events, which represent the ultimate in "must have" programming. To the extent the programming is local, blackouts decrease the diversity of local voices. This can be especially significant if a blackout involves more than one local station because the broadcaster has a "duopoly" or "virtual duopoly" position in the local market. Proposals Intended to Address Retransmission Consent Blackouts Some observers have proposed that the best way to protect consumers is to require the broadcasters to continue to provide the programming to the MVPD while the impasse is addressed in some sort of mandatory arbitration process either within or outside the FCC. But mandating that the program continue to be provided would substantially reduce the leverage the broadcaster would have in its negotiations. One middle position might be to mandate that the programming continue to be made available only for 30 days, while an expedited arbitration process takes place. That would allow MVPDs to meet the typical language in their franchise agreements with local franchise authorities that they give subscribers 30-day notice of any change in programming. An alternative approach to direct intervention into the retransmission consent negotiating process would be to set structural regulations that would attempt to limit those situations most likely to give rise to undue negotiating leverage. Structural constraints could be set up that are market-specific or that cross markets. For example, if a single entity owns multiple stations that reach a very large portion of total U.S. television households, that entity could be negotiating with MVPDs that have far less reach and thus would be at a greater disadvantage if an impasse led to a blackout. By statute, an entity may own and operate local broadcast stations that reach, in total, up to 39% of U.S. television households. But when calculating the total audience reach by an entity's stations, the so-called "UHF discount" is applied—audiences of UHF stations are given only half-weight. Thus an entity could own stations that reach up to 78% of U.S. television households. This discount had been imposed because in the pre-digital analog world UHF stations had less reach than VHF stations and there was a policy goal of fostering use of the UHF spectrum. Now that the broadcast digital transition has been accomplished, stations broadcasting on the UHF spectrum actually enjoy superior transmission to stations on the VHF spectrum. There are differences of opinion as to whether the FCC has the authority to eliminate the UHF discount on its own. Nonetheless, the FCC has issued for public comment a Notice of Proposed Rulemaking that tentatively concludes that the UHF discount should be eliminated, but that would grandfather the discount for UHF stations already owned by station groups. If Congress is concerned that a single entity could attain undue negotiating leverage if it exceeded a 39% national reach, it might instruct the FCC to eliminate the discount or to clarify that the FCC has the authority to undertake a rulemaking proceeding that could result in elimination of the discount. There also have been differences of opinion about the public interest impact of allowing a single entity to own and control two major network-affiliated stations in a single local market or of allowing an entity to have a virtual duopoly in a single local market through use of a sharing arrangement. The National Association of Broadcasters and other supporters of duopolies argue that the economies gained and potential increase in revenues generated allow stations to invest more in local programming and might even be the only way to keep two stations on the air. While all video distributors tend to oppose such duopoly situations, small cable operators represented by the American Cable Association in particular claim that two concurrent trends—the development of competitive alternatives to cable and the increase in virtual duopolies that allow a single broadcaster to negotiate retransmission consent agreements for the affiliates of two different network in a single local market—place small cable companies at a distinct disadvantage in those negotiations. They cite a study by Professor William P. Rogerson that claims that smaller MVPDs—and hence their primarily rural customers—pay retransmission consent fees that on average are twice as high per subscriber as those paid by large MVPDs. The small cable operators propose, among other things, that the retransmission consent statute be modified to prohibit any entity from negotiating retransmission consent on behalf of more than one station in a local market. The Television Consumer Freedom Act ( S. 912 ), introduced by Senator McCain, would indirectly address some of the complexities that are affecting broadcaster/MVPD retransmission consent negotiations as well as cable network/MVPD negotiations by creating incentives for both programmers and distributors to offer programming on an a la carte basis, rather than in packages or tiers. It would deny an MVPD access to the low-cost compulsory copyright for the retransmission of the copyrighted works on a broadcast signal if the MVPD did not offer that signal and all other video programming channels to its subscribers on an a la carte basis. It also would not allow a broadcast station to receive compensation for the retransmission of its signal by an MVPD if it did not offer its broadcast signal, or any other video programming under its control, to MVPDs on an a la carte basis. Finally, a programmer could offer a channel of video programming to an MVPD as part of a package only if it also offered that channel on an a la carte basis. If an MVPD and a programmer (of broadcast or cable channels) failed to reach agreement regarding the terms, including prices, for the distribution rights, then both the MVPD and the programmer would have to disclose to the FCC the terms of the most recent offer they made. Proponents of this proposal suggest that these incentives for broadcasters and other large programmers to make their offerings available on a "wholesale" a la carte basis, and for MVPDs to make their consumer offerings available on a "retail" a la carte basis could foster channel-specific negotiations that would be less subject to impasses. But, at least at the wholesale level, programmers already make their offerings available on an a la carte basis; they simply choose to price their individual channels and packages in such a fashion that it rarely is beneficial for a distributor to acquire programming on an a la carte basis. There are market forces at play that could constrain the recent increase in programmer-distributor impasses and blackouts without any government intervention. Consumers who face actual blackouts, or even the threat of blackouts, become aware of alternatives—the availability of Aereo for relatively inexpensive access to broadcast signals in some markets, the availability of rooftop or rabbit-ear antennas for free over the air reception of broadcast signals in all markets. Actual and threatened blackouts therefore may increase the rate of "cord-cutting"—of households abandoning MVPDs altogether. Any significant migration of MVPD customers to over-the-top alternatives is likely to harm the financial position of broadcasters (and other major programmers) and MVPDs alike. This suggests that all these parties should have an incentive to avoid blackouts. But given the increasing complexity of the negotiations, that incentive may not be sufficient to protect consumers from blackouts. The Statutory Framework and Spectrum Management128 Wireless broadband is very spectrum-intensive. Steep projected growth in demand for both mobile and fixed wireless services and other spectrum-using services make efficient spectrum management an increasingly important policy goal. As never before, there will be costs to society if the statutory framework does not foster efficient spectrum use. Spectrum, by itself, is not of any use. It has value when technology is applied to it to create services. But the direction that the applied technology takes will depend on the way spectrum is allocated for use and rules about such use. For example, since different parts of the spectrum have different signal-carrying characteristics, different equipment must be developed for different portions of the spectrum. But innovators have little incentive to develop the equipment needed for a previously unused portion of the spectrum until the policy makers have made that portion available to service providers. As another example, technological development will take a very different path if spectrum users are assigned exclusive licenses to specific spectrum than if spectrum users are required to share spectrum, since these two options create different potential problems of electromagnetic interference. As a third example, since transmitters are subject to rules about the interference they can create, but receivers are not subject to requirements about their ability to block extraneous transmissions, vendors have placed a lot of effort in developing transmitters that meet those requirements but little or no effort in developing receivers that can block out unwanted signals. More generally, product development tends to follow the path defined by statutory and regulatory rules. Just as different portions of the spectrum have different characteristics, different technologies that can be applied to spectrum to create services have different characteristics. For example, "spread spectrum" technology, which underlies Wi-Fi, spreads a radio signal out over a wide range of frequencies; this makes the signal both difficult to intercept and less susceptible to interference. It is an especially effective technology for shared spectrum use, but loses its advantages in an environment of exclusive channel assignments. In contrast, the technologies being deployed by the cellular wireless broadband network providers in their macro networks create more interference and lend themselves to exclusive channel assignments. As explained earlier, U.S. wireless broadband service relies heavily on both types of technology. This suggests that relying on a single way to allocate spectrum—for example, only through auctions for exclusive channel rights or only through rules for shared, unlicensed use—could favor one type of technology over another, thereby artificially cutting off potentially rich avenues for innovation. In fact, the FCC already employs multiple approaches. As discussed below, since 1993 it has been authorized by Congress to hold spectrum auctions and has held a number of auctions. But as far back as 1985, the FCC also has set aside blocks of spectrum for shared use. Recently it has moved toward a hybrid approach to spectrum allocation in the "white spaces" that exist between licensed television broadcasters by creating rules that allow different types of users to share that block of spectrum while protecting broadcasters from interference. Traditionally, spectrum management has included three tasks—allocating blocks of spectrum to different uses, granting individual entities exclusive spectrum licenses for specific radio frequency channels within those spectrum blocks, and setting rules on how licensees may utilize the spectrum channels they are granted, for example, not allowing them to transmit in a fashion that creates electromagnetic interference with any other channel. To protect against interference, a lot of spectrum was set aside to provide buffers. These buffers have taken the form of "guard bands" (unused spectrum channels) between spectrum blocks and "white spaces" between licensees operating within a channel. New technological developments, such as network-centric technologies that can turn some types of interference from an insurmountable obstacle into a manageable occurrence, are increasing the productive capacity of fixed amounts of spectrum by allowing shared use of spectrum and reducing the need to set aside buffer spectrum. With the new technologies, the transmitting and receiving radios of multiple users can be "networked" to jointly move transmissions from one communications node to the next in the same fashion that traffic moves on the Internet, reducing or eliminating interference choke points while better utilizing available spectrum. With the danger of interference reduced, more users can share a given amount of spectrum. These new technologies already allow for spectrum sharing and, more generally, the more intensive use of existing spectrum, since it potentially allows for the utilization of otherwise unused white spaces and perhaps even guard bands. But this technology does not work well in narrow spectrum channels. To bring significant efficiencies, it requires setting aside a large block of spectrum for shared use. Some in the wireless sector, and in particular the large wireless carriers, argue that it is more efficient to give individual licensees blocks of spectrum for their own exclusive use than to require spectrum sharing. They claim that they—and the financial community—require the certainty associated with exclusivity in order to invest in their networks and that this in turn will generate technological innovation. But given that there can be benefits from spectrum sharing as well as from license exclusivity, there may be reasons for Congress and the FCC to continue to allocate spectrum using both methodologies. Peter Rysavy, a longtime wireless industry observer, has identified the potential and the challenges of spectrum sharing: There is no question that spectrum sharing can and will eventually result in more efficient overall use of spectrum. There are already a number of spectrum sharing solutions in the market that can work under defined circumstances. But what must be understood is that the spectrum-sharing approaches range from simple to extremely complex, from readily achievable and in use today to extremely difficult with technologies yet to be developed. The ones being used today solve relatively simple problems, e.g., geographic sharing or sharing between two types of fixed systems. More complex problems, such as how a carrier class mobile technology could share with multiple government systems will take many years to develop, test, and implement in an economically rational manner. Making spectrum sharing a reality will mean identifying what types of systems can be shared, negotiating and stipulating access rights, determining the market for such shared systems, developing specifications and standards to allow sharing including spectrum-coordination systems, modifying existing networks to integrate with the new sharing architectures, developing infrastructure and devices to implement the sharing, certifying equipment using new test procedures and equipment for compliance, and finally enforcing compliance. This process could easily take ten years or possibly even much longer. The FCC and the various industry participants undoubtedly will have many policy discussions about the pace at which specific types of spectrum sharing can move forward. For example, the President's Council of Advisors on Science and Technology (PCAST) appears to be more bullish than Mr. Rysavy about the advantages of moving to spectrum sharing. In a recent report, PCAST found that clearing and reallocating Federal spectrum is not sustainable because of the high cost, lengthy time to implement, and disruption to the federal mission. Instead, PCAST concluded "that the norm for spectrum use should be sharing, not exclusivity." Whatever the outcome of those policy debates, there is widespread recognition that spectrum sharing will become increasingly important over time and that Congress should make sure that the statutory framework does not create obstacles to such sharing. Incorporating Market Mechanisms into the Statutory Framework for Spectrum Management Historically, the United States employed a command-and-control approach to spectrum management in which the FCC (and the National Telecommunications and Information Administration within the Department of Commerce for that portion of the spectrum allocated to government use) allocated blocks of spectrum to specific uses and then assigned channels within those blocks to specific licensees based on public interest criteria. Once allocated and assigned, spectrum could not readily be reallocated to a different use or reassigned to a different user. As a result, much spectrum has been underutilized or available only for a relatively low-value use. In recent years, Congress has taken a number of steps intended to foster more efficient spectrum use. In particular, it has given the FCC authority in limited situations to implement market mechanisms, such as auctions and secondary spectrum markets, which could be expected to move spectrum to higher-valued uses. (A secondary market is a market for a good or service that has previously been purchased. Examples of secondary markets are the markets for financial stocks and bonds, used cars, and used books. What is exceptional about secondary markets for spectrum is that the licensee does not own the spectrum, but rather owns the right to use the spectrum, subject to various non-interference and other requirements. It is that right that is sold or leased in a secondary market) Setting a price on spectrum and allowing its transfer to higher valued uses increases incentives for licensees to use their spectrum efficiently—for example, by employing spectrum-saving transmitting and receiving equipment or by making unused or underutilized spectrum available to others. Congress already has taken the following actions: The Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) first authorized the FCC to establish "competitive bidding systems" for awarding spectrum licenses. This authority was extended in the Balanced Budget Act of 1997 ( P.L. 105-33 ), the Deficit Reduction Act of 2005 ( P.L. 109-171 ), and the DTV Delay Act ( P.L. 111-4 ). Title VI of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), often referred to as the Spectrum Act, contains provisions that reallocate certain spectrum, assign new spectrum rights, and change the procedures for "repurposing" spectrum used by the federal government to commercial use. It allows the FCC to establish an "incentive auction" through which licensees of certain spectrum currently used for broadcast television could voluntarily relinquish their spectrum in exchange for a portion of the proceeds generated by auctioning that spectrum to wireless broadband providers. The FCC has used its spectrum management authority both to hold spectrum auctions and to foster secondary spectrum markets. In an initial order, it implemented two different options for spectrum leasing. One option enables licensees and lessees to enter into leasing arrangements, without the need for FCC approval, so long as the licensee retains de facto control of the leased spectrum under the newly refined standard. The other option permits parties to enter into arrangements in which the licensee transfers de facto control pursuant to streamlined approval procedures. In a second order, the FCC adopted additional streamlining procedures for certain categories of spectrum leases; adopted policies to facilitate advanced technologies within existing regulatory frameworks, including dynamic spectrum leasing arrangements; created a third option for spectrum leasing called "private commons" that permits peer-to-peer communications between devices in a non-hierarchical network arrangement that does not utilize the network infrastructure of the licensee; and streamlined the process for licensee assignments and transfer of control. Market mechanisms such as auctions and secondary markets are efficient to the extent that the private valuation of spectrum coincides with the overall societal valuation of spectrum. The private value of a particular block of spectrum typically will be highest for those providers that have established products or services that generate substantial revenues from the use of that spectrum. In most cases, the total value of the spectrum—public and private—will also be highest when the spectrum has been assigned to the producer of the most highly valued services, who likely could make the highest bid. There are several situations in which the public and private valuation may diverge, however, and these may require non-market allocation mechanisms. Public Safety Federal, state, and local public safety organizations and first responders need a reliable communications network, but may not have the funds to compete with commercial interests in spectrum auctions, especially since most organizations are not national in scope. To make sure that spectrum is available for public safety needs, either certain spectrum must be set aside for that purpose or some system of shared use must be established that in effect gives public safety preferred access—and perhaps even exclusive access—to the spectrum in times of emergency. This issue, including the creation of a public safety trust fund from auction revenues, was addressed in the Spectrum Act. Experimentation, Research, and Development Spectrum is essential for the development of new network and application technologies and services. Some of that research is performed by established firms using their own available licensed spectrum. But some is performed by start-up firms working on the technology frontier that do not have spectrum licenses and may not have the wherewithal to successfully bid against established firms for needed spectrum. Even established firms may not have licenses for spectrum with the characteristics needed to perform their research. To foster innovation, it may be beneficial to set aside some spectrum for experimental, unlicensed, shared use constrained only by specified non-interference criteria. Incumbent providers may have an incentive to oppose the allocation of blocks of spectrum for unlicensed experimental use if such experimentation potentially could result in the development of new technologies that undermine their existing business model. But just as making sufficient spectrum available for the major wireless carriers to transition from 2G to 3G and then 4G networks was essential for the rapid deployment of networks capable of meeting the demands of consumers with smartphones and tablets, so was making sufficient spectrum available for experimentation and unlicensed services. As noted earlier, the wireless broadband ecosystem is strong today in large part because Wi-Fi was able to develop in the unlicensed spectrum block set aside for spread spectrum and other experimentation. Rural Service The underlying cost structure of wireless broadband is characterized by significant economies of scale, such that there are likely to be few efficient network providers, perhaps only a single efficient provider in some rural areas, and no profitable provider in very rural areas. There are universal service and rural utilities service funds available to provide subsidies needed to ensure the availability of service, and the FCC has followed Congressional mandates to encourage spectrum license ownership for small, rural, or entrepreneurial businesses. But many small companies that have received licenses through preferential programs have later transferred their licenses to larger companies, and a number of small wireless carriers and their associations have submitted filings in recent FCC proceedings on the increasing difficulties they face competing for wireless customers. It is possible that the policy goal of ensuring a competitive alternative in certain rural areas will not prove feasible even with subsidies and preferences. Market Foreclosure Concerns Over time, spectrum can be repurposed from federal to commercial use or from one type of commercial use to another, or new spectrum-saving technologies can be developed and deployed, but at a point in time, the amount of available spectrum is fixed. There is a long history of concern that competition could be constrained if a few wireless providers control so much of the bands with superior propagation characteristics that other providers were effectively foreclosed from the market. The FCC first introduced a spectrum cap on mobile spectrum holdings in 1994 to promote diversity and competition in mobile services. In 2003, the FCC replaced the spectrum cap with case-by-case review of mobile spectrum holdings when making public interest determinations of transactions involving the transfer, assignment, or lease of licenses. Since 2004, the FCC has used a two-part screen to help identify markets where the acquisition of spectrum would provide particular reason for further competitive analysis. The first part of the screen considers changes in market concentration as a result of the transaction. The second part examines the amount of spectrum in each market that is suitable for the provision of mobile telephony/broadband service. Those markets highlighted in the analysis are subject to detailed reviews to determine whether the transaction would result in an increased possibility of anticompetitive conduct. In 2008, it extended the case-by-case analysis to spectrum acquired by auction. In 2012, the FCC opened a proceeding to review its spectrum screening process in light of the expansion in the number of spectrum bands used for mobile wireless service, and the roll-out of new service offerings, consumer devices, and bandwidth-intensive applications. In a submission in that proceeding, which coincided with a proceeding to develop rules for the upcoming incentive auction, the Department of Justice raised a concern that incumbent carriers that controlled a substantial portion of preferred spectrum might "have incentives to acquire spectrum for purposes other than efficiently expanding their own capacity or services" and that the "foreclosure value" of that spectrum might be greater than its "use value," thus allowing the incumbents to outbid others for the spectrum. It concluded "that rules that ensure that smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers." It therefore proposed that the FCC build into its auction rules a bright-line test, in the form of rules, weights, or caps that would reduce the risk of foreclosure. This proposed intervention into a market-based auction has been criticized by Verizon and AT&T and others. For example, a Phoenix Center report characterized it as an ill-founded attempt to direct spectrum to rivals of the leading firms in order to equalize competition among competitors, thus reverting from market allocation to agency selection of winners. Fostering the Development of Spectrum-Efficient Technologies Pricing mechanisms such as auctions and secondary markets help create market signals that improve the efficient allocation of resources such as spectrum. But pricing mechanisms are only useful if the market participants know in advance what rights they are getting—especially with respect to protection from interference and permissible levels of interference creation—when they bid for a spectrum license in an auction or seek to acquire or lease a spectrum license in a secondary market or consider using shared, unlicensed spectrum. In a market such as the one for spectrum, in which the actions of one participant may impose costs on other participants—notably, spectrum use will create some level of electromagnetic interference that limits the usefulness of the spectrum or raises costs for other spectrum users—market mechanisms will foster efficient spectrum usage only if the rules help create market signals that appropriately take into account the interference-related "externality" created. The extent to which spectrum use by one entity precludes its use by another entity is a function of the amount of interference created by that use and the ability of others to withstand that interference. All participants have a variety of parameters at their disposal to modify the impact of the interference. It generally is possible to develop transmitters that lower or otherwise mitigate the amount of interference created and also to develop receivers that mitigate the impact of interference, but both of these cost money and parties will prefer rules that place those costs on the other guy. It sometimes is possible for the parties to come together to jointly develop standards and equipment that mutually reduce the impact of interference so that the spectrum can be more intensively used, as was the case for the development of Wi-Fi and appears to be the case for the current development of network-centric technologies. But before these collaborations can begin, there must be some basic ground rules on the rights and responsibilities of participating entities, and the choice of these ground rules can foster or impede the efficient use of spectrum. Historically, those ground rules have applied to transmitters, but not to receivers. By rule, a licensee operating a transmitter in a particular spectrum frequency band is prohibited from allowing its signal to stray into an adjacent band and create interference to a receiver operating in that adjacent band. If the licensee is allowing this to happen, it would be ordered to discontinue transmission. In contrast, if the licensee's signal is not straying into an adjacent band, but receivers in that adjacent band are not sufficiently well-tuned to pick up only the signals from their own frequency band—rather, they experience interference because they are picking up both the signals of the licensee in the adjacent band and the signals in their own frequency band—there is no rule that would require the licensee to discontinue its transmission. Nor is there a rule requiring that a receiver only be able to receive signals from the intended frequency band. In the past, it was not important that a receiver be selective in the signals it receives because there were few services operating near one another in the spectrum. But as demand for spectrum increases to meet demand for new wireless services, fewer frequency bands are remaining vacant. As a result, adjacent frequency channels are being assigned and utilized, and existing spectrum users (service providers and/or end users) with non-selective receivers increasingly pick up adjacent channel signals that are being transmitted according to rules, but nonetheless resulting in interference known as "receiver overload" or "desensitization." This is most likely to happen with mass market devices, such as GPS receivers, which both service providers and customers have strong incentives to make as inexpensive as possible. Inexpensive GPS devices may well lack filters that keep them from picking up signals from adjacent channels. In such cases, although the transmitter in the adjacent channel that is "creating" the interference for the unsophisticated GPS devices may be fully meeting the interference rules, there could be strong pressure to protect the sunk investments consumers have made in GPS receivers by constraining legal transmissions in the adjacent channel. This occurred in 2011, when testing of LightSquared's plan to offer terrestrial broadband service using a satellite band that is located next to the band used for GPS devices indicated that some GPS receivers were subject to interference even though the LightSquared signals were properly transmitted within the LightSquared frequency band. Because of this impact on GPS owners, the FCC ultimately did not approve LightSquared's proposal and that spectrum band has remained largely unused. More generally, the lack of rules that set requirements or incentives for receivers to be selective in the signals they pick up leads to valuable portions of the electromagnetic spectrum being kept out of service or only sparsely utilized. It also raises the cost of competitive entry. The absence of rules requiring (or, at the least, providing incentives for) receivers to be sufficiently selective that they do not pick up signals from adjacent frequency bands may encourage "moral hazard." Moral hazard occurs when a party will have a tendency to take risks because it has reason to believe it will not bear the costs that might be incurred as a result of that risky behavior. In the absence of any receiver ground rules, a provider of a mass-market wireless service might attempt to attract customers by offering inexpensive receivers that do not block out signals from adjacent channels, confident that if another spectrum user sought to use the adjacent spectrum in a way that would create interference to the non-selective receivers, the FCC would protect those customers from interference, even if the new spectrum user was operating its transmitter within the rules. Since the costs associated with the risk of interference would fall on the new spectrum user, not the mass market wireless service provider, that service provider would have the incentive to undertake the risky behavior. There is wide recognition that ground rules are needed for receivers, but there will be vigorous debate about the form those rules should take. Incumbent service providers and customers that have invested in receivers will seek to minimize the impact any rules will have on the status quo. In light of that, in its recent spectrum report, the President's Council of Advisors on Science and Technology proposed "a receiver management framework that does not mandate additional costs on receivers but provides a framework for defining harmful interference and provides clarity on the requirements that a new entrant must meet to co-exist with legacy systems in adjacent bands." Rules that "grandfather" inefficient legacy spectrum use, however, may impose costs on future spectrum users. The PCAST report indicated that some have claimed the FCC's authority to implement receiver rules is limited, and suggested that Congress might want to clarify the FCC's authority. Policy Goals That May Be Inconsistent with Technological Innovation and Efficiency Technological innovation and efficiency are important public policy objectives, but there are other policy goals that may not always be consistent with innovation and efficiency. Two of these are likely to be part of the policy debate in any attempt to update the communications statutory framework—budgetary considerations and fairness considerations that typically are raised in the context of grandfather clauses intended to protect certain parties from regulatory changes. Since market mechanisms generally allocate resources to their highest-valued use, spectrum auctions often yield both efficient resource allocation and substantial government revenues. But as discussed in the earlier section on spectrum management, some public policy objectives are not fostered by market mechanisms and can be better achieved by non-market allocations or by placing partial constraints on the market. These include the direct allocation of spectrum for public safety uses; the allocation of spectrum for experimentation, research, and development, typically by creating opportunities for innovators to have access to unlicensed spectrum; and placing constraints on how much spectrum any bidder can obtain through auction to protect against market foreclosure or to subsidize rural service providers. Statutes intended to foster each of these goals could reduce the potential contribution to the Treasury from spectrum auctions. Congress may want to provide guidance to the FCC on how best to weigh the tradeoffs between maximizing auction revenues and meeting these other public policy objectives. When proposals are made to change statutory or regulatory rules to better meet public policy goals, one associated cost may be the harm that would be suffered by existing providers or consumers who have made business model, investment, or purchasing decisions based on the old regulations. A frequent way to avoid such harm is to "grandfather" the old regulation for those legacy providers or customers. But if the proposed change would further a policy goal, then to the extent providers or consumers are excluded from the change, the public benefits from the change will be reduced. These grandfather clauses, some explicit, some implied, are common in communications statutes and regulations or in how agencies choose to construct new rules. For example: Many of the media ownership rules, such as the newspaper-broadcast cross ownership rule, grandfathered pre-existing cross ownership combinations. Similarly, when making public interest determinations about whether a licensee with a pre-existing combination could transfer that combination to a new entity, the FCC typically has continued to grandfather such combinations and make them permanent. Broadcast satellite carriers are allowed to retransmit the signals of distant television stations affiliated with a particular network to that subset of subscribers who are deemed "unserved" by any local affiliate of that network. But due to grandfather clauses, there are many situations in which the signal of a local station affiliated to that network is available to subscribers but they nonetheless continue to be considered unserved and are allowed to receive the distant signal. When the President's Council of Advisors on Science and Technology prepared its report on spectrum sharing, and proposed the implementation of receiver management requirements, it explicitly "propose[d] a receiver management framework that does not mandate additional costs on receivers" and "recommend[ed] starting with the smallest plausible incremental step." In each of these cases, Congress, the FCC, or the Obama Administration chose to limit the reach of policy change (as expressed in statutory or regulatory change) in order to minimize harm to legacy market participants. As Congress considers future statutory changes, however, it is possible that in some situations the overall public interest calculus will not allow for such grandfathering.

The statutory framework for the communications sector largely was enacted prior to the commercial development and deployment of digital technology, Internet Protocol (IP), broadband networks, and online voice, data, and video services. These new technologies have driven changes in market structure throughout the communications sector. Technological spillovers have allowed for the convergence of previously service-specific networks, creating new competitive entry opportunities. But they also have created certain incentives for market consolidation. Firms also have used new technologies to attempt to "invent around" statutory obligations or prohibitions, such as retransmission consent and copyright requirements. In addition, firms have developed new technologies that are attractive to consumers because they allow them to avoid paying for programming or allow them to skip the commercials that accompany video programming, but present a challenge to the traditional business model. The expert agencies charged with implementing the relevant statutes—the Federal Communications Commission (FCC) and the Copyright Office—have had to determine if and how to apply the law to technologies and circumstances that were not considered when the statutes were developed. Frequently, this has led parties unhappy with those interpretations to file court suits, which has delayed rule implementation and increased market uncertainty. The courts, too, have had to reach decisions with limited guidance from the statutes. Members on both sides of the aisle as well as industry stakeholders have suggested that many existing provisions in the Communications Act of 1934, as amended, and in the Copyright Act of 1976, as amended, need to be updated to address current technological and market circumstances, though there is no consensus about the changes needed. Three broad, interrelated policy issues are likely to be prominent in any policy debate over how to update the statutory framework: how to accommodate technological change that already has taken place and, more dynamically, how to make the framework flexible enough to accommodate future technological change; given that underlying scale economies allow for only a very small number of efficient facilities-based network competitors, how to give those few network providers the incentive to invest and innovate while also constraining their ability to impede downstream competition from independent service providers that must use their networks; and given that spectrum is an essential communications input, how to implement a framework that fosters efficient spectrum use and management.